Saturday, June 17, 2006

The Moral of the Story: Don't Talk

The Wall Street Jrl has a fascinating interview here with Jeffrey Skilling, where he admits how his continual talking helped to make the government case.  But he also notes that it was the "ethical" thing to do.   

Looking back on the Martha Stewart case, one has to admit that she too talked.  And she too ended up indicted, convicted, and she served time.

In the case of Martha Stewart, the indictment was premised exclusively on her talking, talking that the government claimed to be untruthful.  In the case of Jeff Skilling, the talking were just the nails into the coffin that held his ultimate indictment and conviction.

Defense attorneys continually are faced with clients that wish to talk.  It is common for the intelligent client to feel that they can talk their way out of things.  If only they were given the chance to explain, it would all be OK.  But as seen in these two cases, it doesn't work that way. 

Now compare this with the street criminals caught by the police who are trying to get them to confess.  The experienced ones know better. They refuse to talk and ask for a lawyer. The less experienced may be swayed by the feeling that they will be let go, or get a good deal, if they just tell the truth right now. They learn, the hard way, when their confession is read at their trial.

Although the moral of the story may be - don't talk, one has to wonder if this is the "ethical" thing to do.  Maybe Jeff Skilling is right.  The interesting thing will be to see whether his cooperation ("talking") with the Securities Exchange Commission will mean anything when it comes time for sentencing. 


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

District Court Hears Argument in Challenge to Search of Rep. Jefferson's Office

Chief U.S. District Judge Thomas Hogan heard arguments on June 16 about the search of Representative William Jefferson's office in the Rayburn House Office Building by FBI agents seeking evidence of his involvement in soliciting and accepting bribes.  Representative Jefferson, who was removed from the House Ways & Means Committee that same day, and the counsel for the House of Representatives argued that under the Speech or Debate Clause the government cannot search the office of a Congressman because the materials there are privileged.  They argued that the search would only be lawful if the Congressman were present to review the documents and withhold those that are part of the legislative process.  The government, echoing earlier Supreme Court decisions on the Speech or Debate Clause, asserted that bribery is not a legislative act.

Representative Jefferson and the Legislative Branch face two hurdles in making their argument that the Constitution protects legislative materials from being seized by the Executive Branch in an otherwise lawful search (there does not appear to be any issue regarding probable cause or the validity of the warrant).  First, there is no clear delineation of what documents would be part of the legislative process that would allow a court to determine whether the claimed privilege applies.  Unlike attorney-client communications, which can be identified as privileged if they involve consultation related to legal representation, almost any document or statement could -- or could not -- be related to the legislative process.  Second,  the location of the documents would seem to be irrelevant, yet that is the heart of the separation of powers argument.  A search of a Congressman's home, car, luggage, etc. would not appear to raise the same concerns as a search of the legislator's office, yet it's not clear why documents in that office should be treated any differently. 

The argument against the search seeks to extend the Speech or Debate Clause from an immunity for the individual legislator and evidentiary rule precluing reference to legislative acts to a full protection of documents from ever being obtained by investigators.  The Supreme Court has noted (see earlier post here) that acts related to demanding or accepting a bribe are not legislative acts, and therefore can be introduced in a prosecution of a Congressman.  Arguing that certain documents are completely immune from seizure because of their location and possible relation to the legislative process may have the effect of making it appear that Congress is above the law.  I doubt the judiciary will accept a rule with that type of an effect.  A New York Times story (here) discusses the hearing before Judge Hogan. (ph)

June 17, 2006 in Corruption, Investigations, Privileges | Permalink | Comments (0) | TrackBack (0)

A License to Print Money

A Washington Post article (here) discusses the $40 million in attorney's fees former Enron CEO Jeffrey Skilling has paid so far to his legal team from O'Melveny & Myers, and the fact that the firm is still owed quite a bit more from the long trial.  As discussed in an earlier post (here), federal prosecutors froze approximately $60 million in Skilling's assets in 2004, and the issue of how much Skilling will be required to forfeit remains to be decided.  Skilling paid the law firm $23 million, and an Enron insurance policy provided $17 million more for defense costs.

The legal fees run up by Skilling's defense team are certainly large, but do not appear to be completely out of line with other complex white collar crime prosecutions involving senior executives.  Hollinger International recently paid its former CEO Lord Conrad Black $4.4 million for his attorney's fees through his indictment and agreed to foot 75% of his future bills as he fights RICO and securities fraud charges (see earlier post here).  The case is not scheduled for trial until 2007, and will likely be nearly as long as the Enron case, so the attorney's fees for the many lawyers retained by Lord Black will be significant.  Former Tyco CEO Dennis Kozlowski is seeking payment under a company insurance policy of over $17 million in attorney's fees from his first trial, which ended with a hung jury (see earlier post here).  Richard Scrushy is reported to be seeking over $20 million in legal fees from HealthSouth, where he was CEO until being fired in 2003, under the company's indemnification policy after his acquittal on securities fraud charges in 2005. 

As detailed in the Post article, a legal defense is not cheap because a cadre of lawyers and support staff often work many hours on the case, charging hourly rates from $200 up to $800 per hour, and the volume of documents requires a detailed review by outside experts.  When I teach the White Collar Crime course, I point out to students that the defense of individuals and especially companies in criminal and securities fraud investigations and prosecutions is one of the few remaining areas of legal practice in which the lawyers have almost a blank check to work the case and bill their clients, all on an hourly basis.  Don't forget that contingency fees are prohibited by the professional responsibility rules, so the lawyers have to work only for a negotiated fee unrelated to the outcome.  The legal fees of corporations triggered by an internal investigation and payments for defense counsel for individual officers, directors, and employees, can total millions of dollars and stretch out over years.

There is a risk for lawyers in a case such as Skilling's if the client does not have unlimited resources, which very few do.  O'Melveny & Myers probably does not have much chance to have its outstanding bills paid by Skilling because the $60 million frozen by the court may well go to pay for disgorgement in an SEC lawsuit or damages in a securities class action, assuming the prosecutors don't get an order forfeiting it or the judge requires a large restitution payment at sentencing.  The old adage that lawyers should get their fees up-front because it's unlikely they can get more after a conviction is true even in white collar crime cases.  That does not mean O'Melveny & Myers will be withdrawing, however, because at least the publicity value from representing Skilling means that his lead trial counsel, Daniel Petrocelli, is now viewed as one of the top-tier white collar crime lawyers even though this was his first criminal case.  In white collar prosecutions, like all criminal cases, the client gets convicted and the lawyer goes to lunch, usually celebrated for his legal skill. (ph)


UPDATE: A Houston Chronicle story (here) discusses a hearing U.S. District Judge Sim Lake held on Friday, June 16, granting the defendants' motion to postpone sentencing for 45 days, setting a new sentencing date of October 23.  Skilling's counsel, Daniel Petrocelli, flew to Houston for the brief (15-minute) hearing, although Judge Lake noted that the attorneys could have participated by conference call.  At $800 per hour for Petrocelli, and with other O'Melveny & Myers attorneys present (no one travels alone in these cases), the billable hours probably resembled an electric meter in Houston on a summer day, spinning so fast you can't read the numbers. (ph)

June 17, 2006 in Defense Counsel, Enron, Prosecutions | Permalink | Comments (0) | TrackBack (0)

Friday, June 16, 2006

Michael Pickens In a Downward Spiral

Michael Pickens, the 51-year old son of famed one-time corporate raider T. Boone Pickens, has seen his life go from bad to worse with his arrest earlier this week on burglary charges in Connecticut.  Pickens was indicted in New York in July 2005 on securities fraud charges and sued by the SEC related to a stock scam involving "misdirected" faxes touting three companies while Pickens sold out his shares (see earlier post here).  Pickens is out on bond, and he was arrested on the burglary charge on June 11 after being found hiding in a fly fishing shop under a table with a number of items removed from the shelves hidden nearby.  According to an AP story (here), Pickens was groggy, which probably indicates that there may be more to the story than a second-rate burglary, but it will likely lead to a bond revocation hearing in New York. (ph)


UPDATE: Thanks to Yolanda Holtzee for posting a link in the comments, which is also available here, to a story in the Waterbury [CT] Republican-American about the federal court ordering Pickens to a drug rehabilitation program.  The $500,000 bond was not increased, but I suspect the leash will be pulled a bit tighter after he completes the program. (ph)

June 16, 2006 in Prosecutions | Permalink | Comments (1) | TrackBack (0)

Grasso Takes the Fifth Over and Over Again

The release of transcripts of depositions of former New York Stock Exchange CEO Richard Grasso show that during his examination by the SEC in 2005 he asserted the Fifth Amendment over 150 times.  The deposition concerned whether he pressured the floor broker for American International Group's stock to keep the share price up to assist the company in a pending transaction.  The deposition is part of an investigation by the SEC of former AIG CEO Maurice Greenberg for possible securities law violations related to the company's accounting and manipulation of its stock.  A second Grasso deposition, this one given in connection with the lawsuit filed by New York Attorney General Eliot Spitzer related to compensation while he was CEO of the NYSE, does not show him asserting the Fifth Amendment in response to questions.  The deposition in the New York state case against him came more recently, in April 2006, at a point in time when it does not appear that the federal government will be pursuing criminal charges against Greenberg, and the SEC has not yet filed a civil enforcement action against him.  Spitzer has filed a securities fraud action against Greenberg, who has vowed to fight any charges related to his time as CEO of AIG.

Why did Grasso have to assert the Fifth Amendment repeatedly in the SEC deposition?  While it certainly looks striking, and suspicious, to assert the privilege against self-incrimination so many times, the number of responses is more a function of the requirement that the SEC ask every possible question on which Grasso will assert the Fifth Amendment if it wants to ask the court (or jury) to draw an adverse inference from the assertion.  Unlike a criminal case, in which a defendant cannot be forced to testify nor can the prosecutor comment on the defendant's decision not to testify, in civil litigation an assertion of the Fifth Amendment can be evidence considered by the trier of fact in deciding whether the person engaged in the alleged misconduct.  By asking all relevant questions, and forcing Grasso to assert the Fifth Amendment, the SEC is creating a building block should it decide to sue Grasso.  In criminal investigations, the assertion of the privilege cannot be used at all, so if a witness indicates that he or she will refuse to answer questions on that ground prosecutors will not call the person before the grand jury, unless there is a plan to grant the witness immunity and require the testimony. 

There is no great harm to Grasso in asserting the privilege, aside from the embarrassment of having done so, because if he were to be sued by the SEC he could testify during discovery or at the trial and his earlier assertion of the Fifth Amendment most likely would not be admissible against him.  At the time of the SEC deposition in 2005, it was certainly the prudent thing to do.  Until it is clear where the government is headed in its investigation, an assertion of the Fifth Amendment keeps a person from incriminating himself or creating a record that could be the basis for a perjury or obstruction charge.  Now that things have settled down regarding AIG and Greenberg, Grasso can answer questions like he did in the New York case without the same fear of negative consequences.  In that sense, then, the story about Grasso asserting the Fifth Amendment over 150 times turns out not to be much of a story at all.  An AP article (here) discusses the two depositions. (ph)

June 16, 2006 in Investigations, Securities | Permalink | Comments (1) | TrackBack (0)

Corruption Prosecution of Scrushy and Siegelman Goes to the Jury

The trial of former HealthSouth CEO Richard Scrushy on charges of paying a bribe to former Alabama Governor Don Siegelman has gone to the jury, with Scrushy's attorney stating in his close argument that the government's case is "utterly ridiculous."  Scrushy and Siegelman, along with two former aides to the governor, are charged with a number of counts related to giving and receiving lavish gifts and large campaign contributions.  The six-week trial featured testimony from cooperating witnesses, including former Siegelman aides, described by the defense as "scam artists and liars" -- no mincing words there.  Just like the earlier HealthSouth fraud trial in which he was acquitted, Scrushy did not take the witness stand, nor did the other defendants, who only put on a brief, two-day defense to the charges.  If the defense is successful, it may signal a new trend in white collar crime cases to keep the defendant off the witness stand.  An AP story (here) describes the trial and closing arguments. (ph)

June 16, 2006 in Corruption, Prosecutions | Permalink | Comments (0) | TrackBack (0)

New Jersey Hospital System Agrees to Pay $265 Million to Settle Medicare Overcharges

Saint Barnabas Health Care System, the largest health care provider in New Jersey that operates nine hospitals, entered into a settlement agreement with the Department of Justice for Medicare overcharges.  The settlement agreement (here) requires it to pay $265 million, payable over the next six years. The government alleged that Saint Barnabas increased the costs billed to Medicare for certain patients who incur unusually large charges for which Medicare provides extra reimbursement.  The cases, called "outliers," were manipulated by Saint Barnabas, as described in a Department of Justice press release (here): "Under Medicare’s outlier formula, therefore, a hospital that rapidly raised its charges in excess of its costs could obtain outlier payments for cases that were not extraordinarily costly.  The Department of Justice alleged that, between October 1995 and August 2003, Saint Barnabas hospitals purposefully inflated charges for inpatient and outpatient care to make these cases appear more costly than they actually were, and thereby obtained outlier payments from Medicare that they were not entitled to receive."  The hospital system agreed to a Corporate Integrity Agreement (here) with the Department of Health and Human Services under which, among other things, it will appoint an outside compliance monitor to ensure that its Medicare charges are proper.  The case originated in three qui tam law suits filed against Saint Barnabas alleging the Medicare overcharges, and the individuals who filed the suits may receive up to 25% of the $265 million payment. (ph)

June 16, 2006 in Civil Enforcement, Fraud, Settlement | Permalink | Comments (0) | TrackBack (0)

Thursday, June 15, 2006

Did News of the Maverick Tube Acquisition Leak Out?

Maverick Tube Corp. announced after the market closed on Monday, June 12, that it agreed to be acquired by Tenaris S.A. at $65 per share, a 30%+ premium over its stock price.  A St. Louis Post-Dispatch article (here) notes that trading in Maverick Tube July 60 call options spiked in the days before the deal announcement.  While the average trading volume for those options was about 100 per day, in the last three trading days before the announcement the volume was over 1,000 per day.  The call options give the purchaser the right to buy Maverick Tube shares at $60 until the contract expires in mid-July, a very bullish bet on a stock then trading in the $45-$49 range, especially because the option expire in about 5 weeks and the market has been in the doldrums.  Did someone just get lucky and win the lottery?  That's unlikely, as shown in other insider trading cases, most notably in the acquisition of Reebok by Adidas in 2005, in which the SEC and federal prosecutors are pursuing cases against a number of purchasers.  The Maverick Tube options trading is likely to pique the SEC's interest because the gain is so enormous and the bet so risky.  Of course, if the purchasers had inside information, then transactions were risk-free.  There is no word yet about an SEC investigation, but I think the likelihood of such an inquiry is quite high, especially if the call option purchases were conducted through entities or brokerage accounts designed to shield the identity of the true owners.   And don't be surprised to see prosecutors from the Southern District of New York lurking about. (ph)

June 15, 2006 in Insider Trading | Permalink | Comments (0) | TrackBack (0)

Skilling and Lay Seek to Delay Sentencing

Jeffrey Skilling filed a motion, joined by Ken Lay, requesting that U.S. District Judge Sim Lake postpone their sentencing for 35 to 45 days beyond the currently scheduled date of September 11.  Among the reasons raised by Skilling (brief available below) is that the fairly short (108-day) period between conviction and sentencing has not allowed his defense team time to decompress and renew ties with their families.  In addition, Skilling's lead trial counsel, Daniel Petrocelli, has a trial set to begin on September 6 in a civil matter in Los Angeles Superior Court that was postponed so he could participate in the Enron trial. 

The schedule set by Judge Lake, now famous for his punctilious devotion to maintaining his calendar, does not leave much room for delay, which may explain why the Probation Office does not oppose the defendants' request.  Getting things done over the summer in any business can be difficult, and a key issue in the case will be determining the amount of the loss caused by the illegal conduct, a major component for calculating the Sentencing Guidelines offense level.  That issue will be subject to expert testimony, which can create even more uncertainty about whether the pre-sentence report can be completed in time to give the parties sufficient time for filing objections.  It may be that Judge Lake will have to budge, even slightly, from the September 11 sentencing date, although if that happens don't expect to see much of a delay.

Skilling's motion also requests that the court schedule a hearing on the amount of forfeiture that will be ordered, and that the hearing be held at least 45 days in advance of the sentencing.  The government obtained a freeze on over $60 million of Skilling's assets in 2004 related to his gains on Enron stock sales allegedly based on insider trading.  There is at least some question regarding the amount of the forfeiture that can be ordered, and the indictment does not contain a general forfeiture count that the jury had to determine, so the court will have to make that determination.  Skilling's motion notes that he has some rather substantial outstanding legal bills owed to O'Melveny & Myers -- the case records show six attorneys from that firm listed as counsel of record, which probably means another dozen or so put in significant hours on the case..

Whether Skilling will ever see any of the frozen $60 million, assuming the forfeiture is less than that, is very much an open question  The SEC still has its civil securities fraud action outstanding that seeks disgorgement and civil penalties, which could be significant, and the private securities class action will want a chunk of change from Skilling (and Lay).  Lead counsel in the class action is the Lerach Coughlin firm, which filed additional documents in that case alleging that Vinson & Elkins was not a "mere scrivener" in Enron's financial dealings that led to the company's collapse (see Houston Chronicle story here).  Skilling's $60 million pot of money will probably not make its way back to his pocket -- or into O'Melveny's coffers -- any time soon. (ph)

Download skilling_scheduling_brief_june_12_2006.pdf

June 15, 2006 in Enron | Permalink | Comments (0) | TrackBack (0)

Asleep at the Switch

The U.S. Attorney's Office for the Southern District of Florida issued a press release (here) discussing the guilty plea of Mayra Cuellar to nineteen counts of failing to file currency transaction reports (CTR) on behalf of Gulf Bank, where she was a vice president and the Bank Secrecy Act officer responsible for filing the reports for its three branches.  From 1998 until November 2001, Cuellar simply stopped filing CTRs, so that Gulf Bank had to pay a $700,000 for failing to file over 2,400 CTRs during that period.  It's not clear why Cuellar stopped filing the reports, which are required for all cash (and equivalent) transactions over $10,000, and there is no allegation that she did it to hide transactions for others, such as drug dealers.  Moreover, no one at Gulf Bank, which has since ceased operations and its branches acquired by another bank, seems to have noticed that its Bank Secrecy Act officer was completely adrift for that part of her job.  I wonder whether this is like an embezzlement case in which a corporate official acts largely unsupervised and can take advantage of that situation.  Whether Cuellar and the rest of the bank's management was asleep at the switch probably will never be known.  (ph)

June 15, 2006 in Prosecutions | Permalink | Comments (0) | TrackBack (0)

Lawyer Sentenced to 46 Months for Immigration Fraud

Virginia lawyer Sergei Danilov and his firm (Danilov and Associates, LLC) were sentenced for immigration fraud in connection with the foreign labor certification program.  Danilov received a 46-month prison term, and the firm must forfeit $200,000.  According to the press blog for the U.S. Attorney's Office for the District of Maryland (here):

Danilov admitted that from March 2002 until May 2005 he and others at the law firm submitted fraudulent immigration documents to assist aliens in getting “green cards” through an employment-based visa program. The program permits an employer to sponsor an alien for employment in the United States if the employer has been unable to find qualified U.S. workers to fill the position. Danilov admitted that the Danilov law firm prepared and submitted to the Department of Labor and/or United States Citizenship and Immigration Service (USCIS) more than 100 Applications for Alien Employment Certification and/or Immigrant Petitions for Alien Workers that contained material misrepresentations. These misrepresentations included false assertions that certain sponsoring employers had authorized the law firm to file applications on behalf of certain aliens; false statements about purported offers of employment; false statements about the work experience of many of the alien applicants; and/or forged signatures of some of the sponsoring employers who purportedly agreed to hire the aliens.

In order to speed up his clients' applications, Danilov plied an employee of the Washington, D.C. Department of Employment Services with meals, sporting event tickets, and a wallet full of cash to move applications to the top of the stack or backdate documents to push them through the system more quickly.  The employee, along with one of Danilov's partners and a paralegal, earlier entered guilty pleas.  Almost four years in prison is a long time for charging clients a few extra thousand, raising once again the question of why people would risk their law licenses (and careers) for a comparatively small amount of money. (ph)

June 15, 2006 in Fraud, Sentencing | Permalink | Comments (0) | TrackBack (1)

Wednesday, June 14, 2006

It's Raining Grand Jury Subpoenas in the Options-Timing Probe

The U.S. Attorney's Office for the Southern District of New York may now be in the lead in issuing grand jury subpoenas to companies for documents related to the timing of stock options granted to senior executive.  RSA Security Inc. issued a press release (here) on June 13 stating that the company "announced that it has received a document subpoena from the U.S. Attorney for the Southern District of New York requesting records from 1996 to the present relating to the Company’s granting of stock options. The Company plans to cooperate fully with the office of the United States Attorney in connection with this subpoena."  On June 12, Monster Worldwide Inc., parent company of Monster.Com, issued a press release (here) that "the company has been served with a subpoena from the United States Attorney for the Southern District of New York relating to stock option grants. Monster Worldwide intends to cooperate fully in this matter."  Strikingly similar language, but then there is no way for counsel to spin the receipt of a grand jury subpoena other than to promise cooperation, something companies are virtually required to do these days if they hope to avoid indictment should the investigation come to that point. 

A Wall Street Journal scorecard (here) tracking the various government and internal investigations of stock option timing now lists twenty companies that have received grand jury subpoenas, from U.S. Attorney's Offices in New York, Brooklyn, San Francisco, and Boston.  The question is whether anything will come of these various inquiries -- aside from the tidal wave of attorney's fees, of course.  A key step to watch for is a plea agreement and SEC settlement with a corporate officer involved in backdating documents, which will indicate the types of violations prosecutors and the SEC are looking at in the cases. (ph)

June 14, 2006 in Grand Jury, Investigations, Securities | Permalink | Comments (0) | TrackBack (0)

Tuesday, June 13, 2006

International Economic Crime Conference

Upcoming Conference-




The Price of Crime

The Identification and Control of Risks Associated with the Enterprise of Crime and Terror

For details see here -

Download 2006_symposium_programme_may.pdf


June 13, 2006 in News | Permalink | Comments (1) | TrackBack (2)

More White Collar Crime Stats

Yet another month of decreasing white collar crime prosecutions?  This time the Syracuse Trac Reporting here says that the DOJ shows a -10.6 drop in white collar crime prosecutions from last month, and the percent change from five years ago, if one includes magistrate court is -43.3 %. So much for statistics. See prior posts here and here.

(esp) (with disclosure that she is a Syracuse grad).

June 13, 2006 in Think Tank Reports | Permalink | Comments (0) | TrackBack (0)

State Conflicts as a Federal Crime

In a "Not Precedential" ruling of the Third Circuit, the court reinstated a mail fraud indictment that had been dismissed by the district court.  The case was brought by the government under the "honest services" provision of mail fraud (18 USC 1346). The court holds here that a failure to disclose a conflict of interest can be the basis of a mail fraud charge. Affirming a prior decision in United States v. Panarella, 277 F.3d 678 (3rd Cir. 2002), the courts states that "'where a public official takes discretionary action that the official knows will directly benefit a financial interest that the official has concealed in violation of a state criminal law, that official has deprived the public of his honest services under 18 USC s. 1346.'"

What does this mean?  In part it means that a failure to disclose pursuant to a state law may be charged as federal offense of mail fraud.

The decision can be found here - Download 053927np.pdf

(esp) (with a hat tip to Steve Sanders)

June 13, 2006 in Fraud | Permalink | Comments (1) | TrackBack (0)

Former Mayor Bill Campbell Gets 30 Months

Former Mayor Bill Campbell received a sentence of thirty (30) months on his conviction of tax charges. (see AP Newsday here) He had been found not guilty by a jury of charges of racketeering and bribery. See here. The Atlanta Jrl Constitution here reports that the court went beyond the tax charges in sentencing and used obstruction and bribery conduct as a basis for the sentence.

If true, can a judge do this?  The sentencing guidelines permit judges to use uncharged conduct as a basis for increasing a sentence. Obstruction conduct can increase a sentence, although under the sentencing guidelines it requires proof of materiality. In this case, Campbell had been charged with bribery, but found not guilty of that charge.  It sounds like these may be issues that Campbell will be appealing.  Doug Berman's Sentencing Blog has more on using acquitted conduct here.


June 13, 2006 in Sentencing | Permalink | Comments (0) | TrackBack (0)

Behind the Jury Curtain - Enron Broadband

What really happened in the jury room of the Enron Broadband trial?

Tom Kirkendall's Houston Clear Thinkers here and the Houston Chronicle here describe some of the happenings in the jury room. The Motion for a New Trial here is an amazing read. Tom Kirkendall lists on his blog the many things that may seriously impair the guilty verdict rendered against one defendant in this case. 

It isn't often that one receives a new trial premised on juror conduct or misconduct.  But the long list of events here present some serious concerns.  Kirkendall says it all when he states:

"Although the allegations regarding Judge Gilmore's ex parte communications with the jury will likely put her on the defensive and prone to deny Howard's request for a new trial, the motion indicates that the Howard-Krautz trial probably should not have been conducted in Houston and, at very least, should never have been allowed to proceed during the Lay-Skilling trial."


June 13, 2006 in Enron | Permalink | Comments (0) | TrackBack (0)

Rove Dodges an Indictment

An AP story (here) reports that Special Counsel Patrick Fitzgerald informed Presidential aide Karl Rove that he would not be indicted in connection with his statements in the investigation of the leak of Valerie Plame's identity as a CIA agent.  Rove's attorney, Robert Luskin, stated that Fitzgerald informed him in the evening on June 12 that the prosecutor did not expect to seek an indictment of his client.  Rove testified before the grand jury five times, most recently in April 2006, to explain his contacts with the media about Plame and his knowledge (or lack thereof) regarding the leak of that information.  There had been widespread media speculation that Rove would be indicted on perjury, false statement, and obstruction of justice charges, similar to the indictment of I. Lewis Libby, the Vice President's former chief of staff.  With the possibility of charges gone, the next question will be whether Fitzgerald plans to call Rove as a witness at the Libby trial.  The two were in close contact during June and July 2003, when the administration sought to combat claims by former Ambassador Joseph Wilson, Plame's husband, about the lack of evidence of WMD in Iraq.  As an earlier post (here) about Korean prosecutors noted, it is helpful when a target of an investigation receives information that the government does not intend to pursue charges rather than be left hanging. (ph)

June 13, 2006 in Plame Investigation | Permalink | Comments (0) | TrackBack (0)

Former Executive Convicted of Securities and Wire Fraud

The U.S. Attorney's Office for the D. Massachusetts reports in a press release here that a former executive of North Andover Corporation was convicted of securities and wire fraud, following a nine day trial.  The press release states that:

"The evidence established that GOODWIN [former Senior Vice President of worldwide sales at Interspeed, Inc.] falsely overstated the sales and revenues of Interspeed by approximately $9 million, over 60% of the company’s publicly reported revenues, through various fraudulent acts. These included: inducing customers to place orders for Interspeed equipment by entering into secret side letters that provided the customers with the right to return the equipment at no cost, thus inflating the company’s apparent sales; fraudulently altering a key contract document on what purported to be the largest sale in Interspeed’s history so that the company’s internal finance staff and outside auditor would approve recognizing the revenue on the transaction; and taking various steps to evade discovery of the illusory nature of the foregoing sales. Through such conduct, GOODWIN inflated Interspeed’s revenues to make them appear higher than the revenues actually generated, thus causing Interspeed consistently to report to the public that it had met or exceeded its revenue targets when, in truth, Interspeed was not meeting its targets."

The press release notes that the company dismissed Goodwin in 2000 and made disclosures.  The result - "the price of Interspeed’s stock fell by more than 50 %, the company was delisted by NASDAQ, and it subsequently went out of business."

The moral of this story is that companies need to be attuned to what is happening within its midst.  Monitoring and correcting problems may be beneficial to all involved.


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

Health Care: Who Pays the Cost?

A press release of the U.S. Attorneys Office in the Northern District of Georgia, here, demonstrates that health care investigations are still being pursued by the government.  Coming from a "whistleblower" lawsuit under the False Claims Act, Peidmont Hospital of Atlanta "agreed to pay over $3 million to resolve allegations." The press release reports that the hospital allegedly "submitt[ed] claims to federal health care programs for services that were not eligible for reimbursement, and [ ] fail[ed] to properly execute contractual agreements with the physicians performing professional services, as is required by federal law."

What will be the source of the funds for the payment?  Will the consumer pay an added price to accommodate a settlement?  But even if that should happen, will the market rectify this by forcing a business to keep its costs at a competitive level? When it comes to health care, one has to appreciate that individuals do come forward to expose potential wrongdoing.

(esp) (with a hat tip to FraudUpdate here)

June 13, 2006 in Fraud | Permalink | Comments (0) | TrackBack (0)