Saturday, July 1, 2006

"Honest Services" In Mail Fraud

In 18 U.S.C. 1346, Congress as part of the Anti-Drug Abuse Act of 1988 provided that a "'scheme or artifice to defraud' includes a scheme or artifice to deprive another of the intangible right of honest services."  Unfortunately, a definition of honest service was not provided.  Many courts have struggled with how far to allow prosecutors to go in permitting a mail fraud prosecution premised on this phrase.  Jack Arseneault has an interesting piece in the New Jersey Law Journal (here - Download arseneault_6.26.06.pdf - reprinted with permission) on "honest services."   He discusses the Panorella and Murphy decisions.  Most of all he describes the vagueness of this statute.  See another recent case with this issue here.

The vagueness of 1346 was emphasized in a dissenting opinion by Judge Jacobs, joined by Judges Walker, Cabranes, and Parker, in the en banc case of United States v. Rybicki  where they highlighted the different interpretations of this statute provided by different courts. (see here at USA V RYBICKI, 00-1043 (L), 00-1044, 00-1052, 00-1055 (December 29, 2003).

(esp)

July 1, 2006 in Fraud, Scholarship | Permalink | Comments (0) | TrackBack (0)

Asset Forfeiture - Skilling & Lay

With convictions in against Skilling and Lay, it is not surprising to see the government moving on asset forfeiture.  According to Yahoo News (AP) here, the government is seeking "$139.3 million from Skilling and $43.5 million from Lay."  The criminal conviction, if upheld on appeal, will assist greatly in them securing money.  The question will be the amount that should be paid by Skilling and Lay.

(esp)

July 1, 2006 in Civil Enforcement, Enron | Permalink | Comments (0) | TrackBack (0)

So Much For a Unified Front

While the former KPMG partners and employees scored a victory when the U.S. District Court found that the government pressured the firm into cutting-off attorney's fees and giving them an opportunity to seek reimbursement, in some ways that issue is a minor -- if expensive -- sideshow to the broader question of how to defend against the government's case.  One defendant has already entered a guilty plea, and a New York Times article (here) indicates that the remaining defendants, 16 of whom were affiliated with KPMG, may be dividing up essentially along class lines.  According to the article, the lower- and mid-level KPMG employees and partners may point the finger at the higher-ups for not making the proper disclosures about the shelters to the IRS.  The senior partners and managers (including a former associate general counsel) may essentially argue an ignorance defense because they did not deal with individual clients or get involved in structuring individual shelters that may have involved misrepresentations or bogus transactions.  To make matters worse for all defendants, estimates of the number of documents range from 5 to 6 million (see U.S. District Judge Kaplan's recent opinion) all the way to 20 million, according to a defense lawyer cited in the article, so discovery is a quagmire.

Describing this case as complex doesn't really do justice to that word.  The tax shelter transactions themselves are almost impenetrable, and the relevant IRS regulations and accounting rules are not models of clarity.  Simplifying the case for the jury and sorting out the potential liability of so many defendants will be the government's greatest challenge.  To the extent there is a "divide-and-conquer" approach by prosecutors, it will not necessarily make the case that much easier because the legitimacy of the shelters would still be an issue.  If some of the defendants can be persuaded to plead guilty and testify against others, that may allow the government to move the case from one about accounting and financial issues to one about disclosure and honesty -- an approach that worked well in a recent case in Houston.  Regardless, the prosecutors will be playing before a judge who will be watching them closely -- any time a judge accuses prosecutors of being "economical with the truth" that is not a good sign for the government's case. (ph)

July 1, 2006 in Prosecutions, Tax | Permalink | Comments (0) | TrackBack (0)

Will Libby's Trial Be Delayed Further?

An AP story (here) reports that U.S. District Judge Reggie Walton will hold a motion by I. Lewis Libby until September before deciding whether to postpone the trial that is currently scheduled to begin on January 8, 2007.  Libby's lead trial counsel, Theodore Wells, Jr., of Paul Weiss, has a trial scheduled in Los Angeles County Superior Court that may go until early January, and the defense filed a motion requesting a postponement until February 12.  Judge Walton will wait until the judge in Los Angeles holds a scheduling conference on August 31 before deciding on the defense motion.  Whether that conference will provide much clarity about Wells availability is an open question because trials almost inevitably last long than expected -- a handy rule of thumb is to take any litigators estimate of trial time and add 50%.  It is likely the Libby trial will be moved at least into February 2007, and could be pushed back even further if problems related to national security information arise that could easily derail discovery. (ph)

July 1, 2006 in Plame Investigation | Permalink | Comments (0) | TrackBack (0)

Former NYC Police Commissioner Pleads Guilty to Misdemeanor Corruption Charges

Former New York City Police Commissioner Bernard Kerik, who was briefly advanced in 2004 to serve as Secretary of the Department of Homeland Security, entered a guilty plea to two misdemeanor corruption counts in New York Supreme Court in the Bronx.  The two charges relate to Kerik accepting $165,000 in renovations to his Bronx apartment from Interstate Industrial Corp., a business reportedly linked to organized crime that was seeking city contracts, and failing to report a $28,000 loan from a developer.  Kerik will pay a $221,000 fine, but no prison sentence or other form of confinement was imposed.  Former New York Mayor Rudy Giuliani, under whom Kerik worked and a strong supporte of himr, is quoted in an AP story (here) stating, "Bernard Kerik has acknowledged his violations, but this should be evaluated in light of his service to the United States of America and the City of New York."  Kerik withdrew from the Homeland Security position when it came out that he had not paid taxes related to a nanny (the old Zoe Baird problem for those who remember President Clinton's first nominee for Attorney General) who may have been in the country illegally.  (ph)

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

Friday, June 30, 2006

Bonds' Former Trainer Refuses to Testify Before a Grand Jury

Greg Anderson, the former personal trainer for San Francisco Giants slugger Barry Bonds, refused to testify before a federal grand jury in San Francisco investigating whether Bonds committed perjury in 2003 when he testified about his lack of knowledge in taking steroids.  Anderson was connected to Victor Conte's drug lab, Balco (Bay Area Laboratory Cooperative), and provided Bonds with a then-undetectable steroid called "the clear."  Bonds testified during the Balco investigation that he did not know the substance Anderson gave him contained steroids.  Anderson plead guilty to drug charges and served a three-month prison term, and prosecutors subpoenaed him to testify about Bonds' steroid use. 

Anderson did not assert the Fifth Amendment, which may not have been available because of his guilty plea or, in the alternative, prosecutors may have been willing to grant him immunity.  Instead, the basis for his refusal was that prosecutors wanted to examine him about a tape-recording in which he discusses Bonds using the clear in 2003 to avoid major league baseball's drug-testing program.  Anderson's attorney, Mark Geragos (from the Scott Peterson murder case), argued that the tape was made illegally, but an AP story (here) notes that a federal district court judge decided that the government was not involved in the taping so prosecutors could use it to examine Anderson.  By refusing to testify, Anderson faces a civil contempt proceeding and may be sent to jail if he continues to refuse to testify, at least for the term of the grand jury.  If the court holds him in contempt, he could then appeal to the Ninth Circuit, although it is hard to see how he can avoid testifying about other matters unless her asserts the Fifth Amendment. 

While Anderson is unlikely to be a particularly strong witness in any prosecution of Bonds, the tape recording could be important contemporaneous evidence used to link him to knowing steroid use near the time of his grand jury testimony.  It certainly appears that, as the pennant races heat up, so is the investigation of Bonds. (ph)

June 30, 2006 in Grand Jury, Investigations, Perjury | Permalink | Comments (0) | TrackBack (0)

The Beat Goes On for Scrushy

The conviction of former HealthSouth CEO Richard Scrushy on conspiracy and corruption charges is but one step in a line of cases that may well stretch through the rest of the decade.  The guilty verdict in Montgomery, Alabama, on charges related to a $500,000 payment to then-Governor Don Siegelman, came 366 days after his acquittal on securities fraud charges related to accounting misconduct at HealthSouth; a grand jury in the Middle District of Alabama returned the corruption indictment indictment during that trial, and it was sealed until a few weeks after the first jury verdict.

The HealthSouth-related cases are not nearly finished.  The SEC still has books-and-records claims outstanding in a civil suit that is scheduled for trial in April 2007, and Scrushy will be deposed during discovery in that matter.  There are numerous shareholder lawsuits pending, and an earlier order directing him to return a portion of his bonuses and stock awards during the period of the accounting fraud at HealthSouth will likely be litigated along with the fraud claims.  Scrushy still has a claim against the company for payment of his legal fees from the 2005 trial, and reports are that he is seeking upwards of $20 million.  Depending on how the SEC action turns out, he may seek indemnification of his attorney's fees in that action, too. 

Of course, there remains the appeal of the convictions, and Scrushy is quoted as stating after the verdict, "We intend to continue the legal process until we're fully vindicated and cleared on all these charges. We believe that our day will come."  Don't look for Scrushy's appearances in court to end any time soon, barring an unforeseen settlement of the civil claims.  An AP story (here) discusses the verdict and other legal proceedings. (ph)

June 30, 2006 in Civil Enforcement, Corruption, Fraud, Securities | Permalink | Comments (0) | TrackBack (0)

Northern District of California USAO Cranks Up Its Options-Timing Investigation

As if the investigation of Barry Bonds for perjury wasn't keeping the U.S. Attorney's Office in San Francisco busy enough, two more grand jury subpoenas have been issued by the Office to companies as part of the ever-widening options-timing investigation.  Intuit Inc. and Equinix, Inc., both headquartered in the district, disclosed that they have received grand jury subpoenas dated June 26, 2006, and continuing a pattern seen in numerous other such disclosures, they promise to cooperate in the investigation.  Intuit's press release (here) actually goes a small step further by pointing out that a number of other companies have also been subpoenaed, similar to the playground tactic of blending into the crowd when the principal suddenly appears to investigate the broken window:

On June 26, 2006, Intuit Inc. (Nasdaq: INTU) received a subpoena from the United States Attorney for the Northern District of California requesting documents related to the company’s historical stock option practices. It is our belief that similar subpoenas have been served on many of the companies named in a recent report from the Center for Financial Research and Analysis (CFRA). As disclosed on June 9, 2006, Intuit received an informal request from the Securities and Exchange Commission for information on historical stock option practices. We will fully cooperate with the U.S. Attorney’s office.

Equinix takes the straightforward approach, stating in its 8-K (here) that "it received a grand jury subpoena from the U.S. Attorney for the Northern District of California and that it intends to cooperate fully with the U.S. Attorney's Office in connection with this subpoena. The subpoena requests documents relating to Equinix's stock option grants and practices."

The issuance of subpoenas has become almost routine now, and the interesting question is if any cases will move beyond the investigatory stage and result in plea agreements that might lead to additional prosecutions. (ph)

June 30, 2006 in Grand Jury, Investigations, Securities | Permalink | Comments (0) | TrackBack (0)

Tenet Pays $900 Million to Settle Medicare Fraud Claims

Tenet Healthcare Corp. has agreed to pay $900 million to settle claims that it gamed the Medicare system to enrich itself.  Two Tenet hospitals in California have been in the news the past couple years for practices involving unnecessary surgeries and improper agreements to attract physicians to relocate their practices.  With one hospital, the Alvarado Hospital Medical Center near San Diego, the Department of Health and Human Services even threatened the "nuclear option" to put it out of business by seeking to bar the hospital from participating in federal healthcare programs (see earlier post here); that action was settled when Tenet agreed to sell the facility.  A Department of Justice press release (here) breaks down the settlement payments:

-- more than $788 million to resolve claims arising from Tenet’s receipt of excessive “outlier” payments (payments that are intended to be limited to situations involving extraordinarily costly episodes of care) resulting from the hospitals’ inflating their charges substantially in excess of any increase in the costs associated with patient care and billing for services and supplies not provided to patients;

-- more than $47 million to resolve claims that Tenet paid kickbacks to physicians to get Medicare patients referred to its facilities, and that Tenet billed Medicare for services that were ordered or referred by physicians with whom Tenet had an improper financial relationship; and,

-- more than $46 million to resolve claims that Tenet engaged in “upcoding,” which refers to situations where diagnosis codes that Tenet is unable to support or that were otherwise improper were assigned to patient records in order to increase reimbursement to Tenet hospitals.

Not surprisingly, some of Tenet's practices were the target of qui tam suits, and the whistle-blowers in those actions will recover a portion of the payment made to settle the action. Will Tenet learn its lesson, or will we be reading about it in a similar context a few years down the road? (ph)

June 30, 2006 in Civil Enforcement, Fraud, Settlement | Permalink | Comments (1) | TrackBack (0)

Thursday, June 29, 2006

Siegelman & Scrushy - Verdicts In

Former Alabama Governor Don Siegelman was found guilty of 6 of the 32 charges against him (see Birmingham Alabama News here).  These included some of the counts for bribery, conspiracy, mail fraud, and obstruction of justice.

Former HealthSouth CEO Richard Scrushy were found guilty today of all of the bribery, conspiracy and mail fraud counts brought against him.

Acquitted were Paul Hamrick, former Governor's Chief of Staff, and Mack Roberts, former head of the Alabama Department of Transportation.

The jury was out 11 days before bringing back these verdicts. 

For background on this case, see some prior blog posts here:

  • Scrushy and Former Alabama Governor Siegelman Indicted on Bribery Charges (here)
  • Round Two of the Scrushy Prosecution (here)
  • Jury Selection Begins in Corruption Trial of Scrushy and Former Gov. Siegelman (here)
  • Scrushy & Siegelman Trial Open Today (here)
  • Corruption Prosecution of Scrushy and Siegelman Goes to the Jury (here)

(esp)

June 29, 2006 in Fraud, HealthSouth, Prosecutions, Verdict | Permalink | Comments (2) | TrackBack (0)

The Federalization of Crime

Blog co-editor Ellen Podgor has an editorial on Law.Com (here) questioning the use of laws such as the mail fraud statute (18 U.S.C. Sec. 1341) by federal prosecutors to reach a wide variety of conduct that may be of little real interest to the national government.  The issue came to the forefront recently in a corruption prosecution in Chicago in which prosecutors failed to establish the mailing element for the offense, a seemingly innocuous aspect of a crime (see earlier post here) that resulted in the dismissal of a charge.  Ellen raises the following questions:

Why has federal criminal jurisdiction become so commonly accepted that we can sometimes overlook the need for this federal jurisdiction hook? Why is it that a mailing is all that is necessary to bring many state criminal matters into the federal system? Could it be that overfederalization has made us oblivious to the importance of the unique role that the federal government should play in the criminal law system?

(ph)

June 29, 2006 in News | Permalink | Comments (2) | TrackBack (0)

Hedge Funds as Political Football

The role of hedge funds in the securities markets is garnering greater attention because the vast ($2+ trillion) amount of money they manage means that any problems in the industry will be felt widely in the economy, at least in the short term.  A recent decision by the D.C. Circuit blocking an SEC rule requiring the funds to register and disclose information only seems to add to their mysterious power. Once there is media attention, that ensures Capitol Hill will jump in front of the cameras, as shown by the "eclectic" hearing held by the Senate Judiciary Committee on June 28 entitled "Hedge Funds and Independent Analysts: How Independent Are Their Relationships?"  That title is about as inscrutable as some of my blog posts, and the hearing included testimony from a Department of Justice representative touting the virtues of the corporate fraud task force (statement here), a disgruntled former SEC Enforcement Division attorney complaining about being taken off an insider-trading investigation of a hedge fund because of political pressure (statement here), and a representative from the "Managed Funds Association" (statement here) -- i.e. the hedge fund industry's DC lobbying arm -- touting the benefits of shorting stocks.  Demonstrating how important the issue is on Capitol Hill, the Wall Street Journal Law Blog notes (here) that there is even a turf battled between the Senate Judiciary and Banking Committees as to which one is the appropriate group to conduct this important investigation.  Sounds like the Committees are having a hard time sharing their toys again. (ph)

June 29, 2006 in Investigations, Securities | Permalink | Comments (0) | TrackBack (0)

Scrushy-Siegelman Jury Keeps At It

The jury in the corruption prosecution of former HealthSouth CEO Richard Scrushy, former Alabama Governor Don Siegelman, and two former aides to the Governor continued deliberating for a tenth day to reach a verdict on the charges.  On June 27, the foreman sent a note that some jurors were "lackadaisical" and not working to break a deadlock, but notes the next day indicated that the jurors were going to try to move forward.  The judge rejected a government request that the court interview the jurors and remove those who were not working to reach a verdict, a dangerous proposition if the jury were to return a guilty verdict after the threat of removal or actual substitution of alternates.  Whether the jury will be able to render a verdict as to any of the defendants remains an open issue.  An AP story (here) discusses the jury deliberations. (ph)

June 29, 2006 in Corruption, Prosecutions | Permalink | Comments (0) | TrackBack (0)

Raytheon and Its Former CEO Settle SEC Accounting Disclosure Charges

The SEC filed a settled civil injunctive action against Raytheon Co., its former CEO Daniel Burnham, and a financial officer at one of its subsidiaries, Aldo Servello, for making misleading disclosures about financial problems in the company's commercial aircraft subsidiary.  According to the Litigation Release (here):

The SEC charged that, in periodic reports filed with the Commission from 1997 to 2001, Raytheon made false and misleading disclosures and used improper accounting practices that operated as a fraud by failing to adequately and accurately disclose the declining financial results and deteriorating business of Raytheon's commercial aircraft manufacturing subsidiary, RAC. The SEC also charged that certain of these disclosures and accounting practices were undertaken with the knowledge of Burnham in 2000 and 2001 and Servello in 2000. Without admitting or denying the SEC's findings, Raytheon, Burnham, and Servello agreed to settle these charges by consenting to the entry of a Cease-and-Desist Order by the Commission.

Raytheon agreed to pay a $12 million civil penalty, while Burnham and Servello will disgorge salary and bonuses along with paying a civil penalty totaling $1,238,344 and $34,628, respectively. (ph)

June 29, 2006 in Civil Enforcement, Fraud, Securities | Permalink | Comments (0) | TrackBack (0)

Wednesday, June 28, 2006

KPMG's Aftermath -- Revenge of the Insurance Companies?

U.S. District Judge Lewis Kaplan's opinion permitting former KPMG partners and employees to seek advancement of attorney's fees from the firm sets an interesting precedent regarding the scope of the government's ability to interfere in contractual relations between employers (and principals) and their employees (and agents).  An interesting question is whether the decision might have the inverse effect in future cases because employers and principals will be less generous in providing benefits to their employees and agents, thus advancing the purpose of the Thompson Memo even though it was found to violate Due Process.

Judge Kaplan did not rule on KPMG's contractual obligation to advance the attorney's fees, although he came pretty close to finding that there is an implied-in-fact contract based on the firm's course of performance in other cases, most recently the SEC's investigation of the firm and its partners in the Xerox audit in which it paid almost $20 million in defense costs.  When business organizations see that a course of performance may bind them contractually, one way around that is to make the policies on the issue clear by putting them in writing.  KPMG did not have a written indemnification agreement, but it (and others) most likely will adopt them in the future.

The opinion also seems to imply that advancement of attorney's fees is a right all employees have, but under corporate law statutes that is certainly not the case.  The only mandatory indemnification is when the officer, director, or employee is "successful on the merits or otherwise in defense of any action" under Delaware GCL Sec. 145(c), and Model Business Corporation Act Sec. 8.52 is the same.  The other indemnification provisions in corporate law permit, but do not require, the payment of attorney's fees in advance of a decision.  Corporations and other business organizations (such as LLCs and LLPs) are free to bind themselves contractually to provide these benefits, as KPMG's course of performance may have done, but they are not required to provide such protection.

After KPMG, will corporations rethink their position on advancement of attorney's fees?  Here's where the insurance companies that provide the directors & officers (D&O) insurance may come into play.  Stories about defense costs in recent cases must send shivers down the spines of the D&O insurers because they may be on the hook for millions of dollars in defense costs with little hope of recovering any of it if the individual is found guilty.  The first three pages of the Judge's opinion list counsel for the defendants, and the firms are among the leading white collar crime practitioners in the country, and they don't come cheap.  The defense of Jeffrey Skilling in the Enron trial shows that the defense lawyer's hourly-billing meter may appear to be spring-loaded, what with dozens of lawyers and support staff committed to the case (see earlier post A License to Print Money).  Other prosecutions triggering multi-million dollar defense costs include Dennis Kozlowski (Tyco), Bernie Ebbers (WorldCom), and Richard Scrushy (HealthSouth).  What makes Scrushy's case different is that he was found not guilty, so he should have a good claim under Delaware law for mandatory indemnification of his $20+ million in defense costs. 

I suspect that D&O insurers may impose their own little Thompson Memo -- if they have not done so already -- on companies by requiring them to put into employment agreements that defense costs will be cut-off after an indictment, or the obligation will be limited to a specified percentage of the fees or subject to a cap.  Absent such a provision, the insurers may not be willing to take on the risk, or will charge a much higher premium for policies without significant limitations on their obligation to pay attorney's fees in advance.  Companies may be pressured by shareholders in a similar direction to limit their liability in cases that may triggers millions of dollars in costs to the corporation to defend an officer who could end up being sent to jail. 

The government's position in the Thompson Memo that views the payment of attorney's fees as indicative of a company's lack of cooperation was hardly defensible, and Judge Kaplan's opinion shows how the courts will react to any perceived interference with the right to counsel -- unless you're a drug dealer and there is an asset forfeiture case, but that's a different story.  Whether any future case even comes to this point is an open question, and I think companies will view the KPMG decision as a signal to avoid the problem altogether by limiting the payment of attorney's fees in a way that keeps them from having to pay after an indictment of an individual officer or employee.  That may well fulfill the goal of the Thompson Memo, if the government actually wants companies to cut-off the attorney's fees for indicted employees. (ph)

June 28, 2006 in Defense Counsel, Judicial Opinions, Prosecutions, Tax | Permalink | Comments (2) | TrackBack (2)

British Bankers Lose Final Appeal to Avoid Extradition

The European Court of Human Rights refused to intervene in the decision to extradite three British investment bankers -- David Bermingham, Gary Mulgrew, and Giles Darby -- to the United States to face charges in an Enron-related transaction.  The three were officers of Greenwich NatWest who participated in a transaction engineered by former Enron CFO Andrew Fastow in which they are alleged to have made $7.3 million.  They argued that any misconduct occurred in Great Britain and Greenwich NatWest, now owned by Royal Bank of Scotland, was the victim, so the charges should be tried there and not in Houston, which will be a much more hostile environment.  The argument has been rejected at each level in the UK, most recently by the House of Lords, and the European Court's refusal means that their last appeal is to Prime Minister Tony Blair.  Articles from The Times (here) and CNN.Com (here) discuss the extradition decisions and plea to Blair. (ph)

June 28, 2006 in Enron | Permalink | Comments (0) | TrackBack (0)

Tuesday, June 27, 2006

Judge Kaplan's Decision - KPMG

If one were ranking decisions by the quality of the writing, Hon. Lewis Kaplan's decision would be very high on the list, as it ranks in quality with those authored by Learned Hand.  From the opening passage that states -

"Those who commit crimes - regardless of whether they wear white or blue collars - must be brought to justice.  The government, however, has let its zeal get in the way of its judgment.  It has violated the Constitution it is sworn to defend."

To the detailed footnotes, like seen in footnote 13 -

"Mr. Thompson was quoted in the press as having defended pressuring companies to cut off payment of defense costs for their employees on the ground that "they [the employees] don’t need fancy legal representation" if they do not believe that they acted with criminal intent. Laurie P. Cohen, In the Crossfire: Prosecutors’ Tough New Tactics Turn Firms Against Employees, WALL. ST. J., June 4, 2004, A1. Naturally, the Court does not consider it in deciding this matter, as it is not in evidence. It notes, however, that such a view, whether held by Mr. Thompson or anyone else, would be misguided, to say the least.

"The innocent need able legal representation in criminal matters perhaps even more than the guilty. In addition, defense costs in investigations and prosecutions arising out of complex business environments often are far greater than in less complex criminal matters. Counsel with the skills, business sophistication, and resources that are important to able representation in such matters often are more expensive than those in less complex criminal matters. Moreover, the need to review and analyze frequently voluminous documentary evidence increases the amount of attorney time required for, and thus the cost of, a competent defense. Thus, even the innocent need substantial resources to minimize the chance of an unjust indictment and conviction.

This decision is a masterpiece.  The interesting question now will be whether the Thompson Memo survives in light of this decision.  Here my answer is yes.  Prosecutors need cooperation.  Prosecutors also need corporations to have compliance programs that will assist in diminishing fraudulent conduct.  Having cooperation and compliance programs, however, is a far cry from seeking to waive the attorney-client privilege or asking a corporation to waive attorney fees that were contractually agreed upon prior to the government investigation or indictment. 

The defendants in this case will eventually enter pleas or go to trial.  And if convicted they will be sentenced.  But this decision will make the eventual verdict fairer, and for that we should all thank Judge Lewis Kaplan.

(esp)

June 27, 2006 in Defense Counsel, Investigations, Judicial Opinions, Privileges, Prosecutions | Permalink | Comments (1) | TrackBack (1)

Where is the Hilfiger Non-Prosecution Agreement?

Corporate Counsel has a very telling article here on a non-prosecution agreement reached between the US and the Tommy Hilfiger Corporation.  It seems the company reached an agreement, but no one can get a copy. Back in August 2005, US Attorney David N. Kelley issued a press release here on the  non-prosecution agreement.  But the agreement, as noted by Corporate Counsel, was not there. It sure does seem like a good bit of silence for a deal that cost the company $18.1 million. (see post here)

(esp) (w/ a hat tip to Ryan D. McConnell)

June 27, 2006 in Settlement | Permalink | Comments (0) | TrackBack (0)

KPMG- Analysis - White Collar Cases Can Be Costly

The KPMG Order provides the clear realization that some white collar cases can be costly to defend.  Judge Lewis Kaplan states:

"This is by no means a garden-variety criminal case. It has been described as the largest tax fraud case in United States history. The government thus far has produced in discovery, in electronic or paper form, at least 5 million to 6 million pages of documents plus transcripts of 335 depositions and 195 income tax returns. The briefs on pretrial motions passed the 1,000-page mark some time ago. The government expects its case in chief to last three months, while defendants expect theirs to be lengthy as well. To prepare for and try a case of such length requires substantial resources. Yet the government has interfered with the ability of the KPMG Defendants to obtain resources they otherwise would have had. Unless remedied, this interference almost certainly will affect what these defendants can afford to permit their counsel to do. This would impact the defendants’ ability to present the defense they wish to present by limiting the means lawfully available to them. The Thompson Memorandum and the USAO’s actions therefore are subject to strict scrutiny."

White Collar defendants have felt the pressure of trying to defend themselves against a government accusation.  But in many instances they cannot because of the cost involved in presenting this defense. This is in no way meant to diminish the importance of others having the ability to defend themselves, as indigent defense is clearly in a state of crisis in many parts of the United States.  But the court's recognition of this high cost in a white collar case, and the particularly high cost in this white collar case is an important message.  If the system is to operate with a presumption of innocence, than it is important to remember that everyone needs to have access to lawyers in order to properly present their defense. 

(esp)

Addendum - See

David Hoffman, Concurring Opinions here

WSJ, here and here

June 27, 2006 in Judicial Opinions, Legal Ethics, Prosecutions, Prosecutors | Permalink | Comments (1) | TrackBack (0)

Highlights from the Order on KPMG Defendants

Highlights from the opinion by Judge Lewis Kaplan:

  • "The Thompson Memorandum and the USAO pressure on KPMG to deny or cut off defendants'  attorneys' fees necessarily impinge upon the KPMG Defendants' ability to defend themselves."
  • "If the government means to take the payment of legal fees into account in making charging decisions only where the payments are part of an obstruction scheme - and thereby narrowly tailor its means to its ends- it would be easy enough to say so.  But that is not what the Thompson Memorandum says."
  • "The Thompson Memorandum discourages and, as a practical matter, often prevents companies from providing employees and former employees with the financial means to exercise their constitutional rights to defend themselves.  This is so even where companies obstruct nothing and, to the contrary, do everything within their power to make a clean breast of the facts to the government and to take responsibility for any offenses they may have committed.  It undermines the proper functioning of the adversary process that the Constitution adopted as the mode of determining guilt or innocence in criminal cases.  The actions of prosecutors who implement it can make matters even worse, as occurred here."
  • "[T]he government's interference in the KPMG Defendants' ability to mount a defense 'creates an appearance of impropriety that diminishes faith in the fairness of the criminal justice system in general.'"

The remedy is not a dismissal of the action, but rather:

"1. The Court declares that so much of the Thompson Memorandum and the activities of the USAO as threatened to take into account, in deciding whether to indict KPMG, whether KPMG would advance attorneys’ fees to present or former employees in the event they were indicted for activities undertaken in the course of their employment interfered with the rights of such employees to a fair trial and to the effective assistance of counsel and therefore violated the Fifth and Sixth Amendments to the Constitution.

2. The government shall adhere to its representation that any payment by KPMG of the defense costs of the KPMG Defendants is acceptable to the government and will not be considered in determining whether KPMG has complied with the DPA or otherwise prejudice KPMG.

3. The Clerk shall open a civil docket number to accommodate the claims of the KPMG Defendants against KPMG for advancement of defense costs should they elect to pursue them. If they file a complaint within 14 days, the Clerk shall issue a summons to KPMG. The Court in that event will entertain the claims pursuant to its ancillary jurisdiction over this case.

The motions are denied insofar as they seek monetary sanctions against the government. The Court reserves decision as to whether to grant additional relief." (citations omitted)

(esp)

June 27, 2006 in Judicial Opinions, Legal Ethics, Privileges, Prosecutors | Permalink | Comments (0) | TrackBack (6)