Saturday, July 8, 2006
A former Army colonel who had been convicted of bribery and other charges (see here), had a major portion of his case thrown out by the court. According to the St Pete Times here, the conviction on bribery was thrown out, the wire fraud counts were sent back for a new trial, leaving only a conspiracy count remaining. He has yet to be sentenced on that count. In an unusual move, a cooperating witness stated that that he and the colonel did nothing illegal and that the cooperating witness had plead guilty because of government pressure and family reasons. The St Pete Times reported that one of the reasons he stated was the cost of the trial.
According to the Atlanta Jrl. Constitution here, former Atlanta Mayor Bill Campbell requested that he be permitted to remain free on bail pending appeal. He was given a sentence of 30 months on a conviction for tax evasion. (see here)
Four former aides in the administration of Chicago Mayor Richard Daley, including the man routinely described as his "longtime patronage chief," were found guilty on mail fraud and false statement charges in a prosecution brought by U.S. Attorney Patrick Fitzgerald. Robert Sorich was head of the Office of Intergovernmental Affairs, an innocuous sounding cog in the city bureaucracy that was the hub of what the federal prosecutors described as a well-oiled machine to award city jobs based on political favoritism. Sorich and his chief aide, Timothy McCarthy, were convicted along with Sorich's best friend, Patrick Slattery, and John Sullivan, both of whom were officials in the city's Streets and Sanitation Department. A number of top staff from the Daley administration, including four from the Office of Intergovernmental Affairs, pled guilty and testified against the defendants.
Although the government alleged widespread corruption in hiring, the indictment took a more limited approach, charging mail fraud/right of honest services for the hiring of specific individuals, thereby keeping the case focused on particular instances of corrupt actions. One count was dismissed during trial because the prosecutors failed to introduce sufficient evidence of the mailing element, an easily overlooked requirement for all prosecutions under 18 U.S.C. Sec. 1341 (see earlier post here). Sorich was found guilty of two counts of mail fraud, related to the hiring of a house drain inspector and Water Department foreman, while McCarthy's convictions related to the house drain inspector and a 19-year old building inspector; Sorich was found not guilty on the building inspector count and a count related to the hiring of a driver in the Water Department. Slattery's conviction was for one count of mail fraud related to the hiring of laborers in the Streets and Sanitation Department, while Sullivan was found guilty of lying to the government about preferential treatment given to applicants based on their political ties but not guilty of a second false statement count.
The question after the verdict is whether the government will be able to move any higher into the Daley administration in its investigation. At this point, the reaction from defense counsel has been to continue to assert their client's innocence, but after a conviction there is a chance that one or more will agree to cooperate with the government. And for those involved in the patronage operation who have not been charged yet, the first Assistant U.S. Attorney said rather ominously about whether the investigation is continuing, "I can't really say anything more than 'stay tuned.'" A Chicago Tribune article (here) has a thorough review of the case, including a detailed timeline of the six-week trial and the mechanics of awarding patronage jobs. (ph)
The sudden death of former Enron CEO Ken Lay from a heart attack only six weeks after his conviction raises the issue of the health effects of prosecutions on white collar defendants who never expect to have to face a criminal trial, much less a prison sentence. An article in the Fulton County Daily Report (here) on this point is entitled, "Lay Case Suggests Health Risks for White-Collar Felons" (actually, Lay is no longer a felon because of the abatement doctrine, but that's a different question). Stress is not good for anyone, and there are probably few things more stressful, at least over a significant period of time, than a white collar investigation, criminal indictment, and trial. Indeed, the investigation may be the most stressful part, as blog co-editor Ellen Podgor points out in the article when she states, "A client once told me, ‘Thank God I finally got indicted,'" because at least after indictment the process is clear. Unlike drug dealers, for example, who understand that their conduct is illegal and there is a real risk of being arrested and charged with a crime, many white collar defendants, particularly corporate officers, are unlikely to view their conduct as obviously illegal and subject to criminal prosecution, even if that's a product of self-delusion about the propriety of the conduct -- e.g. "everyone else is doing it so it must be all right."
While a criminal prosecution may be more stressful for many defendants in white collar crime cases, the "hazards" that come with the conduct are much less than those faced by drug dealers, members of organized crime, and other criminals. The threat of violence is much greater in these areas, and I suspect the life expectancy of those people is less than a corporate executive or even mid-level employee. While the trial and conviction were not helpful, it may be that Ken Lay would have died on July 5, 2006, even if he'd never been indicted, we will just never know. (ph)
Friday, July 7, 2006
Peter Lattman on the Wall Street Journal Law Blog has an interesting post (here) about the non-prosecution agreement Boeing entered into with the government to settle a variety of government investigations into the company. The agreement (here) contains a provision regarding what constitutes a violation: “The commission of a defined offense by a Boeing employee shall not be deemed to constitute the commission of a defined offense by Boeing as long as the underlying allegation or conduct is reported by Boeing . . . ." There are all sorts of legal fictions, such as the abatement doctrine that deems a conviction not to exist if the defendant dies after a conviction but before an appellate affirmance of the conviction (see earlier post here), and here's another one stating when a violation is not a violation. This particular sleight of hand makes self-reporting the key to avoiding having the government file criminal charges that is has agreed to forego.
The number of deferred and non-prosecution agreements is growing rapidly, and what one company gets others will be eager to obtain. It may be a question of leverage, that companies with stronger cases -- or more persuasive lawyers with good connections -- will obtain the favorable provisions. Of course, no one has violated one of these agreements yet to require the government to decide whether it will pursue charges. It would not surprise me to see more agreements contain a provision like the one in the Boeing agreement because by putting the onus on the company to police itself and report possible violations, the government can avoid having to make the harder decision about whether to declare a breach of the agreement if there is another legal violation. A self-reporting provision makes it less likely the government will ever have to face the question of charging a company like Boeing, which is a major defense contractor and one of the leading exporters in the United States, with a crime. (ph)
Assistant United States Attorneys have come in for criticism in two recent opinions regarding the veracity of their statements to courts. In United States v. Stein, the prosecution of 16 former KPMG partners and employees, U.S. District Judge Lewis Kaplan criticized the government's assertions regarding pressure it put on KPMG to cut off attorney's fee payments for the defendants despite a long-standing firm policy to pay such expenses. In addition to finding the application of the Department of Justice's Thompson Memo resulted in a constitutional violation, Judge Kaplan also noted that the prosecutors were "economical with the truth" in their filings and testimony. While not calling them liars, the judge clearly implied that their statements were not fully truthful and misleading in several places.
U.S. Attorney Michael Garcia responded by sending a letter to the court (available below), dated only four days after the opinion, asking the court to withdraw the statement regarding being "economical with the truth," change the characterization of the testimony of prosecutors, and withdraw references to the prosecutors by name. Garcia's letter states, "The Government's stance in connection with this matter was an Office position, and the Government's submissions were approved by layers of supervisors. If the Court continues to find fault with those submissions, the fault should not be attributed to individual prosecutors." That raises an interesting question about the responsibility of individual lawyers for statements made on behalf of the government. The professional responsibility rules govern individual lawyers, not law firms or government offices, and while a submission on behalf of the United States is not that of an individual lawyer, there are people behind the statements. Should judges avoid naming names when they observe misconduct? Garcia's letter raises fair questions about Judge Kaplan's interpretation of the evidence, but that is more appropriately advanced in a motion for reconsideration. The question of keeping a prosecutor's name out of a judicial opinion, if the person is found to have been "economical with the truth," is a much tougher one, I think, because if only "the Office" is responsible then perhaps no one really is held accountable.
In United States v. Clark (here), Ninth Circuit Judge Alex Kozinski wrote a concurring opinion asserting that the AUSA arguing the case tried to mislead the court about record support for a judicial finding relevant to a sentencing enhancement. While the majority held that the lawyer's reference to a sentence fragment in the record was not intended to be misleading and could be interpreted as supporting the goverment's argument, Judge Kozinski found otherwise, stating:
I don’t believe that quoting portions of a sentence while leaving out key qualifiers is reasonable conduct for an attorney of this court. I don’t believe that making assertions in a brief regarding disputed factual points, without providing a citation to the record, amounts to reasonable attorney conduct. I don’t believe that ignoring the context of statements in the record — the timing, circumstances and purpose — amounts to reasonable conduct. In short, I don’t believe that it is appropriate or reasonable for a lawyer to pluck a few words from the middle of a sentence and pretend that they say something very different from what they mean in context. This is true of every lawyer who appears before us, but it goes doubly for lawyers who represent the government in criminal cases. See United States v. Kojayan, 8 F.3d 1315 (9th Cir. 1993), ("Prosecutors are subject to constraints and responsibilities that don’t apply to other lawyers. While lawyers representing private parties may—indeed, must—do everything ethically permissible to advance their clients’ interests, lawyers representing the government in criminal cases serve truth and justice first.").
The cite to Kojayan is interesting because in that case, the slip opinion identified by name the AUSAs responsible for misstatements to the court, but the opinion in the bound volume had the names removed. Similarly, while Judge Kozinski's concurrence in Clark finds that the AUSA's conduct was unreasonable, there is no mention of the person's name. Is this another situation where "the Office" takes the responsibility but not the individual? Clark involves a concurring opinion, so it is more appropriate to keep the lawyer's name out of the reported decision. As lawyers subject to the same professional responsibility rules as other lawyers, I think a good argument can be made that there is a need for some individual accountability when a prosecutor misstates the record or is "economical with the truth." If identifying the AUSA by name is not the best vehicle, then something else should be used to make it clear to the public that such conduct is a violation of the rules of the profession. (ph)
UPDATE: The Wall Street Journal Law Blog reports (here) that Judge Kaplan denied the U.S. Attorney's request to modify the opinion, including refusing to remove the names of the AUSAs. It will probably be a few more weeks before a decision is made on appealing the decision, assuming the government can appeal under the collateral order doctrine. KPMG is not a party to the case, so it's hard to see how it has standing to seek review. (ph)
Thursday, July 6, 2006
Greg Anderson, the former personal trainer for San Francisco Giants slugger Barry Bonds, will be spending at least a few weeks in jail for refusing to testify before a federal grand jury in San Francisco investigating whether Bonds committed perjury in the Balco (Bay Area Laboratory Cooperative) steroids investigation. Anderson first refused to testify a week earlier because he believed that his plea agreement did not require him to do so and the government was acting improperly. U.S. District Judge William Alsup held Anderson in civil contempt and ordered him sent to jail, rejecting a request by Anderson's attorney, Mark Geragos, for bail while he appeals the contempt.
An AP story (here) notes that the grand jury is set to expire in a few weeks, and a civil contempt only lasts as long as the grand jury is authorized, which is usually eighteen months. Geragos noted -- or perhaps boasted -- that there were things in refrigerators with a longer shelf-life than the grand jury investigating Bonds. That may be, although under Federal Rule of Criminal Procedure 6(g) a grand jury "may serve more than 18 months only if the court, having determined that an extension is in the public interest, extends the grand jury's service. An extension may be granted for no more than 6 months, except as otherwise provided by statute." Therefore, if the particular grand jury hearing evidence of possible perjury by Bonds has not been extended once, the court could push its service out another six months and Anderson could be held during the extended term. Similarly, there is nothing that would prevent prosecutors from transferring the case to a new grand jury once the current one's term expires and resubpoenaing Anderson to testify, leading perhaps to another civil contempt, although if the judge believes jailing him is futile then Anderson would have to be released.
Given the grand jury's short remaining term, assuming no extension or transfer, then we are likely to learn in the next few weeks whether Bonds will be indicted on perjury charges, and perhaps other violations identified during the investigation. Just in time for the dog days of August when the pennant races tighten considerably. (ph)
The FBI arrested three people in Atlanta for trying to sell Coca-Cola Co. trade secrets to its chief rival, PepsiCo, for $1.5 million. The trade secrets did not include the secret formula for Coke, which is perhaps the company's most closely-guarded information. Coke once even defied an order by a U.S. District Court judge that it turn over the formula in discovery related to a lawsuit with a group of its bottlers in the 1980s. The information involved 14 pages of documents related to products and their packaging. The three defendants are Joya Williams, who worked for Coke as an administrative assistant, Ibrahim Dimson, who masqueraded as "Dirk" in making the contact with Pepsi and then dealing with an undercover FBI agent after Pepsi contacted the authorities, and Edmund Duhaney. According to a press release (here) issued by the U.S. Attorney's Office for the Northern District of Georgia:
"Dirk" provided to a FBI undercover agent 14 pages of Coca-Cola logo-marked "Classified - Confidential" and "CLASSIFIED - Highly Restricted" and the company confirmed that these documents were valid and highly confidential and were considered highly classified proprietary information-trade secrets. Almost immediately, "Dirk" requested $10,000 for the documents sent as proof, emailing, in part, "I must see some type of seriousness on there part, if I'm to maintain the faith to continue with you guys, or if I need to look towards another entity that will be interested in a relationship with me. I have the capability of obtaining information per request. I have information that's all Classified and extremely confidential, that only a handful of the top execs at my company have seen. I can even provide actual products and packaging of certain products, that no eye has seen, outside of maybe 5 top execs. I need to know today, if I have a serious partner or not. If the good faith moneys is in my account by Monday, that will be an indication of your seriousness."
Later "Dirk" produced other documents that Coca Cola confirmed were valid trade secrets of Coca Cola and highly confidential, and was to receive $5,000 for the documents received as good faith money for additional purchases. "Dirk" also agreed to an amount of $75,000 for the purchase of a highly confidential product ample from a new Coca Cola project. Meanwhile, with the cooperation and assistance of Coca Cola security personnel, video surveillance showed JOYA WILLIAMS at her desk going through multiple files looking for documents and stuffing them into bags. She also was observed holding a liquid container with a white label, which resembled the description of new Coca Cola product sample before placing it into her personal bag. Coca Cola later verified the sample was genuine and is in fact a product being developed by the company.
According to the press release, the FBI paid "Dirk" $30,000 in cash hidden in a Girl Scout cookies box -- how cute -- and on June 27 Duhaney and Dimson opened a bank account using Duhaney's address to have the $1.5 million deposited into it from the sale of all the trade secrets. The three defendants were arrested on July 5, the day the final transfer was to take place. The three defendants were charged in a criminal complaint with wire fraud and theft of trade secrets, and the case will likely move to an indictment detailing a variety of charges in the next few weeks. (ph)
Four former employees of a subsidiary of ABB Ltd., the international power equipment and automation company, settled an SEC civil action alleging that they violated the Foreign Corrupt Practices Act. The defendants -- John Samson, former regional sales manager for West Africa, John Munro, former senior vice president of operations, Ian Campbell, former vice president of finance, and John Whelan, former vice president of sales -- are alleged to have paid bribes to Nigerian public officials to secure a $180 million contract to provide equipment for the Bonga Oil Field located offshore from Nigeria. According to the SEC Litigation Release (here):
According to the complaint, as a result of the defendants' actions, during the period 1999 through 2001, ABB paid approximately $1 million in bribes to officials of National Petroleum Investment Management Services ("NAPIMS"), the Nigerian state-owned agency responsible for overseeing oil exploration and production in Nigeria. The Commission alleges that these illicit payments -- which took the form of both cash and gifts -- were intended to induce and reward NAPIMS officials for providing ABB with confidential competitor bid information, and securing favorable consideration of ABB's bid on the Bonga contract, which ultimately was awarded to ABB in early 2001.
The Commission alleges that during the tender process for the Bonga contract in 2000, Samson, the regional sales manager for West Africa, negotiated to pay six NAPIMS officials a total of $800,000 in bribes. The Commission further alleges that Samson subsequently informed Munro and Campbell of the payments promised to the NAPIMS officials. According to the complaint, at the direction of a senior officer (now deceased) of ABB's Vetco Gray U.S. subsidiary, Munro instructed Campbell and Samson to arrange payment to the NAPIMS officials using a local consultant as a conduit. The complaint alleges that Campbell arranged to funnel $800,000 in bribes to the consultant under the cover of false invoices for consulting work. The complaint also alleges that Samson personally profited from this bribery scheme by obtaining $50,000 in kickbacks from one the NAPIMS officials who received illicit payments.
In addition, the complaint alleges that between 1999 and 2001, Samson arranged for Whelan to provide cash and other gifts -- including lodging and meals -- to NAPIMS officials when they visited the United States. According to the complaint, these payments totaled more than $176,000.
As part of the settlement, Samson will pay a civil penalty of $50,000 and disgorge over $60,000, while the other three will pay civil penalties of $40,000 each. ABB settled an SEC action in 2004 by paying $5.9 million in disgorgement and prejudgment interest, and a $10.5 million civil penalty. (ph)
Wednesday, July 5, 2006
Reuters reports (here) that former Enron CEO Ken Lay died at his vacation home in Colorado. Under the Fifth Circuit's law of abatement of a criminal conviction when a defendant dies before appellate review of the conviction, "It is well established in this circuit that the death of a criminal defendant pending an appeal of his or her case abates, ab initio, the entire criminal proceeding." United States v. Asset, 990 F.2d 208 (5th Cir. 1993). In a recent Fifth Circuit decision, United States v. Estate of Parsons, 367 F.3d 409 (5th Cir. 2004), the court explained that "the appeal does not just disappear, and the case is not merely dismissed. Instead, everything associated with the case is extinguished, leaving the defendant as if he had never been indicted or convicted." In Parsons, the court vacated a forfeiture order, which means that the government's forfeiture claim against Lay for $43.5 million (see earlier post here) will be dismissed. The Fifth Circuit explained the rationale for the rule: "The finality principle reasons that the state should not label one as guilty until he has exhausted his opportunity to appeal. The punishment principle asserts that the state should not punish a dead person or his estate." An interesting question is whether one can still describe Lay as having been convicted of a crime, at least in a technical sense, because the law no longer recognizes there having been any criminal case initiated against him.
Unlike the criminal case, civil claims against Lay, such as the SEC's case and the securities class action, will continue against his estate. However, because the criminal conviction is wiped out, the plaintiffs cannot rely on it as proof in their case, if my dim memory of collateral estoppel serves me right.(ph)
Former Patterson-UTI Energy, Inc. CFO Jody Nelson pled guilty in April 2006 to embezzling over $77 million from the company over a number of years (see earlier post here), and now the effort to recover at least some of the losses will involve an auction of virtually everything he owned. According to KCBD-TV report (here), Nelson's 19,000 square-foot house into which he sunk over $4 million home will be on the block. The property includes two swimming pools -- it's not clear if one is the kiddie pool -- and a basement racquetball court, although the house is not complete and will require at least another $1 million, which is a significant amount for the Lubbock, Texas, market. The auction of Nelson's property is being conducted by Ritchie Brothers Auctioneers Inc., and a website (here) has links to a variety of items available, ranging from a Dirt Devil vacuum cleaner to an autographed 2004 Boston Red Sox jersey -- for the uninitiated, the year the Sox won the World Series and broke the curse of the Bambino. Nelson used some of the money he stole from Patterson-UTI to fund a construction company, and there is quite a bit heavy equipment available. The auction is scheduled for July 15. (ph)
Tuesday, July 4, 2006
According to the St Pete Times here, a former controller at Jabil Circuit Inc. plead guilty to six counts of wire fraud. What is particularly interesting is that the newspaper says the alleged fraud was detected through an "internal fraud hotline" in the company. More and more companies are instituting internal compliance programs to protect the company from fraud. Having a way for subordinate employees to bring fraud to the attention of higher-ups, without suffering internal consequences, is an important component of a successful compliance program.
For those of you keeping score over the long holiday weekend, add two more Silicon Valley companies to the list of those who have received grand jury subpoenas from the Northern District of California in the ever-widening stock options-timing probe. Maxim Integrated Products, Inc. -- not to be confused with the magazine -- and Zoran Corp. disclosed (here and here) that they were served with the grand jury subpoenas and, as usual, will cooperate in the criminal investigation, in addition to providing documents to the SEC in its informal investigation of the issuance of the stock options. On top of Apple's recent disclosure of possible problems in the grant of options in the 1990s to its executive, including Steve Jobs, these latest subpoenas show that the investigation is still in its growth phase. Given the near-addiction high tech firms have for stock options, look for more announcements of the receipt of grand jury subpoenas and pledges of cooperation. (ph)
Monday, July 3, 2006
According to a press release here of the U.S. Attorney's Office in the Northern District of Illinois (USA Patrick Fitzgerald), an indictment was issued against a physician medical director for "allegedly defrauding Medicare of more than $875,000 by falsely claiming to have provided services that he never performed and billing for more complex services than he actually provided." The indictment which charges violations of the health care fraud statute (sec. 1347), can be found here.
According to the Washington Post (AP) here, Yale University has received federal agency subpoenas for documents. It is not surprising to see Yale "urging" employees to cooperate. If in fact there were accounting irregularities, cooperation could prove crucial to Yale and the federal government reaching an agreement. A resolution could be very important to a university that obtains substantial funding from the federal government.
But whether the university's recommended approach will prove beneficial for individual researchers may be a different matter.
After seeing the movie "An Inconvenient Truth," a good question to ask is to what extent does the Department of Justice prosecute those who fail to abide by environmental laws in the United States.
To start, one might glance at the EPA's webpage titled summary of criminal prosecutions (here). But one finds an immediate problem - it says -
"The Summary of Criminal Prosecutions resulting from environmental investigations provides information to the public and regulated community on concluded criminal enforcement cases, by the U.S. Government's Fiscal Year (October to September). The Summary will be updated regularly, and currently contains cases through 2001."
Did we stop prosecuting cases after 2001? Unlikely, as one finds occasional press releases on a variety of prosecutions post 2001.(see, e.g., here)
So I went to the link for the Environmental Crimes Task Force and found this.
I then went to the Syracuse Trac and found some interesting reports including the prosecution numbers for Federal Pollution Enforcement here. The opening sentences are not a good sign for recent prosecutions in this area.
Addendum - Accomplishments of the Environmental & Natural Resources Division can be found here.
Posted here was the upcoming Boeing deal with the DOJ. It now is official, as the DOJ reports here that Boeing will be paying $615 million to "resolve fraud allegations." The DOJ press release states:
"[t]he $615 million settlement includes a $565 million civil settlement and a $50 million monetary penalty according to a separate criminal agreement. The amount is a record for government procurement fraud, for the Department of Defense (DOD), and for NASA."
And Boeing is accepting responsibility and stating that they "put in place an ethics and compliance program that is as rigorous as any that exist in industry today." (see here).