Saturday, December 9, 2006

Response on Attorney-Client Privilege

Senator Specter's bill on attorney-client privilege is certainly receiving some commentary on this blog - here and here.  And although my co-blogger and I agree on most items, this topic is one that I feel compelled to respond to his comments here.

1. This bill will survive - I disagree that this bill will be lost in oblivion (although my co-blogger does not expressly state this and this is my interpretation of the commentary that states that the session is ending and Specter will no longer be chair of the Senate Judiciary Committee).   The coalition backing this bill is like none other seen before. It crosses both political and ideological boundaries.  It includes the ABA, the National Association of Criminal Defense Lawyers (NACDL), Edwin Meese, Richard Thornburgh, some associated with the CATO Institute,  the U.S. Chamber of Commerce and the National Association of Manufacturers (see here and here) as well as others. (some citations from Alan Childress' Legal Profession Blog here)  The bottom line is that Sen. Specter will be proceeding ahead on this one in the next session.  Why?  Because the DOJ has done nothing to correct this situation and the political change in legislature is not likely to influence the strong support that this bill will receive.

2. What's the procedure?  Mr co-blogger questions the lack of guidance offered by the bill on what a court should do if there is a question of a violation.  Yes, what if a prosecutor decides to violate this law by improperly requesting attorney-client privileged material?  It is true that a remedy is not included here, but it is also good that none is stated.  It would be a shame to stifle the judiciary in finding an appropriate remedy to fit the particular circumstances.  Obviously if the circumstances warrant dismissal then that is what should occur, and the government may be seeking review in a higher tribunal. But often, such an extreme remedy would not be necessary and the court needs to have the flexibility to either exclude evidence or preclude its use in further proceeding.  Is this not done in cases of a violation of immunity, so why can't it be done here (see the Hubbell case).

3. What's the standard?  Clearly if there is an alleged violation, then the government has the burden to show otherwise.  Does this need to be stated in the legislation?  No, it usually isn't in federal legislation of this nature, and is certainly presumed in light of the fact that the legislation calls for prosecutors not to be asking for the attorney-client privilege waivers. 

4. What's the remedy? See # 2 above. And more importantly, if prosecutors follow the law then a remedy won't be needed.

5. Will this legislation encourage corporations to act unscrupulously?   Absolutely not.  The scenario presented by my co-blogger is one of obstruction of justice.  This is not a pre-arranged contractual relationship that is being voided by the government through its asking of a waiver of an attorney-client privilege.  Just like individuals have a right to assert a 5th Amendment privilege - a corporate executive instructing a lower level employee that they have to assert the privilege raises issues of undue influence that may trigger the obstruction statutes. It is also important to mention that nothing in the statute precludes prosecutors from securing needed information by going to a judge and presenting evidence of the existence of a crime or fraud.  The crime-fraud exception is not eradicated by this statute.

6. Could there be a constitutional problem? This same issue was raised pre-the-McDade Amendment by prosecutors who argued that the judiciary could not usurp the legislative role.  Congress stepped in with legislation to preclude prosecutors from acting unethically in court. And the legislation passed and remains valid today. It is no different here.  Prosecutor's via this proposed legislation are being given a rule as to what will be allowed in their investigation of criminal matters. This is clearly within the legislative function.

This bill is clearly one that aims toward returning our system to one that honors, as opposed to ignores, the attorney-client privilege.  It is unfortunate that DOJ failed to get its act together timely to rewrite the Thompson Memo so that it omits this language. And perhaps realizing that the Specter bill is hanging over its head, such a move will now be forthcoming. But if forced to proceed with this legislation because of DOJ inaction, it is important for this legislation to permit judges to be judges and find appropriate remedies to fit the situation.  A one-size-fits-all remedy in a statute will preclude the judiciary from tailoring the remedy to fit the particular unethical circumstances of the rogue prosecutor. 

(esp)(w/disclosure that she serves on the board of directors of the NACDL).

December 9, 2006 in Defense Counsel, Legal Ethics, Privileges | Permalink | Comments (0) | TrackBack (0)

What Does the Attorney-Client Protection Act of 2006 Do?

Senator Arlen Specter's legislative proposal, The Attorney-Client Protection Act of 2006 (here), would roll back portions of the Thompson Memo on the considerations that go into deciding whether to prosecute a corporation, if Congress enacts it.  The legislation may go beyond just organizations by protecting "any communication" covered by the attorney-client privilege and not just those of a corporation.  Perhaps more importantly, while the title refers to the privilege and includes the work product protection, it also extends to prohibiting consideration of a company's decision to pay the attorney's fees of an employee under investigation, entering into a joint defense agreement with employees, and refusing to terminate a person's employment if the employee does not cooperate in an investigation.  This language has little to do with the privilege directly, and largely tracks the ABA's criticism of the Thompson Memo adopted this past August.  It also reaches beyond just criminal prosecutions by covering civil enforcement actions, which means the SEC, FTC, and OIGs, among others, that pursue civil actions would also be governed by the legislation.

The proposal is certainly interesting, and addresses problems that have developed since the adoption of the Thompson Memo and its predecessor, the Holder Memo.  Nevertheless, the bill will not go anywhere in the current Congress because the session is over and a bill will have to be introduced in the 110th Congress that convenes in January, when Senator Specter will no longer chair the Judiciary Committee.  In analyzing the legislation, some issues that may be worth thinking about include:

  1. What's the procedure?  While the proposal says that in a civil or criminal investigation the government shall not "demand, request, or condition treatment" of an organization on its decision to waive the privilege, pay an employee's attorney's fees, etc., it does not say what will happen if someone alleges a violation of the law.  Who can challenge the government if there is a belief that such a "demand, request or condition" has occurred?  Most likely the corporation can raise the issue because that's whose rights are being protected, but could an individual investigative target, such as an employee, bring a challenge?  If so, and particularly if this is during the pre-indictment phase of an investigation, there may be substantial grand jury secrecy issues if discovery were permitted.  A procedure similar to raising a Rule 6(e)(7) contempt challenge to improper disclosure of grand jury information might be used, but the law says nothing about what a court is supposed to do, so some guidance may be helpful.
  2. What's the standard?  Imagine this scenario, unlikely as it might be: an attorney whose corporate client is under investigation meets with the prosecutor and states that the company will pay all attorney's fees and will not waive any privilege, and that if the company is indicted then that decision will be challenged because the decision must have been affected by the company's posture on these issues.  If an indictment takes place, will there be a hearing on the company's challenge at which it can take discovery of the government's decision-making process?  If so, who bears the burden of production and persuasion, and can a court grant discovery on the issue?  Mini-trials are not welcomed in criminal cases, and there would be issues whether the propriety of the charges could be considered by a court hearing a challenge.  The Supreme Court has been reluctant to permit discovery of the exercise of prosecutorial discretion, and this legislation goes to those charging decisions, so this is another issue that should at least be considered.   
  3. What's the remedy?  Closely tied to the procedural issue is what remedy a court could grant if a violation were found.  No doubt, investigative targets would want the investigation enjoined, or an indictment dismissed.  But where would a court get its authority to do that?  The language of Senator Specter's proposal says nothing about this crucial issue.  The Supreme Court has restricted the supervisory power of the courts to redress prosecutorial misconduct by dismissing indictments, and stopping a criminal investigation may be extreme if an indictment has not issued, especially if it ends up protecting culpable individuals.  The Court in U.S. v. Williams, 504 U.S. 36 (1992), acknowledged that supervisory power could be used to dismiss an indictment for a violation of a clear statutory or constitutional right, so this proposal might grant a court that authority.  That said, is dismissal of an indictment proper if a corporation's employees engaged in wrongdoing and the prosecutors sought a waiver of the privilege?  Congress may want to be a bit more clear on what happens if there is a violation, and whether any remedy would extend to individuals who are not the privilege holder, such as an employee.  Again, the Rule 6(e)(7) contempt model of a contempt proceeding might be a workable approach, so that the underlying investigation or prosecution is unaffected by the prosecutorial misconduct.
  4. Will this legislation encourage corporations to act unscrupulously?  The legislative prohibition may create an unintended incentive for a corporation -- or more particularly its senior executives -- to try to keep lower-level employees from cooperating if there is no downside to doing so.  While one would hope this never happens, imagine a corporation and its senior officers are being investigated for a criminal violation, and the company tells its employees that any of them who cooperate with the government will not have their attorney's fees paid by the company, but if they refuse to cooperate then all their fees will be paid and the company will not waive the privilege or work product protection.  Even worse, it tells them that if called to testify before a grand jury they should assert their Fifth Amendment privilege and refuse to testify.  Could the government take that conduct into consideration in deciding whether to prosecute the company?  The bill's language is categorical that the government cannot "condition a civil or criminal charging decision" on the issue of fee payments, privilege waivers, joint defense agreements, information sharing, and retaining uncooperative employees.  Of course, the conduct by the senior executives might be an obstruction of justice, but the discussions on attorney's fee payments and cooperation may be protected by a joint defense agreement, and the government could not seek a waiver to learn about the discussion.  The legislation could produce a "beware what you wish for" response because it could make prosecutors more reluctant to charge an organization, so the government will charge individual officers more frequently, even in close cases if there's any suspicion of executive stonewalling.  This raises the "criminalization of agency costs" issue that has been discussed by some.
  5. Could there be a constitutional problem? I won't pretend to be an expert on constitutional law, particularly separation of powers questions, but this legislation strikes me as unique in having the Legislative Branch direct the Executive Branch in the exercise of its authority to decide who to prosecute on the basis of investigatory considerations.  While courts have imposed limits on prosecutors regarding charging decisions based on protected categories like race and sex, the legislature's role is to define the crimes and then leave it to the executive to enforce the law.  Here, the legislation tells prosecutors what they may not consider in making a charging decision, even if the conduct might have probative weight (e.g. conditioning payment of attorney's fees on not cooperating) regarding corporate criminality.  Courts have been quite reluctant to second-guess prosecutorial charging decisions absent strong proof of an impermissible motive, and there could be a constitutional issue raised by the legislation.

I've gone on way to long, but these are some of the issues I would like to see explored if the next Congress is going to pursue Senator Specter's proposal.  If the goal of the legislation is to bail corporation's out of criminal prosecutions, then the bill may not be the best idea.  If it is a serious effort to protect the privilege and not simply insulate organizations from civil and criminal liability, then Congress should address not only how best to go about doing that, but also what happens if there is a violation, and how to keep corporate executives from perhaps misusing the protections Congress may afford companies. (ph)

December 9, 2006 in Defense Counsel, Privileges, Statutes | Permalink | Comments (1) | TrackBack (0)

Friday, December 8, 2006

Wesley Snipes Surrenders on Tax Charge

Action movie star Wesley Snipes surrendered at the federal courthouse in Ocala, Florida, on tax fraud charges filed against him in October.  Snipes has been in Namibia filming a movie, and was released on $1 million bail and allowed to return there to finish the shoot.  Snipes' decision to return to the U.S. contrasts with that of another defendant residing in Namibia, Kobi Alexander, who is fighting extradition on securities fraud charges related to options-timing at Comverse Technology.  According to an AP story (here), Snipes must return to the U.S. by January 10, 2007, at the latest.  (ph)

December 8, 2006 in Prosecutions, Tax | Permalink | Comments (0) | TrackBack (0)

H-P Agrees to Civil Settlement Over Pretexting

Hewlett-Packard put some of the pretexting scandal behind it by agreeing to a civil settlement with the California Attorney General's office.  Perhaps most importantly for the company, there is no criminal charge from its internal investigation that involved obtaining the private telephone records of board members, employees, and reporters as part of an effort to track down leaks.  The civil complaint (here) alleges unfair competition by H-P based on the same violations as those charged against five defendants involved in the investigation, including former chairwoman Patricia Dunn.  The civil settlement requires H-P to make a substantial payment and introduce changes in its corporate governance structure.  According to a press release (here) issued by the Attorney General:

The settlement requires HP to pay $13.5 million to create in the Attorney General’s Office a new “Privacy and Piracy Fund” for law enforcement activities related to privacy and intellectual property rights. Additionally, HP will pay $650,000 in civil penalties and $350,000 to cover the Attorney General’s investigation and other costs. The settlement’s corporate governance reforms aim to strengthen in-house monitoring and oversight to ensure compliance with legal and ethical standards, and protection of privacy rights, during any investigations launched by HP or outside firms hired by HP. The “injunctive relief” provisions that impose the reforms will last five years.

Among the changes are a "new independent director will serve as the board’s watchdog on compliance with ethical and legal requirements" and a new Chief Ethics and Compliance Officer.  The company's former chief ethics officer, Kevin Hunsaker, is among the defendants in the criminal case.  The injunction lasts for five years.  Needless to say, H-P has been more than cooperative in trying to resolve a very embarrassing situation.  Not everyone has emerged unscathed, however, as a recent American Lawyer article (here) about Silicon Valley superlawyer Larry Sonsini's involvement in the H-P imbroglio makes clear.   

While the imposition of corporate governance changes by the government has been questioned, the outcome of H-P case is quite similar to what we've seen over the past few years in federal cases in which companies enter into deferred and non-prosecution agreements.  The Department of Justice usually prefers the criminal route, although it has used the civil avenue in health care and procurement fraud cases, and it often works in conjunction with the SEC in securities fraud actions. (ph)

December 8, 2006 in Settlement | Permalink | Comments (2) | TrackBack (0)

Operation Cyberstorm Convictions

The U.S. Attorney's Office for the Northern District of California announced the conviction of three defendants for defrauding Microsoft by purchasing software from the company at the academic discount rate and then reselling it in violation of their agreement with the company.  According to a press release (here):

Mirza Ali, 59 and Sameena Ali, 52, of Fremont, the former owners of Samtech Research Inc., were convicted on 30 counts of conspiracy, mail fraud, wire fraud, and money laundering.  Keith Griffen, 55, of Oregon City, Oregon, was convicted on nine counts of conspiracy, mail fraud and wire fraud.  According to the evidence, from January 1997 through January 2001, the Alis and Mr. Griffen formed several nominee corporations and purchased existing corporations holding Microsoft licensing agreements for the purpose of participating in Microsoft’s Authorized Education Reseller (AER) program, a program that provides Microsoft software at steeply discounted prices for resale to academic institutions only.

In 1996, after the Alis were audited by Microsoft and removed from the AER program for failure to comply with the terms of the licensing agreement, the Alis formed new corporations in the names of others to disguise their identity from Microsoft and reenter the AER program.  In 1999, when Microsoft stopped accepting AER applications from new corporations, the Alis and Mr. Griffen, in the names of others, bought small companies throughout the United States that held Microsoft AER licensing agreements and thereafter continued to purchase academic software products. Using these nominee entities, the Alis and their co-conspirators purchased more than $29 million worth of AER software from Microsoft and sold this software to non-academic entities, in violation of the Microsoft agreement. The Alis were also convicted of laundering the proceeds of this scheme, including purchasing real property in the name of their college age son and wiring more than $300,000 of the proceeds from the illegal sales of the Microsoft educational software to Pakistan.

Microsoft estimates that it lost over $60 million from the the defendants' scheme.  “Operation Cyberstorm” is an undercover operation to investigate software piracy. (ph) 

December 8, 2006 in Computer Crime | Permalink | Comments (0) | TrackBack (0)

Thursday, December 7, 2006

Former Deputy AG Ed Meese Calls for Passage of Specter Bill

In a press release of the Heritage Foundation, former Attorney General Edwin Meese III calls for Congress to pass the Specter bill -  "The Attorney Client Privilege Protection Act of 2006." (For details on this bill, see here) He states that:

"The principles embodied in the Attorney-Client Privilege Protection Act of 2006 strike the right balance between the needs of law enforcement and the fundamental civil rights embodied in the attorney-client privilege and related protections for individual employees."

"The Justice Department should act promptly to adopt the substantive provisions of the legislation through administrative means and eliminate the need for Congress to enact legislation on this subject."

(esp)

December 7, 2006 in Legal Ethics | Permalink | Comments (0) | TrackBack (0)

Specter Proposes Legislation on the Attorney-Client Privilege

Senator Arlen Specter proposed a bill today to "provide appropriate protection to attorney-client privileged communications and attorney-work product."   This legislation titled "The Attorney Client Privilege Protection Act of 2006," has nine findings including that "[w]aiver demands and other tactics of Government agencies are encroaching on the constitutional rights and other legal protections of employees." 

In part (b) it provides the purpose of the Act:

"It is the purpose of this Act to place on each agency clear and practical limits designed to preserve the attorney-client privilege and work product protections available to an organization and preserve the constitutional rights and other legal protections available to employees of such an organization."

The Act explicitly states that "[i]n any Federal investigation or criminal or civil enforcement matter, an agent or attorney of the United States shall not" -

"(1) demand, request, or condition treatment on the disclosure by an organization, or person affiliated with that organization, of any communication protected by the attorney-client privilege or any attorney work product;...."

Clearly this legislation is important.  It took an act of Congress to subject federal prosecutors to ethics rules (The McDade Act).  Unfortunately, it will now take an act of Congress to require that prosecutors cease improperly using pressure to secure waivers of the attorney-client privilege.  Marty Pinales, President of the National Association of Criminal Defense Lawyers stated -   " DOJ's high-handed practice of forcing companies at gunpoint to abrogate attorney-client privilege and sacrifice employees' ability to speak candidly with company lawyers without fear that their statements will be handed over to the government is as grossly unfair to the corporation and shareholders as it is to the company's employees.”   (see here).

A Copy of this new proposed legislation is here -

Download attorneyclient_privilege_protection_act_12_6_06_hen06g74_xml.pdf

(esp)

December 7, 2006 in Legal Ethics | Permalink | Comments (0) | TrackBack (1)

A Blizzard of Documents

The New York Times reports (here) that prosecutors in the U.S. v. Stein case involving the prosecution of sixteen former KPMG partners and employees along with two other defendants are unleashing another round of documents on the defendants.  The government is turning over records obtained in its investigation of Deutsche Bank for its role in financing the tax shelters at issue in the case.  Defense lawyers have requested all exculpatory evidence, and apparently the government decided that the documents from that investigation substantially overlap with the tax conspiracy charges and may contain arguably exculpatory evidence under Brady.  The defendants have already received over fifteen million pages of documents from the government, many of them after the discovery cut-off, a point U.S. District Judge Lewis Kaplan noted when he indefinitely postponed the trial (see earlier post here).  Turning over the documents from a parallel investigation may add substantially to the torrent of paper already dumped on the defendants.  Prosecutors can at least argue that they are simply giving the defendants what they asked for, but a full-scale document dump will not be taken to very kindly by Judge Kaplan.  Then again, after his earlier rulings in the case, I doubt the prosecutors in the case, who are from the Southern District of New York, can fall much further in the judge's estimation. (ph)

December 7, 2006 in Prosecutions, Tax | Permalink | Comments (0) | TrackBack (0)

A Little Too Early, A Little Too Late

There are risks in every settlement, but the bankers at JP Morgan can't seem to get the timing down very well in a couple recent settlements in securities fraud class actions.  The Second Circuit overturned a district court's decision to certify a class action in a massive securities fraud suit against dozens of Wall Street firms over their sales of initial public offerings of stock in dot.coms (or dot bombs, if you prefer).  An American Lawyer story (here) discusses the opinion.  Most of Wall Street's heavy hitters, including Goldman Sachs, Merrill Lynch, and that other Morgan (Stanley) fought the class certification in the court of appeals. Unfortunately, JP Morgan dropped out when it entered into a settlement in April 2006 by paying $425 million, a payment it would not have to make now that the class has been knocked out.  The bank may try to get out of the settlement, but if the agreement does not contain a contingency clause on the class certification issue allowing it to withdraw, then the contractual agreement is enforceable in most cases even if it turns out the bank made the wrong guess on the class certification issue. 

To make matters worse, last year JP Morgan entered into a $2 billion settlement over its role in marketing WorldCom bonds after having passed on an earlier offer to settle for $1.4 billion.  Adding it up, that's a billion dollars that the company might not have had to pay had its timing been a little bit better.  Life is full of risks, and litigation is fraught with quite a bit.  An article from TheStreet.Com (here) discusses JP Morgan's settlements. (ph -- thanks to a devoted DC reader for passing this along)

December 7, 2006 in Securities, Settlement | Permalink | Comments (1) | TrackBack (0)

Mortgage Fraud & Other Topics Highlight the Seminar

The Evolution of Crime in the 21st Century conference of the Continuing Legal Education of Georgia had some fascinating programs yesterday.  Ken Morris and Jake Waldrop of the Federal Public Defender's Office gave a superb overview of Computer Forensics and Internet Based Sex Crimes at the Federal Level.  They discussed "what a lawyer needs to know about electronic evidence," computer forensics like acquisition ("usually when law enforcement makes the biggest mistakes"), and common myths related to technology (e.g., "delete means delete").

Another program that caught my eye was Mortgage Fraud: A Modern Crime Wave.  As the Circuit is where the McFarland case rests ( 30 year sentence to an attorney who is a first offender) (see post here), it was interesting to hear the take of players in this area of the law.  The panel consisted of AUSA Barbara Nelson, David McLaughlin - an Asst. AG in Georgia, Daniel Griffin (Miller & Martin); and Holly A. Pierson (NelsonMullins). Paul Kish, the moderator of this panel, and co-chair of the program, asked some very telling questions. Two major cases are in the pipeline here and they will clearly be cases to watch.  One question raised among the group was whether jurors understand this type of fraud case.  Do they get bogged down with the documentation and recall just being in the room when they too signed mortgage papers without really reading them?  Or, is it that the public is tired of their community taxes going up or property values going down because of mortgage failures in the community, and are thus ready to convict for these types of crimes.  One thing is for certain --- taking the risk of trial can result in an astronomically high sentence because of the existing federal sentencing scheme being used.

(esp) 

December 7, 2006 in Computer Crime, Fraud, Investigations | Permalink | Comments (2) | TrackBack (0)

Congress to Work a Five-Day Week Starting in January

Now this is a real white collar crime.  A report in the Washington Post (here) notes that incoming Majority Leader Steny Hoyer delivered the bad news to Representatives and reporters who cover Congress, drawing moans from the journalists.  Hoyer is reported to have told his colleagues, "Those trips you had planned in January, forget 'em. We will be working almost every day in January, starting with the 4th."  I wonder how many will apply for law school teaching jobs now :)  (ph -- sorry, I couldn't resist)

December 7, 2006 in Celebrities | Permalink | Comments (0) | TrackBack (0)

Wednesday, December 6, 2006

Pulling the Plug on Honest Services Fraud for the NatWest Three

Federal prosecutors filed a motion to strike language alleging honest services fraud from the indictment of three former British investment bankers, known as the NatWest Three, who were involved in a transaction with Enron back in 2000.  The indictment contains seven wire fraud count, and each alleges both a money/property fraud and a violation of Sec. 1346, the right of honest services provision.  The prosecution arises out of a transaction in which the three bankers, David Bermingham, Giles Darby, and Gary Mulgrew, convinced their employer, Greenwich NatWest, to sell a special purpose entity created by Enron for $1 million, which was then resold at a much higher price, netting the three over $7 million. 

In August 2006, in United States v. Brown, the Fifth Circuit overturned the fraud convictions of four defendants in the Enron Nigerian Barge trial on the ground that they did not violate the honest services fraud provision because they believed they were acting in the best interests of Enron in engaging in questionable transactions to bolster the company's balance sheet.  The NatWest Three indictment contains the same language at issue in Brown, so prosecutors are moving to cut-off a defense motion to dismiss by seeking to have the honest services language stricken from the indictment.  If granted by the court, the case will be strictly a money/property fraud case, which I suspect will be more difficult for the government.  In a money/property fraud case, the prosecutors will have to prove that the defendants intended to defraud their employer of the funds, which opens up an argument that the transaction did not deprive NatWest of anything that it otherwise would have received in the transaction, so there was no loss.  The advantage of a right of honest services theory is that the loss need not be monetary. 

The government's motion stresses that the change in the indictment will not affect the evidence that can be introduced at trial.

[B]y seeking to remove the honest services language of the indictment, the United States is in no way waiving its right to present evidence relevant to the deprivation of property allegations in the indictment, including, but not limited to, “policies, compliance procedures, ethical standards, and conflict of interest rules restricting employees’ use of confidential corporate information and mandating that employees avoid conflicts between their personal interests and the interests of NatWest or GNW and its clients.” Indictment ¶ 2. Such evidence is probative of defendants’ state of mind as it relates to the allegations of deprivation of money and property contained in the indictment.

The defendants are likely to dispute that argument, saying that the issue now is only whether the intended to defraud NatWest of its ownership interest through a low-ball transaction.  Whether there was a conflict of interest is arguably irrelevant.  (ph)

Download natwest_three_right_of_honest_services_motion.pdf

December 6, 2006 in Enron, Fraud, Prosecutions | Permalink | Comments (0) | TrackBack (0)

The Pequot Tempest on Capitol Hill

The continuing Congressional interest in the SEC's insider trading investigation of money management firm Pequot Capital came up in yet another hearing before the Senate Judiciary Committee.  The actual investigation has been closed by the Commission without any securities fraud charges being filed, but the conduct of the investigation and treatment of a former SEC attorney, Gary Aguirre, continues to fascinate Senators Arlen Specter and Charles Grassley.  Aguirre was terminated from his position in September 2005, and claims it was the result of issues he raised about alleged political pressure put on the Enforcement Division not to subpoena Morgan Stanley CEO John Mack about his contacts with Pequot at the time of suspicious trading by the firm.  Four current and former SEC supervisors testified that there was no political pressure to stop the investigation, but an e-mail (here) from another SEC supervisor at the time of Aguirre's termination said that "[s]omething smells rotten" regarding the failure to pursue the Pequot investigation. 

Insider trading investigations can be difficult to pursue if the trades were by a company that engages in thousands of transactions, and the amount of the gain is small compared to the value of the investment fund.  The Pequot case is unlikely to be revived because the SEC eventually took the testimony of Mack, who undoubtedly denied tipping.  Circumstantial cases are difficult to win, and the investigation on  Capitol Hill is facing the same problem when each side points fingers at the other without clear evidence to support the position of either.  (ph)

December 6, 2006 in Insider Trading, Investigations | Permalink | Comments (0) | TrackBack (0)

Tuesday, December 5, 2006

Evolution of Crime in the 21st Century

The Institute of Continuing Legal Education in Georgia is holding a conference today in Atlanta called the Evolution of Crime in the 21st Century.  The conference, to be held at the State Bar of Georgia, is being co-chaired by Richard W. Hendrix and Paul S. Kish, two prominent Atlanta attorneys. The topics include: Sex, Laws and Technology: An Overview of Internet Based Sex Crimes at the Federal Level; Fraud, Abuse and Compliance Under the Deficit Reduction Act of 2005;  and Mortgage Fraud: A Modern Crime Wave.  There is also a panel on current trends and on sentencing. This blog will cover some of the panel discussions from this conference. 

(esp)

December 5, 2006 in News | Permalink | Comments (0) | TrackBack (0)

Just Another Fraud?

Fraud Update alerts us to a press release of the Middle District of Tennessee that reports that:

". . . a resident of Atlanta, Georgia and Orlando, Florida, was convicted by a federal jury yesterday of attempting to bilk hundreds of businesses out of millions of dollars. Jordan was convicted of mail fraud and aggravated identity theft for attempting to induce hundreds of businesses to mail their electric utility payments to a Post Office Box that he controlled in Nashville."

It kind of reminds one of the case of United States v. Mangan, 575 F.2d 32 (2d Cir. 1978), a case where an IRS agent and his brother were filing tax returns to secure the refund checks. Circuit Judge Friendly in affirming the conviction states, "Fraud, Lord Macnaghten said, Reddaway v. Banham, (1896) A.C. 199, 211, is 'infinite in variety.' These appeals reveal a variety new at least to us."

(esp)

December 5, 2006 in Fraud | Permalink | Comments (0) | TrackBack (0)

Monday, December 4, 2006

Be Careful on Holiday Gifts

Jefferies & Company, Inc. reached a settlement with the SEC and NASD "relating to the activities of a former employee who was dismissed by Jefferies & Company in 2004."  The company's SEC EDGAR  filing states that "[t]he Company has previously reserved 100% of the approximately $10.3 million in aggregate of disgorgement, pre-judgment interest and penalty assessed in these proceedings." The WSJ explains further saying that the money was paid "to settle allegations" related to a trader giving lavish gifts "to Fidelity Investments to win mutual-fund trading business."

(esp)

December 4, 2006 in Securities | Permalink | Comments (2) | TrackBack (0)

Procurement Fraud

A couple of months ago, procurement fraud was announced as a new DOJ priority, and the fruits of targeting this area are starting to roll in. According to a DOJ press release from the Central District of Illinois, "The former Director of Operations in Kuwait and Iraq for Tamimi Global Company, a Saudi Arabian company, Mohammad Shabbir Khan, was sentenced today to a term of 51 months in prison for having paid kickbacks to a Kellogg, Brown & Root Services, Inc. (KBR) employee to secure two military dining subcontracts valued at $21.8 million."  The court also sentenced another individual to a term of 12 months and one day in prison for his role in the kickback scheme with Tamimi."

(esp)

December 4, 2006 in Fraud | Permalink | Comments (0) | TrackBack (0)

Sunday, December 3, 2006

Protecting the Record

According to an article in the National Examiner a judge in Wise County, Virginia had a defendant who was pleading guilty to 243 felonies, enter a plea individually to each one.  The case involved the former mayor of Appalachia, Mayor Ben Cooper, who plead guilty to an array of charges including "stealing election records, forging ballots, hindering the rights of citizens to vote freely, voting more than once in an election and violating absentee voting procedures."  Was it really necessary for the state to charge so many felonies?  It sure adds time to the court process when the individual wants to plead guilty. 

(esp)

December 3, 2006 in Verdict | Permalink | Comments (0) | TrackBack (2)

WhosaRat.com

According to an article in the Tampa Tribune (AP), the website WhosaRat.com is not limited to street crime cases. Witnesses who testify as part of their cooperation, are being exposed on this website. And one person included is former Govenor John G. Rowland who served time and also testified in a corruption case. Although this new website may sound good to some accused of crimes, it may be a potential problem if judges start limiting discovery for fear that the information might end up on a website.

(esp) 

December 3, 2006 in News | Permalink | Comments (0) | TrackBack (0)