Wednesday, January 31, 2007
The new contract Barry Bonds agreed to with the San Francisco Giants that will pay him $15+ million has an unusual clause allowing the team to void the contract if he is indicted for perjury in the ongoing Balco (Bay Area Laboratory Co-operative) steroids investigation. Some baseball contracts permit a team to back out if a player sustains a certain type of injury, such as the recent contract J.D. Drew signed with the Boston Red Sox relating to a previously-injured shoulder. Baseball also has a "good conduct" requirement, but a criminal indictment alone would not necessarily keep him from pursuing Hank Aaron's home run record.
Bonds has been under investigation for nearly two years for possible perjury related to his grand jury testimony in 2003 in which he denied knowingly taking steroids. Another issue that emerged relates to possible tax evasion for not reporting income from autograph signings and memorabilia sales. Whether Bonds is charged is very much an open question since the U.S. Attorney for the Northern District of California, Kevin Ryan, lost his position. That change raises doubts about whether new leadership in the office will continue to pursue a case that has already triggered civil contempts and appeals to the Ninth Circuit for three witnesses who have refused to testify: Bonds' former trainer and two San Francisco Chronicle reporters.
It could be, though, that the Giants know something about the direction of the case. In July 2006, the team submitted Bonds' medical records to the grand jury, and a team physician and trainer testified. It is not clear whether the contract provision will pass muster with the players union or the Commissioner's office, so it may come to naught. A Chronicle story (here) discusses Bonds' new contract. (ph)
Special Counsel Patrick Fitzgerald opened the prosecution's case-in-chief with five high-level government witnesses, including former White House spokesman Ari Fleischer, who each testified to having given I. Lewis Libby at least some information about Valerie Plame's role as a CIA operative. The trial has now switched to the media witnesses, beginning with New York Times reporter Judith Miller, who testified that Libby first spoke to her about Plame on June 23, 2003 -- the twenty-first anniversary of the famous "smoking gun" conversation between President Nixon and H.R. Haldeman about covering up the Watergate break-in. As with the earlier witnesses, Miller had some recall problems in her earlier grand jury testimony when she did not mention this meeting with Libby the first time she testified. According to an AP story (here), Libby's counsel, William Jeffress, asked Miller about her inability to recall the meeting until reviewing her notes, and she responded that "it's really easy to forget details of a story you're not writing." How she could have missed this "detail" entirely, at least for a time, is a bit mystifying, if you will, given that Miller spent 85 days in jail for civil contempt for refusing to testify about her discussions with a secret source who turned out to be Libby.
Like so much in this trial, it is the details of the story that will tell the tale, and Miller palming off a lapse of memory like this may not play well with the jury. Nevertheless, the drumbeat of witnesses from inside the Administration and in the media saying the same basic thing, that Libby told (or questioned) them about Plame's CIA status, will make it difficult to mount successfully a "gosh, it must have slipped my mind when I spoke with the FBI and testified before the grand jury" defense. The case remains a credibility battle, and the stakes will go up with each additional witness who says Libby raised the issue of Plame's role at the CIA first. (ph)
UPDATE: For an interesting first-hand perspective on Miller's testimony, including an issue related to questioning her about confidential sources, check Jeralyn Merritt's thorough post on TalkLeft (here).
A former finance official for the Coalition Provisional Authority in southern Iraq received a nine-year sentence on corruption, money laundering, and weapons charges. Robert Stein worked for the CPA in administering the rebuilding effort, and engaged in a wide-ranging corruption scheme to award contracts to favored companies. According to a Department of Justice press release (here):
Stein admitted to participating in a complex bribery, fraud and money laundering scheme while serving as the Comptroller and Funding Officer for the CPA-SC. From December 2003 through December 2005, Philip H. Bloom, a U.S. citizen who owned and operated several companies in Iraq and Romania, Bruce D. Hopfengardner, a Lieutenant Colonel in the U.S. Army Reserves, and numerous public officials, including several high-ranking U.S. Army officers, conspired to rig the bids on contracts being awarded by the CPA-SC so that all of the contracts were awarded to Bloom. In return, Bloom provided the public officials with over $1 million in cash, SUVs, sports cars, a motorcycle, jewelry, computers, business class airline tickets, liquor, future employment with Bloom, and other items of value.
In addition, Bloom laundered over $2 million in currency that Stein and his co-conspirators stole from the CPA-SC that had been designated to be used for the reconstruction of Iraq. Bloom then used his foreign bank accounts in Iraq, Romania and Switzerland to send the stolen money to Stein, Hopfengardner and other public officials in return for the awarded contracts. In total, Bloom received over $8.6 million in rigged contracts.
Bloom, one of the coconspirators identified in the government statement, also entered a guilty plea and is scheduled to be sentenced on February 16, 2007.
This is not the only front in the investigation of corruption and contract abuse involving the Iraqi reconstruction. The House Oversight and Government Reform Committee will be conducting hearings on the topic, and a statement on the Committee website (here) states:
Rep. Waxman and other members of Congress have been seeking information on contracts entered into by the Administration for reconstruction and development work in Iraq, including several billion dollar contracts with a subsidiary of Halliburton Corporation. Many questions have been raised about the Iraq contracting process, including questions on the seemingly inflated prices charged by Halliburton to import gasoline from Kuwait into Iraq and Halliburton's admission of kickbacks to company officials.
Needless to say, the change in control on Capitol Hill will make these hearings quite contentious. (ph)
Monday, January 29, 2007
Testifying under a grant of immunity, Ari Fleischer disclosed to jurors in the I. Lewis "Scooter" Libby case that he had in fact been told about CIA Valerie Plame's undercover status by the accused. (see Washington Post and New York Times). Because he is testifying under a grant of immunity, his testimony cannot be used against him. In essence he is testifying, although it appears that there is no written guarantee of anything being given to him for this testimony. The only assurance he has is that prosecutors will not use his testimony against him, or the fruits of that testimony. Absent perjury, it is rare a prosecutor indicts on the same conduct, and when they do it can be subject to enormous scrutiny (see United States v. Webster Hubbell).
Prosecutors are often reluctant to put in writing specific terms of a deal, or to guarantee a deal, as this then becomes the heart of a cross-examination. If they offer a deal, it has to be disclosed and the witness's testimony may be considered biased as influenced by the terms of the deal. Thus, irrespective of whether a witness has criminal exposure, a grant of immunity allows the individual to at least receive protection for any statements that they make on the witness stand that respond to the question asked. How this will play out may be seen tomorrow, when Fleischer gets cross-examined.
Exhibits admitted at the trial can be found here.
While Patrick J. Fitzgerald is busy prosecuting I. Lewis "Scooter" Libby, his office back home in Chicago filed its brief in the case U.S. v Ryan. Former Governor Ryan had been convicted of fraud and other charges (see here). The brief responds to defense claims including arguments that "[t]he district court properly dismissed two jurors and replaced them with alternates," the mail fraud "honest services" provision was not vague, and that the RICO charge was proper. In the last argument, the government claims that the State of Illinois can be a proper RICO Enterprise. Although this last point has been held acceptable by other courts, it raises interesting federalism concerns that may at some point be addressed by higher courts.
Sunday, January 28, 2007
The TalkLeft Blog discusses whether Libby's attorneys have all statements by Karl Rove, noting that:
"Fitz has taken the position since day 1 that he's not obligated to turn over statements of defense witnesses, only those of witnesses he intends to call. (That wouldn't be acceptable in my federal District, which has a more open file policy, but each District is different.)"
This is an interesting point that rings true to those of us who have researched the Jencks Act. If the discovery material is exculpatory to the accused, the government is obligated under Brady to turn that evidence over to the defense. Otherwise, the Jencks Act (18 U.S.C. s 3500) merely requires that once the witness testifies for the government, the defense is entitled to the prior statements of that witness before cross-examination is conducted. (see also Fed. Criminal Rules of Procedure, Rule 26.2). So if the prosecutor calls Karl Rove, the statements would become available to the defense.
In reality, most prosecutors turn over Jencks material in advance of trial. In a study I conducted years ago and reported in a symposium article titled, Criminal Discovery of Jencks Witness Statements: Timing Makes a Difference, 15 Georgia St. L. Rev. 651 (1999), a survey of defense attorneys noted that they received Jencks material days before trial, in many cases either 3, 5, 7, 10, or longer before the trial began.
Several things are clear here: 1) there is no uniformity on when witness statements will be received by defense counsel from the government. It seems odd that the government pushes for uniformity in sentencing, but is unable to offer the same within the trial; 2) that some prosecutors seem reluctant to give these important trial materials to the defense (don't they want the truth to prevail); 3) that if the prosecutor and defense counsel decide not to call Karl Rove, we may never know the contents of his testimony before the grand jury.
The sentences for two individuals who plead guilty to a 3 count indictment that related to polluting navigable waters were: 1) 5 months in prison and 2 months supervised release and 2) 3 years probation. Both individuals had restrictions placed upon them to preclude them from polluting U.S. waters. According to the DOJ press release,
"A joint factual statement filed in federal district court in New Jersey stated that on the night of Jan. 3, 2006, U.S. Coast Guard inspectors boarded the Sun New and discovered that members of the engine room crew had used bypass hoses to discharge oily wastes overboard into the ocean without using the vessel’s oily water separator. Upon further investigation, inspectors discovered that the crew of the Sun New had disposed of significant amounts of oil waste into the ocean at least twice during the voyage from South Korea to New Jersey. In September a grand jury in Newark, N.J., returned a three-count indictment charging Chang-Sig O and Mun Sig Wang with conspiracy, obstruction of justice, and a violation of the Act to Prevent Pollution from Ships in connection with the use of the two bypass hoses."
It is interesting to see the sentences given with respect to an environmental offense, albeit an obstruction of justice charge in one case and a violation of the Act to Prevent Pollution from Ships in the other case. Perhaps the greatest deterrent in this sentence was their restrictions on operating ships in U.S. navigable waters. The company, Sun Ace Shipping Company, had previously plead guilty and was "fined $400,000 [and] ordered to pat $100,000 as a community service payment. They were prohibited from "returning to the U.S. for three years for similar violations in conjunction with this case."
DOJ may be a step behind the Army as this military branch begins its own fraud investigations. (see Washington Post AP here). But with the opening of fifty (50) investigations of contractors one has to wonder if this action is a bit late. Was there no adequate compliance program in place to make certain that fraud did not occur? And was there an "effective program" to oversee contractors who were working in foreign countries? And if the Army failed to monitor its contractors, is this recent effort to investigate sufficient? But unlike the corporation that fails to have an "effective program," you probably won't be seeing a deferred prosecution agreement here. The real question will be whether the legislature will intervene here.
Saturday, January 27, 2007
Is the appointment of Tim Griffin, the U.S. Attorney for the Eastern District of Arkansas, unconstitutional? In a rare motion, Attorney John Wesley Hall questions this appointment and asks the U.S. District Court for the Eastern District of Arkansas to find it unconstitutional. The basis is that the appointment was never submitted to the Senate for its "advice and consent," and that only the President has the power to make such an appointment - not the Attorney General. For more details see the LA Times. The motion is here -
The common phrase uttered by prosecutors asked to grant immunity (or even enter into a plea deal in exchange for cooperation) is "We won't buy a 'pig in a poke.'" Having uttered it myself with no clue what it meant, I once looked up the phrase and learned that in an earlier era pigs (and other animals) being transported to a market to be sold were kept in a "poke" sack, which is a thick canvas bag, to keep them from escaping -- pigs were especially prone to running away, so the sack was kept tied tightly. Rather than buying something sight unseen (like we do on the internet all the time), the purchaser demanded to see the animal before paying for it, lest he buy the pig in an unopened poke. For prosecutors, the phrase is an indication that the witness/defendant has to provide a statement, usually called a proffer, before the government will make a deal.
The prosecution of I. Lewis Libby has brought this timeworn phrase to the forefront with news that former White House spokesman Ari Fleischer sold the aforesaid pig in a poke to Special Counsel Patrick Fitzgerald when he demanded immunity during the investigation of the leak of Valerie Plame's status as a CIA agent without first making a proffer. Fleischer is scheduled to testify against Libby at trial, and the prosecutor refuses to turn over any notes because they are not witness statements (under the Jencks Act) nor was there a deal for Fleischer to receive immunity in exchange for certain testimony. In that sense, while the government knows the outlines of Fleisher's testimony, the exact nature of it will be a surprise to both sides, at least according to Fitzgerald. Needless to say, defense counsel are skeptical that an experienced prosecutor like Fitzgerald would make a blind immunity deal and are demanding to know what has been said about Fleisher's testimony.
An AP story (here) quotes Fitzgerald as stating in court, "I didn't want to give him immunity. I did so reluctantly . . . I was buying a pig in a poke." Although I doubt Fitzgerald meant the porcine reference to relate specifically to Fleischer, it certainly shows that the Special Counsel was willing to take a significant risk that Fleischer would say things that would protect others in the administration while making it virtually impossible to pursue criminal charges against him because of the immunity. While risky, the grant of immunity without hearing Fleisher's likely testimony allows him to state on the witness stand that he did not "bargain" for that protection in exchange for "tainted" testimony, thus giving his credibility a small but potentially important boost. Never having bought a real pig in a poke, I can't say what the risk there really is, but in a high-stakes investigation like this one Fitzgerald has shown his willingness to take chances. To the extent the prosecutor denies having any information on what Fleischer promised to testify about, U.S. District Judge Walton's hands are largely tied because he can't order the government to turn over what it doesn't have, even if the government purposely chose to avoid creating such material to hamstring the defense. (ph)
The guilty plea of private investigator Bryan Wagner to federal identity theft charges has led to the dismissal of the state charges filed against him in 2005 because of California's double jeopardy statute. Wagner was involved in pretexting on behalf of Hewlett-Packard to obtain private telephone records of reporters and company employees to track down leaks, and he was one of the five defendants charged by the California Attorney General's Office for various offenses related to that conduct. Wagner entered a guilty plea to charges filed by the U.S. Attorney's Office for the Northern District of California and agreed to cooperate in that office's ongoing investigation, signaling that the federal case that had appeared to be dormant was in fact moving forward. One consequence of the federal conviction is that it triggers the protection of California Penal Code Sec. 656, which provides: "Whenever on the trial of an accused person it appears that upon a criminal prosecution under the laws of the United States, or of another state or territory of the United States based upon the act or omission in respect to which he or she is on trial, he or she has been acquitted or convicted, it is a sufficient defense."
The constitutional double jeopardy protection does not prevent one state, or the federal government, from prosecuting a person for the same crime already prosecuted by another state under the "dual sovereignty" doctrine. For example, that doctrine permitted the federal prosecution of the police officers who beat Rodney King after their acquittal on state charges. While the federal Constitution does not bar a second prosecution, California law does, so state prosecutors have acknowledged that the charges against Wagner must be dropped (see AP story here).
I assume the federal prosecutors know the California rule, and simply decided to proceed regardless of the effect on the pending state charges. Wagner is the low man on the pretexting totem pole, and could still be called as a witness in the state case to testify against the remaining four defendants if his plea agreement with the U.S. Attorney's office requires him to do so. The federal charges seem to show a lack of cooperation, or at least coordination, between the federal and state prosecutors because it is uncommon for one office to file charges that effectively knock out a case being pursued by another office. If the federal prosecutors bring charges against additional defendants in California's case, it may undermine that prosecution because of the double jeopardy protection afforded by state law. In this instance, there is not a two-way street between the federal and state governments. (ph)
Friday, January 26, 2007
Natural disasters often bring out the best in people, but the lure of easy money in the aftermath can sure bring out the worst. An indictment in the Southern District of Texas charges five people with a scheme to obtain over 100 payments from FEMA for relief from Hurricanes Katrina and Rita. According to a press release (here):
According to the indictment, the five defendants, along with co-conspirators Curtis Caldwell and Ernest Tutt, Jr., who have previously been charged with mail fraud in connection with their filing of fraudulent FEMA claims, conspired to file 103 fraudulent FEMA claims for Hurricane Rita and Katrina disaster assistance between September 5, 2005 and June 14, 2006. Octavia Caldwell allegedly provided the other defendants with addresses in New Orleans and Lake Charles–addresses that sometimes did not exist–to use in filing numerous FEMA claims even though all the defendants resided in Harris County when Katrina and Rita made landfall. The defendants used social security numbers belonging to other individuals, who had no knowledge of the scheme, in their claims to avoid detection. The alleged scheme also involved the defendants using different middle initials when filing their claims, and directing funds be delivered via the U. S. Mail to the “current mailing address” included in the claim, which was frequently changed in an attempt to conceal the filing of multiple claims by the same person. The indictment further alleges the defendants used fraudulent Louisiana drivers licenses when cashing the fraudulently obtained assistance checks at various Houston area locations.
All told, the scheme is alleged to have bilked the government out of almost $150,000. A lot of effort goes into these schemes, and you wonder how much is not being caught by investigators and going to scam artists who see a quick buck in a widespread tragedy. (ph)
Federal prosecutors in Cleveland charged three former officials with the Cleveland Housing Network, a non-profit that rented houses primarily to low-income tenants, on bribery charges for demanding kickbacks from contractors. Two defendants were Regional Coordinators with CHN and the third was a maintenance supervisor, and a press release (here) describes the alleged corruption:
[C]ertain contractors hired to perform repair and rehabilitation work on CHN properties were required to kickback a portion of money CHN paid them to a Regional Coordinator in return for continuing to receive business from CHN. The Regional Coordinators also required certain contractors to seek payment from CHN for work that the contractors had never performed and to give these payments to the Regional Coordinator in return for continuing to receive business from CHN. At times, portions of these improper payments were shared with [one defendant]. Defendants also required certain contractors to perform repair work without compensation at Defendants’ personal residences and Defendants’ relatives residences in return for continuing to receive business from CHN.
Thursday, January 25, 2007
A report on Yahoo.Com (here) states that a federal investigation of possible extortion of former Heisman Trophy winner Reggie Bush includes tapes made by sports marketers who may have given Bush and his family large financial benefits while he was a "student-athlete" at USC. The allegations of improper payments first emerged after Bush finished his career USC in January 2006, and there were claims that he had agreed to be the first client for a new sports marketing agency. When the deal didn't come to fruition, Bush alleged that he received extortion threats, triggering a federal grand jury investigation in San Diego, where the agency was headquartered. Among the items subpoenaed were tapes that allegedly include Bush stating he would repay the money he received and for a car he drove. The receipt of such benefits by a college athlete means the person loses their eligibility, and likely would trigger NCAA sanctions against USC; Bush is beyond the jurisdiction of the college sports czars, and is a likely choice for NFL Rookie of the Year for his play with the New Orleans Saints this season.
This would not be the first federal case involving questionable payments to "student-athletes" by shady characters. The prosecution of Norby Walters in the 1980s on RICO and mail fraud charges involved secret payments by a sport agents to college players who later reneged on their deals, and threats against them. For a summary of the case, see United States v. Walters, 997 F.3d 1219 (7th Cir. 1993). (ph)
The trial of I. Lewis Libby is moving down the the path of triggered memories and challenges to suddenly clearer recollections as the government focuses on when Libby learned that Valerie Plame was a CIA officer and defense counsel challenges the recall of the government witnesses. The government's second witness was former CIA associate deputy director Robert Grenier, who testified that Libby contacted him to learn about former Ambassador Joseph Wilson's trip to Africa. Grenier said that he was called out of a meeting with the CIA Director by a second call from Libby for further details on the trip, and that he told Libby that Wilson's wife was a CIA agent in the group that arranged the trip. On cross-examination, William Jeffress noted that Grenier's testimony was different from his earlier statement to the FBI that he did not recall telling Libby that Wilson's wife (Plame) worked for the CIA. Jeffress asked, "Do you find your memory gets better the further away from an event you are?" Classic cross-examination to impugn the witness's testimony, a question that does not really seek an answer -- Grenier said, "It depends." The case remains one about the credibility of witnesses, and whether the jury will accept the version presented by the government or Libby. Talk of scapegoating during the opening has a certain rhetorical value, but the assessment of witness recollections (or the lack thereof) will likely tell the tale. A Washington Post story (here) discusses the latest testimony, and the blog Firedoglake live-blog's the testimony (here). (ph)
In the annals of embezzlement cases, this one certainly rates as one of the more audacious for the length of time over which it occurred and the lavish lifestyle the stolen money afforded. The U.S. Attorney's Office for the District of Massachusetts issued a press release (here) discussing the criminal information filed against Angela B. Platt, who worked as the staff accountant for a building materials company. According to the charge, she embezzled $6.9 million over nearly seven years, starting with smaller checks ($2,000 to $5,000) deposited into an out-of-state account until the last couple years when they were in the $50,000 range. More than just the amount taken is Platt's spending, which, as usual, includes a few rather cheesy items. According to the press release, she purchased "A 104-acre ranch in West Haven, Vermont, on which she built a log cabin, with a heated saltwater swimming pool, and two barns, one of which housed a commercial-caliber arcade; A four-bedroom Colonial-style house on five acres of land in Foster, Rhode Island with a home movie theater; Thirty acres of undeveloped coastal land in Harrington, Maine; Timeshares in Disney World and at the Harborside Resort Condominium II on Paradise Island in the Bahamas; Eight show horses; Five all-terrain vehicles, five high-end snow mobiles, three commercial farm tractors and a motorcycle; A fleet of motor vehicles . . . " The fleet, over twenty vehicles, included a "replica 1923 Ford Model-T customized into a novelty car dubbed the 'Green Goblin,' with a body fashioned as a green fairytale-looking monster." Platt was also "[a] devoted Halloween enthusiast, [purchasing] various Hollywood-grade cinematic props to decorate her home for Halloween, including a twenty-foot tall, smoke-emitting dragon called 'The Slayer' which sported hydraulically-powered wings and a booming dragon roar. PLATT also purchased six talking trees like those in the Wizard of Oz, at a cost of $3,000 each, and a life-size ceramic statue of Al Capone (seated, smoking a cigar)." I can't wait to see what these things fetch at the auction to repay the money embezzled from the company. Somehow, I don't think her former employer should expect to receive much back as restitution; Wizard of Oz replicas just don't command top dollar any more. If the "staff accountant" acquired over twenty vehicles, multiple houses, the Green Goblin and a dragon, could that be just a little bit of a tip-off that something might not be right with the books? (ph)
Tuesday, January 23, 2007
Many people have comments about the opening day of the Libby trial. One thing is for certain from the defense opening statement - the name Karl Rove is a name that will be mentioned in the days ahead. And for Karl Rove yet a another stroke of luck (?) as the newspapers will be reporting this on the same day as the President's State of the Union Address. Which one was above the fold and in the center of the paper that you read?
Here are some descriptive portrayals or blog entries of day number one -
Talk Left here
New York Times here
Washington Post here
Wall Street Jrl here
It appears that Apple Inc. CEO Steve Jobs met with prosecutors from the U.S. Attorney's Office for the Northern District of California and SEC investigators to explain his role in options backdating at the company in 2001. Apple earlier revealed that "[a]lthough the investigation found that CEO Steve Jobs was aware or recommended the selection of some favorable grant dates, he did not receive or financially benefit from these grants or appreciate the accounting implications." According to an article in The Recorder (here), Jobs was interviewed by the government to explain his lack of knowledge of the accounting issues and that he did not knowingly violate the securities laws.
While risky, Jobs' meeting with prosecutors is not unprecedented in white collar crime investigations, and there can be substantial benefits in presenting a well-prepared witness to provide the government with additional information that can dissuade it from pursuing a case against the individual. There is always the risk of the "Martha Stewart" effect, that the witness will be prosecuted for making a false statement. But the upside can also be significant if the government perceives that the witness has nothing to hide and presents a plausible story. While counsel must proceed cautiously, there is no firm rule against having a client meet with investigators to present his or her side of the transaction, especially when the case will revolve around intent.
The Recorder also notes a bit of disarray in the options-timing investigations in the Northern District of California, with U.S. Attorney Kevin Ryan and two of the lead prosecutors in the probes headed out the door. Ryan was among the U.S. Attorneys recently forced out of office, and it will be interesting to see if the new leadership in the USAO has the same commitment to undertaking these types of complex, document-intensive cases that may not generate any criminal prosecutions. (ph)
Broadcom Corp. announced the largest restatement to date due to options-timing issues, totaling $2.2 billion, due to inadequate documentation covering the first five years in which it was publicly traded. In the typically bland terms describing such decisions, Broadcom's 10-K (here) states:
From our initial public offering through May 2003, Broadcom’s option grant processes and procedures were not formalized or consistently followed . . . The Equity Award Committee did not conduct formal meetings with respect to all option grants; rather, the committee members often held informal discussions, either in person or telephonically, to determine whether option grants should be approved and priced as of that day. The Equity Award Committee members conferred frequently (often weekly) during 1998 and 1999. From 2000 through 2002, the Equity Award Committee members conferred less frequently and sometimes made option grants only once a quarter. No formal, contemporaneous written records of the Equity Award Committee discussions or meetings were kept. Instead, the Equity Award Committee relied upon, and option grant approvals were documented by, unanimous written consents, which were dated “as of” a specified date but were generally prepared after that date and signed at a later time. Thus, Broadcom has been unable to locate affirmative, contemporaneous documentation of Equity Award Committee meetings related to many past option grants.
The responsibility is put largely at the feet of co-founder and former CEO Henry T. Nicholas, III, but the company is quick to exonerate him and other CEOs by noting that none of them personally gained from the options awards. A press release (here) stresses, "No option grant requiring a measurement date revision was awarded to Broadcom's co-founders (Henry Samueli and Henry T. Nicholas III), either of the Chief Executive Officers who succeeded Dr. Nicholas (Alan E. Ross and Scott A. McGregor), or any current or former member of the Board of Directors." The Nicholas Family Trust owns over 36 million shares, so Nicholas had little need to enrich himself further on company options. The size of the restatement and apparent involvement of a former CEO in the timing decisions is likely to draw even further interest from prosecutors and the SEC. (ph)
Monday, January 22, 2007
The trial of one individual in the Coke trade secrets case began today. (see Atl. Jrl Constitution here). Two others previously plead guilty after being charged with trying to sell trade secrets to Pepsi for 1.5 million dollars. (background here and here). Assistant U.S. Attorney Randy Chartash, an experienced attorney, is presenting the government's case. The case may rest on the credibility of the witnesses who testify against the former secretary, and defense counsel in opening statement provided a preview of what some of the problems may be with that testimony. (see here).