Friday, May 25, 2007

No Confidence Resolution on AG Gonzales Introduced

Senators Charles Schumer and Diane Feinstein introduced a resolution expressing a lack of confidence in Attorney General Alberto Gonzales.  The text reads: "It is the sense of the Senate that Attorney General Alberto Gonzales no longer holds the confidence of the Senate and of the American people."  That's concise, to say the least, allowing those who have expressed different reasons for having a negative view of the Attorney General to support it. 

In a press conference, President Bush reiterated his support for Gonzales (here):

Q Good morning, Mr. President. I'd like to ask you about the Justice Department. In the last couple months, we have heard disturbing evidence about senior officials of the Justice Department misleading Congress. We heard disturbing evidence yesterday that a senior official at the Justice Department improperly took, by her own admission, political considerations into effect in evaluating career employees of the Justice Department.

We've also had evidence from the former Deputy Attorney General of the White House strong-arming a sick man into trying to approve an illegal spying program. I'm curious, Mr. President, if you are concerned about the cumulative picture that's being drawn about your Justice Department? And what assurances can you give the American people that the department is delivering impartial justice to the American people?

THE PRESIDENT: Yes, thank you, Michael. There is a -- an internal investigation taking place at the Justice Department. And this will be an exhaustive investigation. And if there's wrongdoing, it will be taken care of. I thought it was interesting how you started your question, "over the months," I think you said, "over the last months." This investigation is taking a long time, kind of being drug out, I suspect for political question -- for political reasons. In other words, as I mentioned the other day, it's just grand political theater.  Attorney General Gonzales has testified, he's produced documents. And I would hope the Senate and the Congress would move expeditiously to finish their hearings and get on to the business of passing legislation that is meaningful for the country. But if there had been wrongdoing, that will be addressed, the way we'd hope it would be.

Q (Inaudible) -- confidence. Are you --

THE PRESIDENT: Yes, I've got confidence in Al Gonzales doing the job.

In a press briefing on May 22, White House spokesman Tony Snow discussed wheterh Gonzales is a distraction for the White House (here):

Q Let me just follow that. If you widen out -- however, it becomes very clear that the Attorney General has become a distraction. And so that, again, it is incumbent upon him to say, Mr. President, I don't want to be a distraction to you anymore.

MR. SNOW: I don't think he's a distraction. The President is perfectly loyal. I think it may be a distraction -- again, a lot of people have been trying very hard to turn this into a big story, to no avail. So the distraction I think is more on Capitol Hill and some who have to report the story, than it is with the President, who is confident in Alberto Gonzales and is concentrating on the other business at hand. (Italics added)

It's an interesting view that the Congressional investigation of the U.S. Attorney firings and other actions by Gonzales is not in fact a "big story."  Regardless of how big (or small) the story is, even if the "no confidence" resolution scheduled to be voted in mid-June passes, that does not mean the end of Gonzales' service as the Attorney General, because only one person has a vote on his tenure that counts. (ph)

May 25, 2007 in Prosecutors | Permalink | Comments (1) | TrackBack (0)

Transparency International Issues Annual Global Corruption Report

International corruption watchdog Transparency International issued its 2007 Global Corruption Report, and the focus is on judicial corruption.  The organization notes that "a corrupt judiciary erodes the international community’s ability to prosecute transnational crime and inhibits access to justice and redress for human rights violations. It undermines economic growth by damaging the trust of the investment community, and impedes efforts to reduce poverty."  According to TI's analysis:

The importance of an independent judiciary cannot be overemphasised. Everyone loses when justice is corrupted, particularly the poor, who are forced to pay bribes they cannot afford.  Transparency International’s latest global survey of attitudes towards corruption reveals that in more than 25 countries, at least one in 10 households had to pay a bribe to get access to justice.  Corruption in the judiciary includes any inappropriate influence on the impartiality of judicial proceedings and judgements and can extend to the bribing of judges for favourable decisions, or no decision at all.

Judicial corruption includes:

  • the misuse of judicial funds and power (ie. nepotism or manipulation of contracts for court construction and equipment)
  • biased case allocation and bias in other pre-trial procedures (ie. court clerks bribed to "lose" files and evidence)
  • influence of any trial or court settlement, and the enforcement - or not - of court decisions and sentences

Bribery, the other dark thread of judicial corruption, can occur throughout the fabric of the judicial process.


May 25, 2007 in Think Tank Reports | Permalink | Comments (1) | TrackBack (0)

Thursday, May 24, 2007

Goodling Points the Finger at McNulty

Monica Goodling's testimony before the House Judiciary Committee began with a clear shot at Deputy Attorney General Paul McNulty, who said that his testimony in February 2007 about the firing of eight U.S. Attorney's was not completely accurate because Goodling (among others) withheld information from him.  In her prepared testimony (here), Goodling fired back: "I do not agree with  the Deputy [Attorney General]'s allegation that I failed to brief him adequately.  Nor do I agree with the substance of his testimony in all respects."  While not asserted in so many words, Goodling's testimony raises the question whether McNulty, who recently announced that he would resign from the Department of Justice to pursue private employment, committed perjury when he testified.  McNulty issued a statement in response asserting that "Ms. Goodling's characterization of my testimony is wrong and not supported by the extensive record of documents and testimony already provided to Congress."  Does it sound like everyone is telling the truth here?

On another front, Goodling sought to defend her conduct despite admitting that she used political criteria in the selection of Assistant U.S. Attorneys, which violates federal law. She wrote, "In a very small number of cases, I believe that my decisions may have been influenced in part by political considerations.  I regret this mistake."  In response to a question by Representative Bobby Scott about whether it is against the law to take political considerations into account in hiring career prosecutors, Goodling responded, "I believe I crossed the line, but I didn't mean to."  This isn't the "honest-but-ignorant civil servant" defense, but more the "I-didn't-really-want-to-do-anything-wrong" defense, which wouldn't carry much weight with seasoned prosecutors.  By granting Goodling immunity, however, Congress made it quite difficult to prosecute her for the violation, which she didn't quite admit anyway.  On the other hand, it may be difficult for her to land a position in law enforcement any time soon.  An AP story (here) discusses the testimony. (ph)

May 24, 2007 in Investigations, Prosecutors | Permalink | Comments (0) | TrackBack (0)

Former Rove Aide Requests Immunity in Corruption Investigation

The corruption cases spawned by former superlobbyist Jack Abramoff may be headed in the direction of the White House as a former aide to Presidential advisor Karl Rove requested immunity from a Congressional Committee before testifying.  Susan Ralston worked for Abramoff from 1999 to 2001, and then joined the White House staff as an executive assistant to Rove.  The House Oversight and Government Reform Committee sought her testimony to explore the 485 contacts that Abramoff and his associates had with White House officials, of which 69 were with Ralston. 

A letter to the Committee from Ralston's attorney takes a rather odd approach in seeking immunity.  According to a Bloomberg story (here), the letter states, "However, given the highly charged political environment and the uncertain legal and factual landscape associated with these rapidly developing investigations, she is not comfortable answering further questions without some comfort that her words won't be used to hurt her unfairly."  Immunity is not designed to make witnesses feel more comfortable, although it could have that effect.  A request for immunity has to be based on a reasonable belief that a witness' truthful answer could lead to a criminal prosecution of that person.  A witness' words can be used to "hurt" the person in many ways, such as holding them up to ridicule or public reproach, but that would not be a basis to assert the Fifth Amendment privilege -- only possible criminal prosecution triggers the protection.  Similarly, a fear of prosecution if one does not tell the truth is not cured by immunity because the statute (18 U.S.C. Sec. 6001 et seq.) expressly allows for use of the statement in a subsequent perjury prosecution. 

That said, the House Committee expects to tread lightly and not seek immunity immediately.  Instead, it will try to obtain information from other witnesses before reaching any decision on compelling Ralston to testify under an immunity order.  As often happens, an assertion of the Fifth Amendment piques everyone's interest. (ph)

May 24, 2007 in Corruption, Investigations | Permalink | Comments (0) | TrackBack (0)

Sidley Austin Dodges Criminal Charges for Tax Shelter Opinions

National law firm Sidley Austin LLP avoided criminal charges for the work of one of its former tax partners, Raymond Ruble, who is one of the defendants in the KPMG tax shelter prosecution that is the subject of the Second Circuit's recent opinion.  A press release issued by the U.S. Attorney's Office for the Southern District of New York (available below) discussed the reasons why, under the McNulty Memo, the decision was made not to charge the law firm:

  • Ruble's activities were primarily while he was with Brown & Wood before it merged with Sidley in 2001, and only a few opinions were issued after the merger on Ruble's insistence that he had an ethical obligation to provide them.  The government accuses Ruble of providing "cookie-cutter" opinions that did not properly reflect the legality of the tax shelter transactions.
  • Sidley notified the IRS once it learned about the problems with Ruble's opinions and fired him shortly thereafter.
  • The firm adopted a "model compliance program" after discovering the problem and cooperated in the criminal and IRS investigations.
  • The collateral consequences of a criminal prosecution on employees, partners, and clients of the firm.

Sidley agreed to pay a $39.4 million civil penalty to the IRS for the opinions issued in the firm's name, and accepted responsibility for the violations (the firm's press release is available below).  Going forward, the government can concentrate on the eighteen defendants charged in connection with the tax shelters, although as discussed in an earlier post (here) about the Second Circuit's decision on the KPMG attorney's fees issue, U.S. District Judge Lewis Kaplan could well dismiss the indictment of the former KPMG partners and employees because of constitutional violations by prosecutors.  (ph)

Download sidley_austin_sdny_press_release.pdf

Download sidley_austin_press_release.pdf

May 24, 2007 in Tax | Permalink | Comments (0) | TrackBack (2)

Eight-Year Sentence for Former Coke Employee in Trade Secrets Case

A former executive administrative assistant at the Coca-Cola Co. convicted of conspiracy to steal trade secrets and sell them to rival PepsiCo. received an eight-year prison sentence.  The Sentencing Guidelines called for a sentence of 63 to 78 months, but U.S. District Judge J. Owen Forrester gave a higher sentence, stating that "I can't think of another case in 25 years that there's been so much obstruction of justice."  A co-defendant who entered a guilty plea and testified for the government received a five-year sentence for his role in trying to sell the information for $1.5 million.  A third coconspirator awaits sentencing.  As is common in white collar crime cases, the defendant who chooses to go to trial usually receives a higher sentence, although in this case the assistant testified at trial that she was not involved in the scheme but then acknowledged what she did at sentencing.  While the Sentencing Guidelines include a increase for obstruction of justice, in their current advisory state the judge can impose a higher or lower sentence if it meets the criterion of reasonableness.  The assistant's plea for mercy fell on deaf ears in this case.  An AP story (here) and press release from the U.S. Attorney's Office for the Northern District of Georgia (here) discuss the sentencing. (ph)

May 24, 2007 in Fraud, Sentencing | Permalink | Comments (1) | TrackBack (0)

Wednesday, May 23, 2007

KPMG Attorney's Fees Claims Kicked By the Second Circuit -- Is Dismissal of the Indictment Next?

The jury-rigged procedure created by U.S. District Judge Lewis Kaplan to address claims for attorney's fees by the former KPMG partners and employees charged with tax evasion for their role in selling tax shelters has been overturned by the Second Circuit (opinion available below).  Judge Kaplan found that the Department of Justice violated the Fifth and Sixth Amendment rights of the individual defendants in one of the largest tax prosecutions ever when prosecutors pressured KPMG to cut off paying attorney's fees as a condition of the deferred prosecution agreement it entered into to settle a criminal investigation of the firm's conduct in the creation and marketing of the tax shelters.  Rather than dismiss the indictment because of the constitutional violations, Judge Kaplan found that the court had ancillary jurisdiction to hear civil claims by the defendants for payment of the fees as the best remedy.  In a 25-page opinion that will please those with an affinity for federal appellate jurisdiction and the rules for mandamus actions, the court of appeals first decided that it would treat the claim by KPMG challenging the judge's decision as a petition for a writ of mandamus so it could sidestep the question of whether it had jurisdiction over the action or whether it was an unappealable interlocutory order -- remember the collateral order doctrine from your civil procedure course?

After cutting through the jurisdictional thicket, the Second Circuit addressed the appropriateness of the ancillary civil proceeding by which defendants could seek to have KPMG pay their attorney's fees.  In a concise, well-written rejection of Judge Kaplan's analysis of the need for such a remedy, the court of appeals found that Judge Kaplan's process would not address the core claim of a constitutional violation and the procedures for adjudicating the issues were quite unclear.  The opinion states:

[T]he assertion of ancillary jurisdiction over matters that are otherwise outside the jurisdiction conferred by the Constitution and the Congress can be justified only by compelling needs arising in the exercise of the jurisdiction that is conferred. While we do not exclude the possibility of a legitimate ancillary proceeding involving a non-party to the primary litigation, we believe that the requisite compelling circumstances will be rare, as the need for such a proceeding generally will be far less pressing than in cases involving parties already before the court.  In the present matter, the prejudice to KPMG is clear, and the need for the ancillary proceeding is entirely speculative.  The claims to be resolved in the ancillary proceeding sound in contract, i.e. appellees claim that KPMG impliedly -- in one case expressly -- promised to pay their expenses in defending the present criminal charges. The prejudice to KPMG in having these claims resolved in a proceeding ancillary to a criminal prosecution in the Southern District of New York is clear. At stake are garden variety state law claims, albeit for large sums.  KPMG believed that contractual disputes between it and the appellees would be resolved by arbitration. Instead, KPMG is faced with a federal trial of more than a dozen individuals’ multi-million dollar “implied-in-fact” contract claims.  Moreover, because such a proceeding is governed by no express statutory authority, the district court has indicated its intention to apply to this expedited undertaking an ad hoc mix of the criminal and civil rules of procedure determined on the fly, as it were. The resolution of the contract claims against KPMG is thus to occur in an entirely sui generis proceeding even though it may require the scrutinizing of decades of KPMG’s conduct, determining the states of mind of dozens of individuals, applying the findings from those inquiries to the particular circumstances of each appellee, and resolving multiple questions of the law of several states. Waiting to appeal from a final judgment in this sort of proceeding can hardly be described as an “adequate means” of relief eliminating the need for mandamus.

In discussing the appropriateness of the district court's remedy, the Second Circuit pointed to what may well be the next step in the litigation: dismissal of the indictment.  The court wrote:

Even if the holding that the government violated the Fifth and Sixth Amendments is correct -- an issue on which we express no opinion -- the ancillary proceeding will provide a "remedy" only if KPMG loses, hardly a foregone conclusion on the present record. But even if there are constitutional violations and even if KPMG was contractually obligated to pay appellees’ expenses, the ancillary proceeding is not an indispensable remedy and may not even constitute a full remedy. Dismissal of an indictment for Fifth and Sixth Amendment violations is always an available remedy. (Italics added)

Judge Kaplan eschewed the dismissal remedy because of the costs imposed on society when a criminal case cannot be prosecuted.  Faced with the Second Circuit's reversal of his mechanism for granting attorney's fees -- the likelihood of KPMG prevailing before him was slight, I think -- the only clear alternative for addressing the constitutional violations is to dismiss the indictment.  At that point, the government is almost guaranteed to file an appeal, which will place the constitutional question squarely before the court of appeals, and, perhaps down the road, the Supreme Court. 

Judge Kaplan's analysis of the constitutional violations in this case was an extension of existing caselaw, at best.  Whether his findings survive depends on the next step: Will the judge grant the remedy pointed to by the Second Circuit as the most direct means of addressing the prosecutorial violations found by the court and thereby open his constitutional analysis to appellate review?  If he does dismiss the indictment, an already slowed case will grind to a halt while appeals are pursued, and each side will have a strong incentive to seek Supreme Court review.  Not dismissing the indictment puts the court in the uncomfortable position of finding sustantial constitutional violations but granting no relief to the aggrieved parties. (ph)

Download us_v. Stein Opinion May 23 2007.pdf

May 23, 2007 in Judicial Opinions, Prosecutions, Tax | Permalink | Comments (0) | TrackBack (4)

Goodling Goes to Capitol Hill

Monica Goodling will appear before the House Judiciary Committee on May 23 and, after receiving a grant of use/fruits immunity, testify about her role in the firing of nine U.S. Attorneys in 2006.  Goodling served as the White House Liaison for Attorney General Alberto Gonzales until resigning in March 2007, shortly after she refused to testify by asserting her Fifth Amendment privilege.  There is a continuing squabble between Goodling and Committee chairman John Conyers over her production of documents.  The Department of Justice has provided a number of e-mails to and from Goodling to the Committee, but some have been redacted because they contain sensitive information.  One document (here) is a blank page other than the e-mail address and subject line ("McKay and Margolis").  Conyers has demanded that Goodling provide the entire text of the communications.  According to a story in The Hill (here), Goodling's attorney, John Dowd, has responded that she will not provide the unredacted versions because of DoJ regulations.  This may portend a testy beginning to her appearance, and I suspect she is unlikely to provide much if any fodder about the firings for those looking to pressure Gonzales to resign, at least not intentionally.

The e-mail traffic does not contain anything particularly explosive, although one communication did catch my eye for its use of quotation marks (think Dr. Evil).  An e-mail (on page 22 here) from Christopher Oprison in the White House Counsel's office to Goodling on February 26, 2007, states, "I need to chat about the 'performance evaluations' for the departing U.S. Attorneys.  Time sensitive issue for Tony. Thanks."  I suspect "Tony" is White House spokesman Tony Snow, and the request came as the controversy over the firings heated up.  An interesting question is why Oprison put "performance evaluations" in quotes,  Was Oprison asking for the cover story for the firings, or at least the spin that would be dispensed on the issue?  Recall that around this time the Attorney General dismissed questions about the firings as an "overblown personnel matter" and the original reason given by Deputy Attorney General Paul McNulty was that seven of the eight were asked to resign for "performance" reasons, a position the Department of Justice subsequently backed away from.  Finally, why is someone in the White House Counsel's office -- having worked under Harriet Miers, mentioned as having some role in the firings -- asking for the information for the press office?  As always, each batch of e-mails brings new stories to think about.  (ph)

May 23, 2007 in Investigations, Prosecutors | Permalink | Comments (0) | TrackBack (0)

Down Go the Financial Aid Officers

The investigation of conflicts of interest in the financial aid offices at colleges and universities has started to cost some officials their jobs.  A story in the Columbia Daily Spectator (here) states that the financial aid director at Columbia University has been fired after receiving stock in Student Loan Xpress while putting the company -- which is now part of CIT -- on the school's preferred lender list.  The University of Texas fired its financial aid director who also owned stock in the company, and agreed to a Code of Ethics with the State Attorney General's office under which school employees can neither solicit nor accept gifts from lenders, and must report to the University's president the offer of any gift (see AP story here).  At Johns Hopkins University, the financial aid director resigned after the revelation that she received $65,000 from Student Loan Xpress and had consulting arrangements with other lenders (see Washington Post story here).  No criminal charges yet in any of the cases, most likely because there is no clear criminal prohibition on the conduct.  Just give it time, though -- legislatures love to pass new laws. (ph)

May 23, 2007 in Investigations | Permalink | Comments (0) | TrackBack (0)

Government Seeks to Freeze Nacchio's Assets

A Denver Post story (here) discusses a recent filing by the government seeking a temporary freeze of the assets of former Qwest CEO Joseph Nacchio, who was convicted of nineteen counts of insider trading from stock sales in 2001.  According to the filing by federal prosecutors, Nacchio transferred assets in 2002 to his wife, and even considered divorcing her to shield money and property from claims in the burgeoning investigation of Qwest's accounting.  The nineteen counts of conviction -- the jury acquitted on 23 other insider trading charges -- can be the basis for a criminal asset forfeiture order for up to $52 million.  If the court orders the forfeiture, that would permit the government to seize proceeds from the trading and any substitute assets to satisfy the judgment.  Nacchio is scheduled to be sentenced on July 27, and the asset freeze, if granted, would allow federal prosecutors to begin the process of identifying assets and preventing any transfers before they can execute on the property to satisfy a forfeiture order.  (ph)

May 23, 2007 in Insider Trading | Permalink | Comments (0) | TrackBack (0)

Tuesday, May 22, 2007

Radler's Finished -- Did He Help or Hurt the Prosecution?

David Radler completed two weeks of testimony in the prosecution of Conrad Black and three other defendants accused of defrauding Hollinger International, taking more than a few lumps from the defense side.  Whether his credibility held up is an open question, and media reports (here and here) provide definite mixed reviews, kind of like the reaction to Shrek the Third.  Black's lawyer, Edward Greenspan, probably used every synonym available for "liar" and hit that theme repeatedly, a point Radler readily conceded.  Too much focus on Radler's conniving presents Black with a bit of a problem because the jury could take a "birds of a feather flock together" approach to the two men.  Others saw Radler as being left by the side of the highway as roadkill, unable to recall what he testified to earlier.  Black himself made a short statement (here) after Radler finished his testimony, stating that the prosecution was "hanging like a toilet seat around their necks, that "this is war," and "“I’m on an inexorable march to victory . . . I see the trend, my strategy is working.”  Such boasting before the prosecution rests likely makes the defense lawyers cringe.  Yet the attorney for Mark Kipnis, former Hollinger general counsel who is the only non-Canadian among the defendants and the lowest-level of the defendants, scored points for his client when Radler testified (here) that Kipnis' bonus had nothing to do with the non-compete agreements at the heart of the case.  That admission plays into the defense that Kipnis had no stake in the alleged fraud and was the unwitting dupe in the transaction, providing legal services but otherwise was far from the decision-making process.

So, did Radler help or hurt the prosecution?  Without his testimony, the government did not have much of a case because there is no direct evidence that the non-compete payments were part of a scheme to divert Hollinger's assets for personal use.  Radler provided the "inside" look at the process, and gave direct evidence, if he is to be believed, against Black primarily and co-defendants Atkinson and Boultbee -- but not much help with Kipnis.  He is the key witness for the government, although prosecutors will not hang the entire case on him because of the obvious credibility problems that accompany an admitted liar.  After Radler, the government called the lawyer who led Hollinger's internal investigation of the payments that began the process leading to the charges, and he testified about statements made by the defendants that appear to be less than truthful.  It is at this point that the government has to provide the credible evidence to back up Radler's story.  As Black's long-time lieutenant, Radler can make or break the government's case, because he provides the missing link to show the intent to defraud, the key to the case.  Whether the jurors believe him is another question. (ph)

May 22, 2007 in Fraud, Prosecutions, Securities | Permalink | Comments (0) | TrackBack (0)

FBI Agents Search Office of San Francisco Supervisor

FBI agents executed a search warrant at the office of member of the San Francisco Board of Supervisors on May 18 as part of a corruption investigation.  According to reports in the San Francisco Chronicle (here and here), the government is looking into a $40,000 payment from a local businessman having city permit issues.  Agents also searched two homes and a flowershop owned by the Supervisor.  As is the norm in such situations, he has hired a former federal prosecutor -- Steven F. Gruel -- who said his client will cooperate in the probe "to clear up this apparent misunderstanding."  Searching the office of a public official is uncommon, but concern that a subpoena might result in the destruction of documents is often the motivating factor in seeking a search warrant rather than the usual approach of issuing a grand jury subpoena.  (ph)

May 22, 2007 in Corruption, Investigations | Permalink | Comments (0) | TrackBack (0)

When a Lie Should Be Prosecuted

When former BP CEO Lord John Browne stepped down from his position over the revelation of an embarrassing personal relationship, he admitted to lying to a British court to obtain an injunction preventing the publication of the story.  As discussed in an earlier post (here), his admission could be the basis for a perjury prosecution of the type we've seen in the United States in the past few years.  Professor Stuart Green, author of the book Lying, Cheating, and Stealing: A Moral Theory of White-Collar Crime, discusses the considerations that should go into a decision to prosecute someone for perjury in a post on the Oxford University Press Blog (here).  He writes:

In America, we’ve had more than our share of perjury cases to observe in recent years, involving such high profile figures as Bill Clinton, Scooter Libby (top aide to Vice President Dick Cheney), and John Poindexter (National Security Advisor to President Reagan). We’ve also had more than our share of disagreements about the wisdom of such prosecutions. Partisans of each of these figures have claimed that their prosecutions for perjury and other “cover-up” crimes (such as obstruction of justice and making false statements) have been unfair and unnecessary. Indeed, it often seems as if the way people feel about the merits of such cases turns more on their subjective feelings about the character of the person charged than with any objective facts about the person’s allegedly criminal conduct.  In my view, this is unfortunate. There are in fact impartial and objective factors that ought to be considered in determining whether to prosecute for perjury.

As discussed more fully in his book, Prof. Green recommends looking at the seriousness of the underlying conduct lied about, the circumstances surrounding the perjury, and the effect of the misstatement in deciding whether the case is worthy of a criminal prosecution.  In Lord Browne's case, he concludes that "[a]lthough the decision is more difficult than it may at first appear, my advice to Lord Goldsmith [the Attorney General] would be to exercise his discretion and refrain from prosecuting Browne for perjury."  For those with an interest in the foundations of white collar crime, I highly recommend Lying, Cheating, and Stealing -- it is well worth the time.  My review of the book is available here. (ph)

May 22, 2007 in Perjury | Permalink | Comments (0) | TrackBack (0)

Monday, May 21, 2007

Biovail's Travails

Canadian pharmaceutical company Biovail Corp. and its former CEO have been running into a bit of trouble with securities regulators in the U.S. and Canada recently.  On May 14, the company disclosed (here) that the SEC had sent a Wells Notice that the Enforcement Division staff intends to seek authorization from the Commission to file a civil action related to accounting problems.  According to Biovail's 6-K (foreign Issuer) filing:

On May 14, 2007, the Company issued a press release acknowledging that it had received a "Wells Notice" from the staff of the SEC alleging violations of federal securities laws. The notice relates to the staff's investigation of the Company's accounting and disclosure practices for the fiscal year 2003 and certain transactions associated with a corporate entity acquired by the Company in 2002, as described above. These issues include whether the Company improperly recognized revenue and expenses for accounting purposes in relation to its financial statements in certain periods, disclosure related to those statements, and whether the Company provided misleading disclosure concerning the reasons for Biovail's forecast of a revenue shortfall in respect of the three-month period ending September 30, 2003. Under the Wells process established by the SEC, the Company has the opportunity to respond to the "Wells Notice" before the staff makes a formal recommendation regarding what action, if any, should be brought against the Company by the SEC. The Company continues to cooperate with the SEC. The Company cannot predict either the outcome or the timing of when this matter may be resolved.

Biovail noted that it had agreed to toll the five-year statute of limitations until July 31, 2007.  Along with the potential civil charges comes a bit more ominous disclosure about a criminal investigation: "Recently, the Company was contacted by the United States Attorney's Office for the Eastern District of New York ("EDNY"), who informed the Company that they were conducting an investigation into the same matters that the SEC is investigating. The EDNY has also recently requested interviews of several Biovail employees. The Company intends to cooperate with the investigation. The Company cannot predict the outcome or timing of when this matter may be resolved."

Biovail's former CEO and chairman of the board, Eugene Melnyk, agreed to an administrative settlement with the Ontario Securities Commission (here) on May 18, 2007, regarding trading in company shares through four trusts set up by Melnyk in the Cayman Islands during a time when Biovail executives were not permitted to trade.  The company's shares are listed on the Toronto Stock Exchange, and the settlement with the OSC requires Melnyk to pay $1 million (Cdn.) in a penalty and costs, and imposes a one-year ban on serving on the board of directors of a publicly-traded company.  Melnyk resigned as Biovail's CEO in 2004, and announced recently his retirement from the board as of June 30. 

If it's any consolation for Melnyk, the NHL team he owns, the Ottawa Senators, made the Stanley Cup finals for the first time in the history of this iteration of the Senators, overcoming years of underachievement in the playoffs.  Getting your name on what is probably the most famous trophy in professional sports can make a lot of bad thoughts disappear. (ph)

May 21, 2007 in Civil Enforcement, International, Securities, Settlement | Permalink | Comments (0) | TrackBack (0)

Did Comey Reveal Classified Information When He Testified About the Hospital Meeting?

The testimony by former Deputy Attorney General James Comey about the dramatic 2004 meeting in the intensive care unit with then-Counsel to the President Alberto Gonzales and Attorney General John Ashcroft concerned the Department of Justice's authorization for a classified surveillance program.  In response to a question about Comey's testimony, President Bush stated he could not respond because it concerned a classified program (see earlier post here).  In response to further questions by reporters, White House spokesman Tony Fratto hinted (here) that Comey's testimony was improper, but deferred to the Department of Justice about whether he could be prosecuted for disclosing classified information. 

Q Does the White House believe that James Comey was out of line in discussing this in a public hearing?

MR. FRATTO: I don't have any comment on that.

Q If he was, Tony, then you --

Q If you won't comment on that issue because of the classified nature of the program on which it was focused, it seems like you might think that Comey was out of line in discussing it.

MR. FRATTO: You can draw conclusions.

Q I mean, is there any possibility that Mr. Comey will be charged with divulging classified information for discussing this? I mean, if the President is not willing to discuss this, and it's improper to do so, then wasn't it improper for Mr. Comey to discuss this?

MR. FRATTO: I think that would be a question for the Department of Justice.

Q Tony, was there anything factually incorrect about Comey's version?

MR. FRATTO: I'm not in a position to comment on reports of Comey's testimony.

While Comey's testimony made reference to a classified program, it is not clear that just mentioning the general subject matter of the meeting would itself reveal anything about the program.  The White House is clearly not happy with what Comey said, but to this point the only response has been to say that he told his side of the story without directly contradicting it.  There were a number of people present at Ashcroft's bedside in 2004, and to this point only Comey has discussed the meeting in detail.  Is the silence because of the classified nature of the program at issue, or is it because Comey's testimony was a fair recitation of what actually occurred? (ph)

May 21, 2007 in News | Permalink | Comments (0) | TrackBack (0)

Miami Class Action Attorney Held as Possible Flight Risk

Plaintiffs class action attorney Louis Robles is in jail pending acceptance of a plea agreement to charges that he stole over $13 million from asbestos clients because he may be a flight risk.  An article in the Daily Business Review (here) notes that Robles' $1 million bail has been revoked because his girlfriend told a probation officer that Robles had discussed with her obtaining false passports for himself and his grandson.  Perhaps more importantly, the government has been able to locate only $1 million, and the article reports concerns that Robles may have moved money off-shore.  As discussed in an earlier post (here), Robles had agreed to plead guilty to fraud charges and faces a ten-year prison term.  It looks like he may get an early jump on the sentence. (ph)

May 21, 2007 in Fraud, Legal Ethics, Prosecutions | Permalink | Comments (0) | TrackBack (0)

Saturday, May 19, 2007

Government Misconduct In a Parallel Proceeding Scenario

Although the setting is an immigration case, the language in the decision sends a strong message with respect to government conduct in parallel proceedings.  In the case of United States v. Carriles, (2007 WL 1433458 (WD Tex.) Judge Cardone of the Western District of Texas states, ". . . In addition to engaging in fraud, deceit, and trickery, this Court finds the Government's tactics in this case are so grossly shocking and so outrageous as to violate the universal sense of justice. As a result, this Court is left with no choice but to dismiss the indictment."

The accused had argued that "the Government ha[d] been assembling a criminal case against Defendant from as early as April 21, 2005, and that even though Defendant did not qualify for naturalization due to his prior convictions in Panama, the Government nonetheless granted him a naturalization interview for the sole purpose of gathering information for use in a criminal prosecution."  In the court's Order one finds an incredible discussion of the caselaw that supports dismissal of a matter when the government oversteps its bounds in a parallel matter.  As you might suspect, there is reference to the Scrushy case. This is clearly an important case for those litigating SEC and IRS cases.

(esp) (w/a hat tip to Stephanie Martz)


UPDATE: Below is the District Court's order and opinion, issued on May 8, 2007.

Download us_v_carriles_opinion_may_8_2007.pdf

May 19, 2007 in Investigations, Prosecutors | Permalink | Comments (0) | TrackBack (1)

Crossing Over

Working for the government certainly has its rewards, but the pecuniary benefit is not one of them.  White collar criminal defense work is definitely a growth area for firms, who can be called in at any time to deal with issues great and small.  A couple recent articles highlight how valuable the experience of representing the government can be for those who decide to cross over (or back, in some cases) to private firms or to in-house legal positions.  An article in the New York Times "What Happened to the Lawyers Who Worked For Spitzer" discusses the dispersal of Governor Eliot Spitzer's legal team from his days at Attorney General who pursued the high-profile Wall Street cases that made him a national figure.  Former deputies who headed up investigations of insurance companies, mutual fund late-trading, and stock analyst conflicts have now landed at leading firms like Paul Weiss, Proskauer Rose, and Weil Gotshal to work on white collar and corporate advisory matters.  Up I-95 from Manhattan, an article in the Connecticut Law Tribune (here) discusses the move by a former supervisory Assistant U.S. Attorney in the District of Connecticut to the Fairfield County firm Pullman & Comley to start up a white collar crime group there. 

Both articles note that lawyers coming from the government cannot bring clients with them, and of course they would have to recuse themselves from any matters on which they worked while a prosecutor.  But the absence of a book of business does not seem to be too much of a handicap when the former prosecutor brings in a wealth of experience and, perhaps more importantly, the ability to get telephone calls returned and meetings scheduled quickly.  And for the lawyers, the money ain't bad either when you consider first-year associates in Wall Street firms make more coming out the chute than any government attorney will make after a decade. (ph)

May 19, 2007 in Prosecutors | Permalink | Comments (0) | TrackBack (0)

Analyzing the McNulty Memo

A recent article by Joshua Berman and Machalagh Proffit-Higgins, from the D.C. office of Sonnenschein Nath & Rosenthal, analyzes the history and development of the Department of Justice's policy memoranda on prosecuting corporations that culminated recently with the issuance of the third in the series, the McNulty Memorandum.  The article, "Prosecuting Corporations: The KPMG Case and the Rise and Fall of the Justice Department's 10-Year War on Corporate Fraud" (available below), looks at the earlier versions of the corporate charging policy, the Holder and Thompson Memos, and the decision by U.S. District Judge Lewis Kaplan in the KPMG tax shelter prosecutions that found the application of the Thompson Memo unconstitutional by denying the defendants their rights to due process and counsel.  The article, published in the Criminal Law Brief by the Washington College of Law at American University, considers how the district court's opinion in KPMG has shaped the Department of Justice's most recent effort to blunt criticism of its approach to corporate crime investigations that makes waiver of the attorney-client privilege and work product protection a featured part of the case.  The article notes that "[i]n the end, the eventual impact of the McNulty Memorandum is likely to depend more on DOJ's incorporation of the Memorandum into their efforts to combat corporate fraud than the actual words on the page."  (ph)

Download prosecuting_corporations_article.pdf

May 19, 2007 in Privileges, Prosecutions, Scholarship | Permalink | Comments (0) | TrackBack (0)

Friday, May 18, 2007

Another Deal, Another Spike in Options Trading -- Part Deux

The private equity deals are coming fast and furious these days, as the multitude of posts on the recently-launched M&A Law Prof Blog can attest -- written by my colleague Steven Davidoff, make sure to check it out.  Almost every deal seems to be preceded by an inevitable bump in trading in out-of-the-money call options in the week(s) before the announcement.  The transaction at issue this time is one of the "smaller" ones this week, the May 16 disclosure of the acquisition of Acxiom Corp. by Silver Lake Partners and ValueAct Capital Partners L.P. for $27.10 per share, a total value of $2.24 billion.  Bigger deals announced in just the past couple days include the Bausch & Lomb acquisition for $4.5 billion by Warburg Pincus and Alliance Data by Blackstone for $7.8 billion.  But the trading in Acxiom is particularly striking, and hints strongly at insider trading.  According to a Bloomberg article (here), average volume in the call options was 135 contracts a day, but 1,400 traded on May 10 and another 1,300 on May 14, 15, and 16.  To make things worse -- or better, depending on your point of view -- most of the transactions were in May 25 call options that would expire on May 19, and the stock price was almost two dollar below that price and hadn't traded above $25 in months.  Risky, you say?  Add the fact that all the trading on May 16 took place in the last seventy minutes of trading, and the deal was announced after the market closed, and the SEC will be burning the midnight oil to figure out who was behind the trading, especially because the calls increased in value by 1,000% after the disclosure.  Timing in life is everything, of course, and can be a good starting point for an insider trading investigation, but it won't end there.  Another day, another deal, another SEC investigation no doubt.  Anybody getting tired of this yet? (ph)

May 18, 2007 in Insider Trading | Permalink | Comments (1) | TrackBack (0)