Tuesday, October 23, 2007
What role has politics played in DOJ activity? The House Judiciary Subcommittees on Crime, Terrorism and Homeland Security and Commercial and Administrative Law held a hearing today on "Allegations of Selective Prosecution: The Erosion of Public Confidence in Our Federal Justice System." A key focus was on the extent that politics played in department decisions. For example, there was discussion of cases that were filed immediately prior to an election.
Former Attorney General Thornburgh, a Republican, spoke to how local state matters were being prosecuted in the federal system because of broad statutes like mail fraud. He expressed opposition to overreaching. He stated that the recent DOJ was 7 times more likely to prosecute Democrats then Republicans. And the witness following, Dennis C. Shields, provided statistics that supported the skewed prosecution statistics premised on political party.
J. Doug Jones, former US Attorney in Alabama, provided details of a prosecution in Alabama that was controlled by DOJ in D.C. In this regard, former Governor Siegelman's case was mentioned several times. Also noted was that 44 State Attorney Generals were questioning what happened in this case.
The testimony was damaging to our justice system as it was clear that politics in DOJ was playing a factor in prosecutions. The question will now be whether the next AG will restore confidence in the office and make certain that politics does not factor into the decision-making process.
A webcast of the hearing can be found here.
Monday, October 22, 2007
The House Judiciary Subcommittees on Crime, Terrorism and Homeland Security and Commercial and Administrative Law will hold a hearing today on "Allegations of Selective Prosecution: The Erosion of Public Confidence in Our Federal Justice System." The hearing starts at 10:00 a.m. and the witnesses scheduled to appear are: Former Attorney General Dick Thornburgh, Former Alabama U.S. Attorney Doug Jones, Professor Donald C. Shields and Professor Emeritus, Department of Communication, University of Missouri.
Harper's Magazine has a story on the Charles Walker case. This blog discussed the trial, sentencing, and post trial. Including his conviction of 127 counts after a trial that went from 8:00 a.m. to 7:00 p.m., seven days a week, including holidays and Sundays -and yes, even worked through Memorial Day weekend and on Memorial Day. It was a sharp contrast to another southern jury at that time, that is former CEO Scrushy's first trial that ended with a verdict of not guilty (see here). Walker received a sentence of ten years (see here). The 11th Circuit rejected the appellate arguments affirming the conviction of former Georgia State Senator Charles Walker, specifically rejecting defense arguments that “(1) during jury selection, the district court erroneously disallowed four of Walker’s peremptory strikes after finding a Batson violation; (2) honest services mail fraud was improperly charged in the indictment and not supported by sufficient evidence; (3) prosecuting Walker for mail fraud violates basic principles of federalism; and (4) various sentencing enhancements were improperly imposed by the district court.”
Harper's Magazine provides new items for consideration. The most fascinating is a 2004 letter to a highly respected white collar defense attorney from the Office of Professional Responsibility of DOJ. Although this letter does not directly discuss the Walker case, it discusses the actions of a particular U.S. Attorney. The article mentions a forthcoming magazine story of Professor Dershowitz discussing this case.
When government investigators come knocking on a company's door to obtain information, it may not be of much comfort to the employees that their employer may be looking to "toss them under the bus," according to former U.S. Attorney Roscoe Howard, Jr. An article in the Fulton County Daily Report (here) discusses a presentation Howard, now a partner at Troutman Sanders, made in Atlanta to the local chapter of the Association of Corporate Counsel at a continuing legal education program. In discussing how to deal with a criminal investigation, Howard recommended that counsel become friendly with the investigators and prosecutors to learn the scope of the investigation and who the individual targets are, because "[y]our goal is to find out those individuals, separate them and if necessary toss them under the bus . . . The goal is to protect the company." Howard also makes a good point about separating out the compliance function from the general counsel's office. If the company's lawyer is also responsible for compliance, then that person can become invested in the decision and not look at it critically. He said, "If you ask me about my kids, I'm going to tell you they are beautiful and they are great people, but I'm invested in them. If your in-house counsel is also your compliance officer, he may say, 'Hell yeah, it's legal. I've looked at it.' You want somebody who isn't invested." Hewlett-Packard learned that lesson the hard way when its chief ethics officer was from its general counsel's office and oversaw the internal investigation that ultimately included pretexting to obtain private information from reporters and employees. (ph)
A partner in the New York office of Baker & McKenzie and five other defendants were charged with conspiracy, securities fraud, and money laundering that totaled $55 million, according to a nineteen-count indictment returned on August 30 but only unsealed on October 19 (available below). The case involves so-called PIPE transactions, which are private-investment-in-public-equity deals that allow unregistered stock to be acquired in publicly-traded companies at below market prices because they are a cheap source of capital for the issuer. The other defendants are three officers of the public companies, which have gone into bankruptcy, and two investors from Israel. According a press release issued by the U.S. Attorney's Office for the Eastern District of New York (here):
The indictment alleges that EDWARD and STEVEN NEWMAN, BROWN, and WEISBERG caused Xybernaut and Ramp, two publicly traded companies, to issue hundreds of millions of heavily discounted shares through private investments in public equity, or “PIPE” transactions, to dozens of offshore nominee entities created and secretly controlled by SALTSMAN and EITAN. In order to lock in profits, SALTSMAN and EITAN sold the shares “short” in advance of the PIPE transactions and later “covered” the short positions with the discounted stock.
The U.S. Attorney's Office noted that one of the defendants was arrested in London prior to the unsealing of the indictment, and another was arrested in Virginia. Another defendant is residing in Israel, and prosecutors will seek the extradition of the foreign defendants, while arrest warrants have been issued for two other defendants.
Baker & McKenzie announced that the partner had been placed on leave after the announcement of the indictment. A New York Law Journal story (here) discusses the indictment. (ph)
The prosecution of an Iowa state Senator on corruption charges has triggered a filing seeking dismissal of the indictment on the ground of prosecutorial misconduct. The trial is set to begin on October 29 on an indictment (here) charging a single violation of the Hobbs Act for extortion under color of official right related to an alleged demand for payment for home security systems in what the state Senator called a business deal that went sour. The defense motion (available below) argues that
the government has withheld exculpatory evidence, has provided deliberately false and misleading answers to discovery, has made false and misleading representations to the Court, has manipulated the Grand Jury process and stood silent in the face of testimony that the AUSA knew constituted perjury and did nothing to correct the record. In isolation, any one of these outrageous acts would warrant dismissal. Collectively, these actions mandate dismissal and additional sanctions to curb blatant prosecutorial abuse.
A copy of the correspondence between defense counsel and the prosecutors is also available below as exhibits to the motion to dismiss. In addition to seeking dismissal of the indictment, the defense asks for the postponement of the trial. (ph)
Sunday, October 21, 2007
Former Congressman and Reagan Administration budget wunderkind David Stockman faces a variety of charges related to accounting fraud at Collins & Aikman, a defunct auto parts supplier where Stockman was CEO before it collapsed into bankruptcy. Although a trial date hasn't been set yet, Stockman continues to take the offensive and stated in an interview with Bloomberg (here) that he plans to testify at trial. Stockman was charged along with three other former C&A executives, and he is accused of conspiracy, securities fraud, bank fraud, wire fraud and obstruction of an agency proceeding. Stockman responded to the indictment by stating that "[t]he utter reckless irresponsibility of that act is beyond belief," and the day after being charged he wrote a thirty-one page memorandum to his lawyer outlining the propriety of his conduct. Deflecting blame from himself, Stockman claimed in the interview that C&A's board of directors "totally panicked" while New York law firm Davis Polk, which conducted the internal investigation at the company, "needed to scapegoat somebody" while its "modus operandi is, `We'll protect the board and the company and throw the corpse of the officers to the wolves.'"
Stockman is thoroughly convinced of his innocence, which is common in white collar crime prosecutions involving corporate executives. Whether he's doing his case any good by announcing he will testify and giving interviews assailing the indictment as "reckless irresponsibility" is another question. Any number of recent white collar crime cases involving CEOs have not had the defendant testify, and in some of the cases in which they did -- such as the prosecution of Enron's Ken Lay and Jeffrey Skilling and WorldCom's Bernie Ebbers -- the jury's negative reaction to the defendants likely contributed to the guilty verdicts. Stockman appears to have a tendency to lecture others, and he explains in perhaps excruciating detail why he is right. That may play well in a corporate boardroom, or when arguing for (or against) a budget decision, but it might not be the best strategy in a federal courtroom.
Stockman, like every defendant, gets to decide whether or not to take the witness stand, but he may be limiting the options for his lawyers in deciding best how to proceed with the defense by asserting well in advance of trial that he will testify and outlining how he will defend himself. Stockman gave the Bloomberg reporters his thirty-one page memo sent to counsel, so the government may even try to get a copy for itself to preview the defense and see if there are any statements it can use against Stockman. In case anyone was worried that there might not be any interesting CEO prosecutions on the horizon, this case should put those fears to rest. (ph)
One of the original defendants in the Milberg Weiss kickback case pleaded guilty, leaving only two individuals remaining along with the firm. Seymour Lazar entered a guilty plea to obstruction of justice, filing a false tax return, and making a false declaration in federal court. Lazar had served as the representative plaintiff in a number of Milberg Weiss class actions, and admitted to accepting $2.6 million from the firm for his compliant service as the named plaintiff in the actions. According to an AP story (here), prosecutors will recommend the eighty-year old Lazar be sentenced to home detention due to his declining health. Lazar is unlikely to be a witness in the prosecution of Melvyn Weiss, the only attorney from the firm who is fighting the charges after three of his former partners -- Steven Schulman, David Bershad, and William Lerach -- pleaded guilty and admitted to making the payments to class representatives. Lazar proclaimed his innocence rather loudly after being indicted, and would not be a particularly strong witness for the government if he is only sentenced to home detention.
The plea deal with Lazar lets the government puts its focus on Weiss, who has indicated that he has no intention of making a deal -- although this case has shown that hardline statements about seeking vindication at trial do not necessarily mean the case will play out in court. The strength of the government's case will be the testimony of Schulman and Bershad, who dealt with Weiss directly on the payments. Lerach is not required to cooperate as part of his plea deal, and his contentious relationship with Weiss, which led to the break-up of the original version of Milberg Weiss in 2004, would not make him an effective witness. (ph)
Saturday, October 20, 2007
The government had asked for the removal of one of the defense counsel in the KPMG case claiming a conflict of interest (see here). The Washington Post reports (here) that the court has accepted the argument, removing counsel and delaying the trial yet again. The Order (available below) begins by noting that "[t]he government belatedly called to the Court's attention certain possible conflicts of interest . . . ." (italics added) Trial was scheduled to start October 23 with the opening statements, but that has now been postponed, with a new trial date to be set at a hearing on November 16. With the government's appeal of the dismissal of thirteen defendants from the case pending before the Second Circuit, it will be interesting to see if the appellate process beats the start of the trial. If the court of appeals were to reverse Judge Lewis Kaplan's dismissal order before the trial begins, it's likely that would engender even further delay as the court then would have to schedule a trial of all defendants, working with the schedules of seventeen lawyers -- something akin to herding cats.
The prosecutors argued that defense counsel may have provided legal advice to a defendant who is now cooperating with the government. This is yet another example of the issues counsel faces if entering into a joint defense agreement. These agreements are often necessary to exchange information and also to keep the costs for preparation of trial at a lower level. When counsel can share experts, the client saves funds. But when one client flips, and the deal includes that they will cooperate against another who was part of the joint defense agreement, problems can arise. And counsel can be left without a client if the sharing of information causes a conflict to arise.
(esp & ph)
A petition for certiorari (available below) was filed on behalf of Timothy and John Rigas, former CFO and CEO of Adelphia. The elder Rigas, now 82 years old, is serving a 15-year sentence, and Timothy is serving 20 years. A couple of fascinating questions are raised for the Supreme Court to consider. One issue relates to GAAP [Generally Accepted Accounting Principles], and whether it is possible that the level of proof could be lower in a criminal case, with liberty interests at stake, than in a civil case? Should the government be required to present certain evidence to meet its burden of proof on the GAAP issue? These are some of the questions under review.
Thursday, October 18, 2007
Justin Scheck has an interesting and thorough article in The Recorder (here) discussing the recent superseding indictment of Melvyn Weiss and his firm, Milberg Weiss, and how the firm appears to have made a series of missteps that jeopardizes its continued existence. While former Milberg Weiss partner William Lerach's plea deal gets extricates his new firm -- formerly Lerach Coughlin, now Coughlin Stoia with Lerach's retirement -- from the criminal investigation, Weiss' indictment keeps his firm in the cross-hairs, with no resolution of the charges in sight yet. With the plea agreements of two former Milberg Weiss name partners, Steven Schulman and David Bershad, it will be just this side of impossible for the firm to defend itself from the charges because of the acts of its agents can be attributed to the entity. The article describes the firm's leadership as being in turn "indecisive, myopic, stubborn and simply unlucky." Milberg Weiss has been under indictment for almost a year and a half now, and it continues to survive, although perhaps not thrive with the indictment hanging over its head. Getting out of the case will cost it millions, so it won't be easy to resolve the case. (ph)
Wilmer Hale's David Z. Seide and David A. Wilson have a fascinating commentary in the Legal Times titled, "Left Hanging: New Report Shows Need to Clear Up SEC Backlog." The piece examines a recent GAO report that evaluates "the SEC Enforcement Division's systems for planning investigations and providing information to subjects of investigations." The commentary discusses the difficulties faced by those under investigation, individuals who may be forced to put many things on hold just waiting for word on their case.
Nothing goes better with the great American pastime than passing a little inside information to your friend about a pending corporate transaction. The SEC filed a settled civil enforcement action against a former director of of NSD Bancorp who disclosed a pending merger of the company with F.N.B. Corp. that was announced in October 2004. The tippee bought 2,000 shares, and after the announcement NSD's stock price jumped 52%, allowing him to reap over $25,000 in profits. According to the SEC Litigation Release (here), the director provided the information at or before the September 22 Pittsburgh Pirates game. According to Baseball-Reference.Com (here), the Pirates lost to the Chicago Cubs 1-0 that evening -- the type of pitcher's duel that has a lot of down time to discuss a proposed buyout, no doubt. The SEC alleges that "the morning of September 23, 2004, Pitterich, who had no prior history of trading in the securities of NSD Bancorp, purchased 1,000 shares of NSD Bancorp's stock on the basis of the material, nonpublic information provided to him by Lenzner. On October 1, 2004, Pitterich, on the basis of the same information, purchased an additional 1,000 shares." The tippee disgorged his profits plus payed a one-time penalty, and the director/tipper also payed a one-time penalty. Given that the Bucs haven't had a winning season since 1992, when Barry Bonds was on the team -- with a much smaller head -- there's got to be some reason to attend a late-season game. (ph)
The Department of Justice has made public corruption one of its main priorities, and the number of investigations of members of Congress, along with state and local officials, shows that this area is receiving increased attention. The states also have authority to investigate corruption involving their own officials, although parallel federal and state investigations can present problems. In the investigation of corruption in the Alaska legislature and its elected federal representatives, the Department of Justice has -- politely -- asked Alaska's Attorney General not to pursue a separate state investigation. A letter (here courtesy of TPMuckraker) from the principal deputy chief of the Public Integrity Section in Washington, D.C., says that "because of the long-standing federal investigation into these matters, we believe that concurrent state investigative activity will have the effect of compromising certain aspects of the ongoing federal public corruption investigation." In other words, don't mess with our case . . . please.
While the federal government cannot stop a state from conducting its own investigation, and under the Double Jeopardy Clause's dual sovereignty doctrine the state could file its own charges in addition to any federal prosecution, the specter of interfering with an ongoing investigation may be enough to cause Alaska to back away. I argued in a law review article, Federalism and the Federal Prosecution of State and Local Corruption, 92 Ky. L.J. 75 (2003), that federal prosecutors are best equipped to pursue corruption cases involving state officials because of their relative detachment from the political ties that can affect local prosecutors and state attorneys general. Asking the Alaska Attorney General to defer to the federal investigation may be more than just a fight over turf. (ph)
The confirmation hearings for Judge Michael Mukasey before the Senate Judiciary Committee went about as smoothly as anyone might want. Mukasey told the panel that he did not agree with the Department of Justice's 2002 torture memo, and would make sure that there was no political interference with prosecutorial decisions. That was music to the ears of the Senators on the Committee, along with this statement in his prepared remarks (here):
[Y]ou have been generous with your time and your advice in the past couple of weeks. I believe that the Department’s relationship with this Committee and with Congress is vital to fulfilling its mission. I want to assure you that, if confirmed, I will always appreciate and welcome your advice, as I have since my nomination, and that I and others in the Department will try to be available to you. In that spirit, I am ready to answer the questions you have for me today.
There's nothing like playing to the audience, and he has been endorsed by Senator Charles Schumer and other foes of the Bush Administration. The eighty-first Attorney General should be in office fairly soon, at which point a key issue for Mukasey will be filling the many openings in senior positions. A Reuters story (here) discusses the hearing. (ph)
Senate Judiciary Committee Chairman Patrick Leahy and Ranking Member Arlen Specter introduced the "Identity Theft Enforcement and Restitution Act of 2007" to expand the power of the federal government to pursue cases of identity theft. According to a press release (here) issued by Senator Leahy, the new bill would give federal prosecutors greater authority to bring identity theft cases by lowering the jurisdictional requirements for a federal prosecution. The press release outlines some of the changes the proposed legislation would bring about:
- Expand the jurisdiction of federal computer fraud statutes to cover small businesses and corporations;
- Eliminate the prosecutorial requirement that sensitive identity information must have been stolen through an interstate or foreign communication and instead focuses on whether the victim’s computer is used in interstate or foreign commerce, allowing for the prosecutions of cases in which both the identify thief’s computer and the victim’s computer are located in the same state;
- Make it a felony to employ spyware or keyloggers to damage ten or more computers regardless of the aggregate amount of damage caused, ensuring that the most egregious identity thieves will not escape with a minimal, or no, sentence;
- Eliminate the requirement that the loss resulting from damage to a victim’s computer must exceed $5,000; under this bill violations resulting in less than $5,000 damage would be criminalized as misdemeanors.
More federal crimes, the preferred solution in Congress. (ph)
Wednesday, October 17, 2007
Campaign contributions are given for a variety of reasons, and I suspect most donors don't think that their donations will be used to pay lawyers advising elected officials in government investigations. TPM Muckraker reports (here) that a number of Congressmen are using funds from campaign committees to pay their lawyers because they have been caught up in a variety of federal corruption probes. Among those using campaign money for legal fees, as reported in the most recent quarterly campaign finance reports, are:
- Rep. Jerry Lewis (Calif.): $26,982 in the quarter and a total of nearly $1 million in the past year to two law firms, including Gibson Dunn;
- Rep. Don Young (Alaska): $183,785 and a total of $447,000 to two law firms, including Akin Gump.
- Rep. Rick Renzi (Arizona): $111,042 and a total of $148,000 to two law firms (Patton Boggs and Steptoe & Johnson).
- Rep. Alan Mollohan (West Virginia): $55,000 and a total of $78,000 to one law firm.
Can it be legal to use campaign contributions for legal expenses? The Federal Election Commission has interpreted the campaign finance laws as permitting such payments. In AO 2005-11 (Sept. 26, 2005) (available below), the FEC responded to a request by former Rep. Randy "Duke" Cunningham's campaign committee for a ruling whether it could pay his attorneys during the federal investigation that led to his guilty plea and lengthy prison sentence on bribery charges. The Opinion states:
The Commission concludes that the Committee may use campaign funds to pay for the legal fees and expenses incurred in connection with the grand jury investigation and legal proceedings that may arise from this investigation because the investigation concerns allegations that are related to Representative Cunningham’s campaign activities or his duties as a Federal officeholder and the legal fees and expenses would not exist irrespective of Representative Cunningham’s campaign or duties as a Federal officeholder. The Committee may also use campaign funds to pay for the legal fees and expenses incurred in responding to the press regarding the grand jury investigation and legal proceedings that may arise from this investigation.
Maybe it's just me, but an investigation of misuse of office for personal gain does not seem to be related to a Congressman's "duties as a Federal officeholder," but that's what the FEC has decided. It may be that the campaign committee is a bit like an indemnification provision in a corporation's by-laws -- a special form of protection in case there's an investigation related to conduct during the term of office, even it the conduct is criminal, as in the case of Cunningham. That said, I doubt most donors understand that their contributions can be used to pay lawyers to defend the official in a corruption probe.
The more traditional method for government officials to take donations to pay their lawyers is to set up a legal defense fund, which is subject to different reporting requirements and donation limits than a campaign committee. Representative William Jefferson of Louisiana, who is under indictment on a variety of corruption-related charges, has decided to go that route rather than use campaign donations to pay for his lawyers. (ph)
The Wall Street Journal reports (here) in a front-page article that a number of food companies, including Sara Lee Corp. and ConAgra Foods Inc., are being investigated by the Department of Justice and the Pentagon for their role in providing supplies through a Kuwait company for the troops in Iraq. Among the areas under investigation are whether discounts and rebates provided to the Kuwaiti company were passed on to the government under its cost-plus contracts, and whether military contracting officials were designating specific companies as providers rather than allow for a more competitive selection process. This is the latest in a string of investigations related to the award of contracts in the Iraq and Afghanistan wars, and the Department of Justice's Procurement Fraud Task Force will likely have even more work to do. (ph)