Saturday, April 28, 2007

Another Memo in the U.S. Attorney "Firings"

Charlie Savage of the Boston Globe reports on a memo written a good number of years back that outlines how to replace U.S. Attorneys without going through the appointment process.

In the meantime, the Boston Globe reports that Gonzales was "heckled" at his Harvard reunion.

(esp)

April 28, 2007 in Prosecutions | Permalink | Comments (0) | TrackBack (0)

NACDL White Collar Conference - Part I

Stephanie Martz, White Collar Crime Project Director at the National Association of Criminal Defense Lawyers (NACDL), guest blogs a six part series on the recent White Collar Crime Track at the NACDL Cincinnati Conference:

Part I -

We’re here this morning (Friday, April27, 2007) at NACDL’s spring white collar track in Cincinnati, Ohio. This is a one-day session in which numerous pre-indictment and post-indictment strategies are on the table for discussion. (In addition, Earl Silbert, a panelist in the first session, is being honored at NACDL’s luncheon today. Silbert was the "first" Watergate prosecutor, who prosecuted the five Watergate burglars and Hunt and Liddy, and is currently one of the deans of the white collar bar, practicing at DLA Piper in Washington, DC).

The first panel is called "The Who’s, What’s, When’s, and How’s of Internal Investigations." Moderator Blair Brown of Zuckerman Spaeder LP.

Joseph Heyd, Senior Litigation Counsel for General Electric, talked first – in response to a hypothetical – about who needs lawyers and what kind, in an internal investigation. He said that one of the first things in-house counsel needs to do when notified of an investigation is to interview the individuals who are the risk factors – those who are alleged (by an FBI agent? By the AUSA?) to have been involved in misfeasance. The interview should be conducted by someone competent in the in-house counsel’s office, complete with a corporate Upjohn warning. (The necessity of a Computer Associates warning was also discussed – and rejected by Heyd as a bridge too far.)

Silbert talked about the role of outside counsel. He said most outside counsel would recommend that outside counsel conduct any kind of mildly substantial internal investigation. The reasons: in-house counsel too closely allied with management; employees might speak more freely. Also, never do the interviews alone! And watch your privilege if you don’t go with outside counsel. But Heyd pointed out a problem: if time is of the essence, it can be hard to get outside counsel up to speed.

The panelists also discussed the necessity for the "rhythm method" for document retention – companies need to have a regular cycle of document retention that won’t raise any timing or motive questions about destroying documents. At the same time, some class of documents will obviously be subject to a suspension order from in-house counsel. This will, in turn, create gossip and speculation in the company. Silbert’s tactic is to distribute to some employees written bullet-point instructions about talking, telling the truth, what’s at stake, etc. At the same time, you must be careful about obstruction and be crystal clear about what you say and don’t say to employees about how to behave – that’s why you want something in writing about what your advice has been.

The perennial issue: attorneys’ fees. Do you require an employee to submit to an interview before paying for a lawyer? Heyd said no, it depends on pre-existing written company policy, which might require an employee to cooperate with all such interviews and investigations but is not a pre-condition, otherwise, for fees.

Kent Wicker, of Reed Wicker LLP in Louisville, KY, played the role of representing an individual (in the hypothetical, a former employee who seems a little too willing to make nice with the company). "I suppose there is a case n which I’d let him testify under oath, but I haven’t found it yet." Wicker also emphasized the necessity to convince the company that it’s good to have no daylight between the employee and the company, in other words, that the employee can be helpful to the company and not harmful. "I’m going to be on the phone and in their face."

Part of the hypothetical also involved the company’s own attempt to unearth information about potential witnesses – i.e. "pretexting" a la Hewlitt Packard. Wicker said you have to be extraordinarily careful, if you use a private firm at all, that you know the person well and give him/her extremely specific instructions and supervision.

On the topic of Joint Defense Agreements (JDA’s): There was a case recently in the E.D. Ky. in which one defendant paid fees for others and the evidence was quite thin about whether there was real obstruction; but the defendant was convicted and the case is on appeal.

(sm/ w/ links by esp)

April 28, 2007 in Think Tank Reports | Permalink | Comments (0) | TrackBack (0)

Playing to a Different Tune

Perhaps unknown by many people, the FBI has an art crime team. The U.S. Attorney for the Central District of California is prosecuting a case coming from an investigation of this team.  A recent press release of this office states that:

"A Long Beach man who is currently in custody in France was indicted today on federal charges for allegedly taking two violins that had been stolen from a member of the Los Angeles Philharmonic to Paris, where he attempted to sell them."

Press Release - Download stolen_violins.059.pdf

(esp)

April 28, 2007 in Prosecutions | Permalink | Comments (0) | TrackBack (0)

A Few More Documents from DOJ on the U.S. Attorney Firings

The Department of Justice continues to dribble out documents related to the firing of the eight U.S. Attorneys, releasing more e-mails on April 26 and 27, but also withholding over 160 e-mails and memos held by Kyle Sampson, the former chief of staff for Attorney General Alberto Gonzales.  According to the list of withheld documents (here), the e-mails were sent from December 8, 2006, the day after seven of the U.S. Attorneys received the notice of their termination, until March 8, 2007, shortly before Sampson resigned his position.  He is listed as the custodian of these records.  The e-mails relate largely to dealing with inquiries from Senators and the press about the firings, and there are eight documents listed that relate to the firings.

The usual privilege list submitted in civil litigation or in response to a grand jury subpoena gives the reason(s) why the document is withheld, such as the attorney-client privilege or protected work product.  In this case, however, it is not clear what the reason is for withholding the documents from the House Judiciary Committee, which has demanded a wide range of records related to the issue.  To this point the Department of Justice has not asserted a deliberative privilege or the executive privilege, and communications with Congress are unlikely to be subject to any claim for protection.  More documents are sure to emerge, but any list of withheld documents is sure to pique the interest of the House and Senate Judiciary Committees.  An AP story (here) discusses the latest set of documents. (ph)

April 28, 2007 in Investigations, Prosecutors | Permalink | Comments (0) | TrackBack (0)

Former Mets Clubhouse Employee Pleads Guilty to Distributing Steroids

The steroids scandals that have rocked baseball the past few years may take a new turn based on reports that a former clubhouse employee of the New York Mets agreed to plead guilty to distributing steroids and money laundering.  The plea came in the Northern District of California, where the BALCO investigation has continued with the grand jury inquiry into whether San Francisco Giants slugger Barry Bonds committed perjury in 2003 when he testified about his use of performance-enhancing drugs.  According to a report on SI.com (here), Kirk J. Radomski worked at Shea Stadium for the Mets from 1985 to 1995, and after BALCO was shut down he became a source of steroids for major league players.  The article states that he began to cooperate in the investigation after a search of his home, and that his cell phone records include the numbers of current and former players.  This development could mean a substantial expansion of the federal grand jury's steroids investigation.  Whether any of the players involved in the BALCO investigation might also be linked to Radomski remains to be seen. (ph)

April 28, 2007 in Investigations | Permalink | Comments (0) | TrackBack (0)

Baker Hughes Settles Criminal and Civil FCPA Charges

Oil-field services company Baker Hughes Inc. settled charges that it paid bribes to obtain business from the state-owned oil company in Kazakhstan.  A subsidiary of the company agreed to plead guilty to charges of conspiracy, violation of the FCPA, and aiding and abetting a violation of the books-and-records provisions of the federal securities laws; Baker Hughes also settled an SEC civil enforcement action.  The company had agreed to a cease-and-desist order covering FCPA violations in 2001, so this is a second strike against the company because some of the conduct occurred after entry of that order.  In settling the criminal and civil actions, Baker Hughes agreed to pay an $11 million criminal fine, disgorge profits and interest of $23 million, and pay a civil penalty of $10 million.  The $44 million in payments is the largest in an FCPA case, according to a Department of Justice press release (here).  The SEC Litigation Release (here) describes the payments to agents of Kazakhoil:

Baker Hughes paid approximately $5.2 million to two agents while knowing that some or all of the money was intended to bribe government officials, specifically officials of State-owned companies, in Kazakhstan. The complaint alleges that one agent was hired in September 2000 on the understanding that Kazakhoil, Kazakhstan's national oil company at that time, had demanded that the agent be hired to influence senior level employees of Kazakhoil to approve the award of business to the company. Baker Hughes retained the agent principally at the urging of Fearnley. According to the complaint, Fearnley told his bosses that the "agent for Kazakhoil" told him that unless the agent was retained, Baker Hughes could "say goodbye to this and future business." Baker Hughes engaged the agent and was awarded an oil services contract in the Karachaganak oil field in Kazakhstan that generated more than $219 million in gross revenues from 2001 through 2006. Baker Hughes, the complaint alleges, paid the agent $4.1 million to its bank account in London but received no identifiable services from the agent. The complaint also alleges that in 1998 Baker Hughes retained a second agent in connection with the award of a large chemical contract with KazTransOil, the national oil transportation operator of Kazakhstan. Between 1998 and 1999, Baker Hughes paid over $1 million to the agent's Swiss bank account, despite a company employee knowing by December 1998 that the agent's representative was a high-ranking executive of KazTransOil.

The SEC complaint (here) also alleges FCPA violations from bribe payments in "Nigeria, Angola, Indonesia, Russia, Uzbekistan and Kazakhstan in circumstances that reflected a failure to implement sufficient internal controls to determine whether the payments were for legitimate services, whether the payments would be shared with government officials, or whether these payments would be accurately recorded in Baker Hughes' books and records." 

Baker Hughes also entered into a deferred prosecution agreement with the Department of Justice that requires the company to continue its cooperation with the Department of Justice, appoint a compliance monitor, and stay clear for two years.  Unlike most cases involving such an agreement in which criminal charges are dropped after a certain period, the subsidiary entered a guilty plea and the deferred prosecution agreement only precludes additional charges against Baker Hughes for other conduct, most likely related to the payments in the other countries identified in the SEC complaint.  This case involves more than just an isolated payment, but instead what appears to be part of a culture of foreign bribery, and it will be interesting to see whether Baker Hughes will be able to reform its overseas operations.  The government did acknowledge Baker Hughes' cooperation, which likely saved it from even more severe penalties.  The SEC action also named a former business development manager from the company as a defendant, and he did not settle the case.  (ph)

April 28, 2007 in Civil Enforcement, FCPA, Prosecutions, Settlement | Permalink | Comments (0) | TrackBack (0)

Friday, April 27, 2007

Siemens Corruption Probe Spreads to the U.S.

The widening criminal and civil probe of foreign bribes paid by Siemens A.G., the giant German telecommunications company, claimed the company's CEO, Dr. Klaus Kleinfeld, who announced that he would not seek a new contract.  According to a statement (here) issued by Siemens:

He based his decision on the current discussions about postponing his contract extension once again. “In times like these, the company needs clarity about its leadership. I have therefore decided not to make myself available for an extension of my contract,” said Kleinfeld.

Siemens can show major business successes today, yet at the same time is in the midst of an intensive investigation of corruption. Especially in times of such challenges, employees, customers, and the capital markets expect clear leadership more than ever. “The company must have complete freedom of action,” stressed Kleinfeld.

Siemens has been the subject of a foreign corrupt practices investigation by the Munich prosecutor's office that has included the arrest and interrogation of former senior officers, including its former CFO who prosecutors in Germany identified as a suspect in the overseas bribes paid to obtain contracts.  In a quarterly report filed with the SEC (here), the company further disclosed that the SEC and Department of Justice are pursuing investigations of its payments.  "The U.S. Department of Justice is conducting an investigation of possible criminal violations of U.S. law by Siemens in connection with these matters. During the second quarter of fiscal 2007, Siemens was advised that the U.S. Securities and Exchange Commission’s enforcement division had converted its informal inquiry into these matters into a formal investigation."

The resignation of Dr. Kleinfeld may signal a change in how European companies view criminal investigations and the responsibility of the corporation's leadership for the conduct.  In the United States, it has become almost commonplace for a CEO to resign -- or be forced out -- if there is evidence of a substantial breakdown in the company's legal compliance.  European companies long took a different approach, particularly in the area of overseas bribes, which in some countries were deductible business expenses. 

The investigation of Siemens for violations of the FCPA  by the German prosecutors is a new development because it was only a little more than a decade ago that a number of European nations first adopted statutes similar to the FCPA making foreign bribes a criminal offense for both individuals and corporations.  I suspect the SEC and Department of Justice are strongly encouraging the German prosecutors, and certainly the SEC will share information gathered in its investigation with foreign law enforcement officials.  While some bemoan the concept of corporate criminal liability, it is a new concept in Europe that may be paying dividends in curbing abusive business practices. (ph)

April 27, 2007 in FCPA, Investigations, Securities | Permalink | Comments (0) | TrackBack (0)

Scrushy Attacks the Constitutionality of the Federal Criminal Jurisdiction Statute

Former HealthSouth CEO Richard Scrushy is trying a new tactic in attacking his conviction on corruption charges related to a payment to former Alabama Governor Don Siegelman.  According to a brief filed by his attorneys, available below, the federal criminal jurisdiction statute, 18 U.S.C. Sec. 3231, is unconstitutional because it was not properly passed by Congress in 1948.  I won't pretend to follow the argument completely, but the gist is that the bill ultimately passed by Congress had not been properly introduced in the House because that body had adjourned sine die the previous year without being reintroduced, and then the Senate passed a different version of the bill that was not enrolled until after another adjournment. 

While I suspect there's something amiss with this argument, it certainly wins points for creativity, but it may not have the effect Scrushy's legal team asserts as a basis for overturning his conviction.  Section 3231 replaced previous statutes that granted the United States District Courts exclusive jurisdiction over federal criminal prosecutions.  It has been a cornerstone of federal constitutional law that there are no common law federal offenses, the venerable proposition was first announced in United States v. Hudson & Goodwin, 7 Cranch 32 (1812) -- how often do you get to write that kind of citation.  Since then, all federal prosecutions must be based on an identified statute and brought only in federal court unless the provision specifically allows for a state prosecution, something that many pre-Civil War laws authorized.  Federal courts have long had jurisdiction over violations of federal statutes, so holding that the 1948 statute is unconstitutional because it was not properly passed would mean the prior statutes would still be valid and could not have been repealed or displaced by Section 3231.  If that is the case, then the federal district court did have jurisdiction to try and convict Scrushy, albeit under a different provision of the federal criminal code.  While certainly interesting, I suspect Scrushy's argument won't get much traction in the district court or the Eleventh Circuit.

Chief U.S. District Judge Mark Fuller finally set a sentencing date for Scrushy and Siegelman of June 26 (see AP story here), almost a year after the convictions.  The judge still hasn't decided issues related to the jury selection process, so there may be more to come on that front, and with almost two months until sentencing, look for a lot more fireworks in this case. (ph)

Download us_v. Scrushy Jurisdiction Brief.pdf

April 27, 2007 in Corruption, Prosecutions | Permalink | Comments (0) | TrackBack (0)

Kobi Alexander Burrows Into Namibia

The extradition process for former Comverse Technology, Inc. CEO Kobi Alexander slowed even more as Namibian prosecutors requested a postponement of the first hearing on his case until June to select a new magistrate.  While the extradition request by U.S. prosecutors to have him face charges related to options backdating and obstruction of justice at the company won't be decided any time soon, Alexander has embarked on a public relations and investment campaign that appears designed to garner support from the Namibian government and people.  According to an article in Israeli daily Ha'aretz (here), he has announced a scholarship fund for Namibian students of $21,000 -- named after himself and his wife.  A press release issued by the Education Ministry praised Alexander's contribution.  The story also notes that billboards supporting Alexander have appeared around Windhoek, the Namibian capitol where Alexander lives and has promised to invest millions in low-cost housing. 

It will be interesting to see whether public sympathy generated by the campaign -- organized by worldwide PR firm TBWA -- will be able to outweigh pressure from the United States government on the Republic of Namibia.  A report from USAID (here) notes that while Namibia has developed a democratic government and free press, it also suffers from one of the highest rates of AIDS.  In 2005, USAID provided over $42 million in assistance through the President’s Emergency Plan for AIDS Relief.  That level of assistance and other aid could make it hard for the Namibian government to reject an extradition request for Alexander.  Don't hold your breath for a resolution of the case any time soon. (ph)

April 27, 2007 in Fraud, Prosecutions, Securities | Permalink | Comments (0) | TrackBack (0)

Thursday, April 26, 2007

Goodling to Receive Immunity

The House Judiciary Committee voted 32-6 to authorize a request to the U.S. District Court for an order of use immunity for Monica Goodling, the former senior adviser to Attorney General Alberto Gonzales, to permit her to testify about the firing of eight U.S. Attorneys.  Unlike Gonzales' chief of staff, Kyle Sampson, who testified before the Committee, Goodling's lawyer sent a letter to the Committee that she would assert the Fifth Amendment in response to a subpoena.  Judiciary Committee Chairman John Conyers made a statement (here) explaining the reason why the Committee decided to proceed with an immunity order, even though it does not appear that Goodling has indicated what she will say in her testimony by way of a proffer:

[Goodling] was apparently involved in crucial discussions over a two-year period with senior White House aides, and with other senior Justice officials, in which the termination list was developed, refined, and finalized. She was also in the small group of senior Justice lawyers who prepared Deputy Attorney General Paul McNulty and his Principal Associate, William Moschella, for congressional testimony that we believe inaccurately portrayed the surrounding circumstances.

So Ms. Goodling appears to be a key witness for us, as to any possible undue or improper interference, and as to any internal discussions as to how forthcoming to be to Congress. But she has notified the Committee that she would invoke her Fifth Amendment privilege against self-incrimination were she called to testify. And I don’t think at this point that all of her potential grounds for invoking the privilege can be dismissed out of hand.

The procedure for obtaining immunity for a witness in a Congressional proceeding is governed by 18 U.S.C. Sec. 6005(b), which provides:

Section 6005(c) does provide that the Department of Justice can intervene to request a delay in granting the immunity order, for up to twenty days, on such grounds "as the Attorney General may specify."  One obvious reason to request a delay is if the immunity grant will interfere with a continuing criminal investigation, although that does not appear to be the case in this situation.  Conceivably, the Attorney General could seek to resist an immunity grant on other grounds, such as executive privilege or Congressional overreaching, which would create quite a stir at this point.
If the district court issues the use immunity order, then the next step will be to subpoena Goodling and schedule her testimony.  The House Judiciary Committee wants Gonzales to testify on May 10, and has also issued a subpoena to the Republican National Committee for information about e-mail accounts used by senior White House aides that may not have been turned over already.  Look for Goodling's testimony to come near the date of Gonzales' next Capitol Hill appearance for questioning about the firing of the U.S. Attorneys.  An AP story (here) discusses all the latest happenings in the investigation.  (ph)

April 26, 2007 in Investigations, Prosecutors | Permalink | Comments (0) | TrackBack (0)

Who Is Looking at Karl Rove Now

The heretofore little-known Office of Special Counsel should get a lot more publicity as it announced a broad investigation of possible misconduct related to the firing of at least one U.S. Attorney and other potential violations of the Hatch Act, including the conduct of senior White House aide Karl Rove.  A Los Angeles Times story (here) notes that a spokesman for OSC stated that it is forming an internal task force to look into the following areas: "It will focus on whether White House political concerns improperly intruded on the decision to fire at least one U.S. attorney; whether Rove's office staff or others violated the Hatch Act in briefing Cabinet agency managers on political developments and Republican campaign goals; and whether the White House improperly used Republican National Committee e-mail accounts for official business."

For those who follow corruption investigations, the OSC is hardly a household name.  According to its website (here), the small (106 employee) office "is an independent federal investigative and prosecutorial agency. Our basic authorities come from three federal statutes, the Civil Service Reform Act, the Whistleblower Protection Act, and the Hatch Act."  Among its responsibilities are dealing with government whistleblowers and PPPs ("prohibited personnel practices" in the parlance of Washington anagrams), and dealing with possible Hatch Act violations, which involve prohibited political activities by government workers.  The Special Counsel is Scott J. Bloch, who was appointed to the position for a five-year term by the President and approved by the Senate.  According to his biography on the OSC website:

Mr. Bloch brings over 17 years of experience to the Office of Special Counsel, including litigation of employment, lawyer ethics, and complex cases before state courts, federal courts and administrative tribunals. He briefed and argued cases before state and federal appellate courts.

From 2001-2003, Mr. Bloch served as Associate Director and then Deputy Director and Counsel to the Task Force for Faith-based and Community Initiatives at the U.S. Department of Justice, where he worked on First Amendment cases, regulations, intergovernmental outreach, and programmatic initiatives. Before serving in the Justice Department, he was a partner with Stevens & Brand, LLP, of Lawrence, Kansas, where he practiced in the areas of civil rights law, employment law, and legal ethics. Mr. Bloch tried jury trials before state and federal courts, representing employees and employers in cases involving whistleblower and other retaliation claims, as well as civil rights claims. He worked on important cases that set precedents in the field of legal ethics, including a ground-breaking Texas case that changed the way plaintiffs’ lawyers handle mass tort cases.

Bloch does not have much direct prosecutorial experience, and this investigation will throw a spotlight on a small office at the center of media attention.  How it does its job will be watched carefully.  In addition, the constitutionality of the OSC has been questioned by Professor Michael Froomkin on the Discourse.Net blog.  Professor Froomkin writes (here): "There’s some question as to whether this statute is constitutional; if it isn’t, then the whole office is unconstitutional and all its acts could be declared void."  Getting bogged down in a constitutional fight won't make the investigation move any faster. (ph)

April 26, 2007 in Investigations, Prosecutors | Permalink | Comments (0) | TrackBack (0)

M&A Law Prof Blog

A new blog that is part of the Law Professor Blogs network is the M&A Law Prof Blog written by my colleague, Professor Steven Davidoff.  For those interested in corporate mergers, acquisitions, private equity investments, and the securities markets, it is an interesting read. (ph)

April 26, 2007 in Media | Permalink | Comments (6) | TrackBack (0)

Former Utility Officers Settle SEC Accounting Case

Four former senior executives with South Dakota-based utility NorthWestern Corp. agreed to settle SEC civil charges that they overstated the performance of the company and its telecommunications unit, Expanets, in 2002.  The four defendants are former CEO Merle D. Lewis, former chief operating officer Richard R. Hylland, former CFO Kipp D. Orme,and former controller Kurt D. Whitesel.  According to the SEC Litigation Release (here):

The Commission alleges that, in NorthWestern's quarterly filings, debt and equity offering filings, and other public information, these four defendants were responsible for overstating performance and concealing problems at Expanets and NorthWestern. The Commission alleges that each defendant knew or was reckless in not knowing about the inaccuracy of NorthWestern's public claims that Expanets' new computer system was "operational" or "fully operational." The Commission further alleges that each defendant knew or was reckless in not knowing that Expanets had failed to take appropriate charges for uncollectible accounts receivable and billing adjustments related to the computer system problems, resulting in the overstatement of NorthWestern's income from continuing operations by 90% in the second quarter of 2002 and 109% in the third quarter of 2002. The Commission also alleges that each defendant was responsible for NorthWestern's failure to disclose that a material portion of Expanets' and NorthWestern's income was derived from the reduction of various accounting reserves and through Expanets' receipt of unusual non-compete payments. Finally, the Commission alleges that each defendant was responsible for NorthWestern's failure to disclose significant intercompany cash advances to its subsidiaries during the first half of 2002, which impacted the company's liquidity position and demonstrated the subsidiaries' continuing financial difficulties.

The four defendants settled the case, with Lewis and Hylland paying a $150,000 civil penalty, Orme paying $100,000, and Whitesel paying $25,000.  NorthWestern agreed to be acquired by Babcock & Brown Infrastructure Ltd. in April 2006. (ph)

April 26, 2007 in Civil Enforcement, Securities | Permalink | Comments (0) | TrackBack (0)

Wednesday, April 25, 2007

The Senate Judiciary Committee Calls Out Gonzales

If Attorney General Alberto Gonzales thought his testimony before the Senate Judiciary Committee went well, a quick reading of a letter from Chairman Patrick Leahy and Ranking Member Arlen Specter will disabuse him of that notion.  The letter requests -- perhaps even demands -- a response within a week that clarifies the many instances in which the Attorney General professed ignorance or a lack of recall about the process leading to the firing of eight U.S. Attorneys in 2006.  The letter (here) puts things quite bluntly:

You spent weeks preparing for the April 19th hearing.  Yet during your testimony, in response to questions from Senators on both sides of the aisle, you often responded that you could not recall.  By some counts you failed to answer more than 100 questions, by other counts more than 70, but the most conservative count had you failing to provide answers well over 60 times.  As a result, the Committee’s efforts to learn the truth of why and how these dismissals took place, and the role you and other Department and White House officials had in them, has been hampered.

The questions asked by Senators should not have been a surprise.  You were alerted in letters to you well in advance of last Thursday’s hearing.  By letter sent April 4, you were asked to include in your written testimony a “full and complete account of the development of the plan to replace Untied States Attorneys, and all the specifics of your role in connection with that matter.”  That account was not included in your written testimony nor in your answers to questions at the hearing.  You were also alerted in advance of the hearing, by a letter sent on April 13, that you would be asked about information derived from the staff interviews of your senior aides.  You were, nevertheless, unprepared to answer those questions.   

While the Attorney General's role in the firings had slid to the third page of the major newspapers (see earlier post here), I suspect it may move back to the front page soon. (ph)

April 25, 2007 in Investigations, Prosecutors | Permalink | Comments (0) | TrackBack (0)

An Odd Twist in the Apple Options Timing Case

The SEC's filing against two former Apple executives related to options backdating had all the hallmarks of a typical civil enforcement action, with one defendant, former CFO Fred Anderson, settling the matter and another, former general counsel Nancy Heinen, stating through her lawyers that she will fight.  Anderson's settlement came with the usual caveat that he neither admitted nor denied liability, and in most such instances the defendant takes the one-day news hit and moves on.  In an interesting development, however, Anderson's attorney, Jerome Roth of Munger Tolles, released a statement regarding his client's roll in the backdating that seems to take a shot at CEO Steve Jobs' role in the transactions.  Jobs was not charged by the SEC, and appears at this point to have avoided any enforcement action even though the company disclosed his involvement in the selection of the dates for pricing the options grants.  The press release (available here) states:

Fred [Anderson] was told by Steve Jobs in late January 2001 that Mr. Jobs had the agreement of the Board of Directors for the Executive Team grant on January 2, 2001. At the time Mr. Jobs provided Fred this assurance, Fred cautioned Mr. Jobs that the Executive Team grant would have to be priced based on the date of the actual Board agreement or there could be an accounting charge.  He further advised Mr. Jobs that the Board would have to confirm its prior approval in a legally satisfactory method. He was told by Mr. Jobs that the Board had given its prior approval and the Board would verify it. Fred relied on these statements by Mr. Jobs and from them concluded the grant was being properly handled.

It's unclear what reason Anderson has for making these statements, at least if he wants to avoid having his role in the backdating dragged through the news even further.  The SEC is concerned about post-settlement statements that call into question the defendant's role in the underlying conduct, although Anderson has not done that directly.  Instead, the statement deflects attention toward Jobs as a way to show that Anderson's culpability is perhaps not quite as significant, which could draw a rebuke from the SEC.

Whether Anderson's statement is enough to lead to civil -- or even criminal -- charges against Jobs is questionable.  I have to believe the SEC knew Anderson's position on Jobs' involvement in the backdating, and chose not to go forward with a case against one of an icon CEO of the high tech industry, perhaps because there was no documentary evidence to back up the claims.  Filing civil fraud charges against Jobs would require the Commission to have a very strong case because the effect on the company, and indeed the industry, would be so significant that the government could not take a chance on a weaker case.  For those who remember the bank crisis of the 1980s, it could be an example of the "too big to fail" approach: you can't charge Steve Jobs with fraud because of the devastating consequences on shareholders and employees if he were brought down.  While no one is above the law, some may be slightly elevated.  (ph)

April 25, 2007 in Civil Enforcement, Securities, Settlement | Permalink | Comments (0) | TrackBack (0)

Gonzales Stays on Page Three

The Gonzales Matter instigated by the "firings" of Eight U.S. Attorneys continues to occupy the news. Although it has moved from page one to page two, and most recently to page three, it is not leaving the news arena.  The latest in the Washington Post is Republican Senators expressing discontent with the Attorney General, although not calling directly for his resignation.

(esp)

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

More Settlements in Student Loan Investigation

New York Attorney General Andrew Cuomo announced (press release here) additional settlements with schools as part of the wide-ranging investigation of ties between lenders and student loan offices.  The settlement involved Washington University in St. Louis and two for-profit schools, DeVry University and Career Education Corporation, which runs secondary schools in New York and is based in Illinois.  The case involves the first settlement by multiple state AG offices, with Missouri and Illinois joining with New York in entering the agreements.  Although Wash U. entered into the settlement, the school did not receive any money from a revenue-sharing arrangement with a lender. (ph)

April 25, 2007 in Civil Enforcement, Investigations, Settlement | Permalink | Comments (0) | TrackBack (1)

Tuesday, April 24, 2007

Abramoff Related: FBI Contacting the Press for Info

Just when you think the Jack Abramoff matter is over, the newspaper reports something new.  The Orlando Sentinel reports that the DOJ has asked for more information of fellow Scotland golfer, the former speaker of the Florida  House,  Rep. Tom Feeney.  But the more interesting aspect of this article relates to a telephone call received by an Orlando Sentinel reporter.  The telephone call from an FBI agent sought information from the newspaper reporter, and the editor of the paper is saying that they didn't have "a firm understanding of what the FBI is looking for."  If one calls the press and asks for information on a matter that would be press worthy, it seems likely that the press will follow the lead.  One has to wonder if this article in the Orlando Sentinel would have been written, at least at this time, if the telephone call had not been made.  And why was a call also made to the St Pete Times?

(esp)

April 24, 2007 in News | Permalink | Comments (0) | TrackBack (0)

Abramoff Related: Zacheres Pleads

A DOJ Press Release reports that "[a] former high-level staffer of the U.S. House of Representatives Transportation & Infrastructure Committee has pleaded guilty to a charge of conspiracy to commit honest services wire fraud."  This plea provides another individual who will provide cooperation in matters related to the investigation resulting from former lobbyist Jack Abramoff's cooperation with the government.

(esp)

April 24, 2007 in Fraud | Permalink | Comments (0) | TrackBack (0)

Apple's Former CFO Settles With SEC

According to the Wall Street Jrl here, Apple's Former CFO settled civil matters with the SEC.

(esp)

                                                                                       

UPDATE (4/24):  The SEC filed its civil case against Apple's former CFO, Fred D. Anderson, and former general counsel, Nancy R. Heinen, for their role in backdating two options grants in 2001.  Anderson settled the case without admitting or denying liability, and will pay $3.5 million in disgorgement and a civil penalty.  The settlement does not include a director/officer bar, perhaps largely because Anderson's role in the backdating involved his failure to prevent the creation of documents allegedly falsifying the date of board meetings authorizing the grants.  Heinen did not settle the matter, and she is accused in the complaint (here) of ordering the creation in one instance of fictitious board minutes and then signing them.  According to the SEC Litigation Release (here):

The Commission's complaint also alleges improprieties in connection with a December 2001 grant of 7.5 million options to CEO Steve Jobs. Although the options were in-the-money at that time, Heinen — as with the Executive Team grant — caused Apple to backdate the grant to October 19, 2001, when Apple's share price was lower. As a result, the Commission alleges that Heinen caused Apple to improperly fail to record $20.3 million in compensation expense associated with the in-the-money options grant. The Commission further alleges that Heinen then signed fictitious Board minutes stating that the Board had approved the grant to Jobs on October 19 at a "Special Meeting of the Board of Directors" — a meeting that, in fact, never occurred.

Apple CEO Steve Jobs has avoided any entanglement with the SEC to this point, even though he had some awareness of the backdating, according to company filings in late 2006.  The U.S. Attorney's Office for the Northern District of California has also been investigating the Apple backdating, and there is no word yet on whether any criminal charges will be filed. (ph)

April 24, 2007 in Securities | Permalink | Comments (0) | TrackBack (0)