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)