Saturday, December 1, 2007

Deferred Prosecution Agreement in Roger Williams Medical Center Case Ends

Corporate deferred prosecution agreements allow the government and a company to reach an agreement where the company can continue its business, institute increased reform within the entity, and avoid a criminal conviction.  The agreements have been controversial, in large part because of some of the terms within these agreements (see here).  The increased use of corporate deferred prosecution agreements started several years ago.  And some companies that reached an agreement are starting to see the end of their corporate probation without conviction.  Roger Williams Medical Center is such an example, as the U.S. Attorney in Rhode Island has agreed to terminate this agreement, although several measures will remain in effect. (see here and here).

(esp)

December 1, 2007 in Settlement | Permalink | Comments (0) | TrackBack (0)

Former R.I. House Majority Leader Pleads

The press release of  United States Attorney for the District of Rhode Island reports that a "[f]ormer Rhode Island House Majority Leader Gerard M. Martineau pleaded guilty [Thursday] to public corruption charges, admitting that he arranged personal business dealings with a pharmacy company and a health insurer, and then steered the outcome of legislation in which those companies were interested.  The companies paid Martineau nearly $900,000 for paper and plastic bags to be used in pharmacy retailing."

(esp)

December 1, 2007 in Corruption | Permalink | Comments (0) | TrackBack (0)

Has Rudy Heard About the FCPA?

Presidential candidate Rudy Giuliani, a former U.S. Attorney, seems to be getting caught up in what in the private sector would be considered an accounting scandal, including perhaps the misuse of resources for personal purposes.  According to news reports, while Mayor of New York, he began a relationship with his now wife that was kept secret at the time, no doubt due to his being married to another woman.  In accounting for the costs of his police detail, which apparently included personal trips to the Hamptons for meetings and even the assignment of a security detail to his then undisclosed girlfriend, the Mayor's office put the security costs into the budgets of smaller City agencies, such as the Loft Board, rather than attributing them to the Mayor's budget.  There's no claim that money was somehow embezzled or siphoned off, but the accounting is a bit shady.  As discussed in a New York Daily News article (here), the initial reaction from Giuliani's campaign was that this was how these costs had been accounted for under prior Mayors, a claim that was rather quickly rejected by budget officials in the Dinkins and Koch administrations. 

Giuliani's comment on the imbroglio is that "[i]t was a perfectly appropriate set of expenses."  That may be true, but how costs are accounted for is important, and following appropriate internal controls so that expenses are properly reported is key for any business or government.  The Foreign Corrupt Practices Act, which is enforced by the Executive Branch that Giuliani hopes to lead, requires companies to adhere to the following standards:

(A) make and keep books, records, and accounts, which, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the issuer; and

(B) devise and maintain a system of internal accounting controls sufficient to provide reasonable assurances that--

(i) transactions are executed in accordance with management's general or specific authorization;

(ii) transactions are recorded as necessary (I) to permit preparation of financial statements in conformity with generally accepted accounting principles or any other criteria applicable to such statements, and (II) to maintain accountability for assets;

Just saying the costs were appropriate misses the point that the bookkeeping can't be fudged and hardly instills confidence in the candidate's focus on the need for accountability in all governmental offices.  Perhaps Giuliani should brush up on the requirements for companies subject to the FCPA's record-keeping rules. (ph)

December 1, 2007 in Investigations | Permalink | Comments (0) | TrackBack (0)

Stolt-Nielsen Indictment Dismissed

International shipping company Stolt-Nielsen and two of its former officers finally got a measure of vindication when the U.S. District Court dismissed the indictment for antitrust violations (opinion available below).  The company was originally accepted into the Antitrust Division's Corporate Leniency Program, which rewards the first one in the door who reports on antitrust violations by giving immunity from prosecution for the corporation and individual officers.  In 2003, however, the Department of Justice asserted that the company had not met the requirements for the immunity by continuing in the bid-rigging conspiracy, and stated it intended to proceed with an indictment.  Stolt-Nielsen filed for an injunction to prevent the grand jury from indicting it, which a district court judge granted but the Third Circuit reversed on separation of powers grounds (Stolt-Nielsen S.A. v. United States, 442 F.3d 177 (3d Cir. 2006) (available here).  The Department of Justice indicted the company shortly thereafter, and the defendants filed a motion to dismiss, arguing that they had not violated the agreement with the government and therefore were immune from prosecution.

U.S. District Judge Bruce Kauffman of the Eastern District of Philadelphia agreed with the defendants, concluding that there was no proof that they had continued to participate in the antitrust conspiracy with two other international shipping companies.  In the opinion, the Judge discredited the testimony of executives from the other companies that were part of the cartel who maintained that Stolt-Nielsen continued with the bid-rigging scheme.  In assessing the credibility of the witnesses, Judge Kauffman found particularly telling the fact that the witnesses had a motive to retaliate against a competitor who rolled over on them.  The Judge stated:

The [Antitrust] Division has failed to produce any credible evidence that Stolt-Nielsen’s participation in the customer allocation conspiracy continued past March 2002.  Nor has the Division proposed a conceivable personal motive for the misconduct it alleges, as there is no indication that either Cooperman or Wingfield stood to profit in any way from continued anticompetitive activity.  Indeed, it would defy logic for executives such as [individual defendants] Wingfield and Cooperman to risk their careers to continue a criminal conspiracy that had been exposed publicly and repudiated by their company’s revised Antitrust Compliance Policy.  With the exception of Jansen, who the Division ultimately attempted to treat as a hostile witness, the only testimony adduced in favor of the Division’s version of the events of March-November 2002 was the testimony of a Jo Tankers employee and a number of Odfjell employees whose accounts were fraught with contradiction and uncorroborated by documentary evidence.  Each Odfjell and Jo Tankers witness testified in return for individual or corporate cooperation agreements that promised immunity or a reduced sentence in exchange for testimony against Defendants.  Each witness thus had a strong motive to seek leniency from the Division and to retaliate against a competitor that had implicated him in a criminal conspiracy. [Italics added]

Ouch!  The Department of Justice was aggressive in pursuing the appeal of the earlier order barring the grand jury from indicting because it involved an issue of great significance far beyond the case.  Whether it will appeal this decision in the face of a stinging rebuke by the Judge who found the government's key trial witnesses to be quite a bit less than credible -- he doesn't call them liars, but comes awfully close -- remains to be seen, but I suspect the Antitrust Division does not want to play with fire.

This case is the first, and so far only, time the Antitrust Division has tried to yank a corporate immunity agreement.  The Criminal Division and the U.S. Attorneys Offices generally do not grant immunity to companies that cooperate in an investigation, preferring to use deferred and non-prosecution agreements to resolve corporate crime investigations.  Those agreements routinely include provisions allowing the government to pull the deal if there is additional misconduct, usually not limited to the particular violation involved in the case.  It's an interesting question whether the government will ever reopen a prosecution for a purported violation of a deferred or non-prosecution agreement.  Bristol-Myers Squibb came close to such a situation in 2006, but prosecutors chose not to claim a breach of the original deferred prosecution agreement, settling instead for the ouster of the company's CEO and general counsel.  Pulling the agreement is the "nuclear option" in a case, and it appears to be something the Antitrust Division may have leaped at with Stolt-Nielsen without thinking through its options.  (ph)

Download us_v_stoltnielsen_opinion_dismissing_indictment_nov_29_2007.pdf

December 1, 2007 in Judicial Opinions, Prosecutions | Permalink | Comments (0) | TrackBack (0)

Friday, November 30, 2007

Beware of a Higher Sentence for Vick

Two of Michael Vick's co-defendants in the federal dog-fighting case received sentences at the high end of the Sentencing Guidelines range, which may portend a longer prison term for Vick at his sentencing in December.  The applicable range for the co-defendants was 12-18 months and 18-24 months, based on their prior criminal histories, and they received sentences of 18 and 21 months.  U.S. District Judge Henry Hudson gave the higher sentences because "[y]ou may have thought this was sporting, but it was very callous and cruel."  Vick may be in a lower sentencing range under the Guidelines, but could well receive a sentence higher than my earlier prediction (see Vick's Thanksgiving post) of a year-and-a-day and instead be looking at 15 to 18 months.  Vick surrendered himself earlier in November to begin the prison sentence, and a sentence of even 15 months would keep him in prison or a half-way house through all of the 2008 NFL season. An AP article (here) discusses the sentencing of Vick's co-defendants. (ph)

November 30, 2007 in Sentencing | Permalink | Comments (0) | TrackBack (0)

Dickie Scruggs Is in a Heap of Trouble, But Did the Government Charge the Right Crimes?

Mississippi plaintiffs tort lawyer Dickie Scruggs, his son, another lawyer in his firm, and a lawyer and staffer from a different firm have been charged in a six-count indictment (available below) with trying to bribe a Mississippi state court judge to rule in their favor in a dispute over claims to $26.5 million in attorney's fees.  Scruggs was charged earlier with contempt in federal court in Alabama related to his conduct in litigation involving State Farm over insurance coverage from Hurricane Katrina (also available below).  The current indictment includes conspiracy, Sec. 666 bribery, and wire fraud/honest services counts (Sec. 1346), and these charges could result in a substantial prison term.  The federal prosecutors allege that Scruggs and the others tried to pay the judge in the attorney's fee dispute $50,000 in bribes to rule in his favor.  Rather than take the money, the judge went to the FBI and agreed to work undercover.

The centerpiece of the government's case is a tape recording of a meeting between the judge and the lawyer from another firm in which they discuss the payment and the fact that Scruggs could be counted on to keep quiet about it because of all the "bodies buried" over the past six years.  The recorded conversation includes the following quoted in the indictment:

“We, uh, like I say, it ain’t but three people in the world that know anything about this . . . and two of them are sitting here and the other one . . . the other one, uh, being Scruggs . . . he and I, um, how shall I say, for over the last five or six years there, there are bodies buried that, that you know, that he and I know where . . . where are, and, and, my, my trust in his, mine in him and his in mine, in me, I am sure are the same.”

That sure is eloquent, isn't it?  The conspiracy charge is the key here, because the tape recording is hearsay as to Scruggs and the other defendants not present, except that statements by one conspirator in furtherance of the conspiracy -- which this certainly is -- are admissible against all other members under FRE 801(d)(2)(e).

The Sec. 666 charge makes it a crime to offer anything of value to a state or local official with the intent to influence or reward the official "in connection with any business, transaction, or series of transactions" of the government agency.  This is not the typical Sec. 666 case, in which the official usually is an administrator or elected official steering a contract or other government benefit to the offeror of the bribe.  Here, the state judge allegedly was being asked to rule in favor of Scruggs to the detriment of the opposing parties in the attorney's fee suit, so the government was unharmed, and indeed Scruggs and the others had no intention to cause the government any loss.  Does this fall outside of Sec. 666 if the government is not the intended victim?  The statute could be read that narrowly, but the courts, led by the Supreme Court, have construed Sec. 666 fairly broadly, so the charge will probably survive a challenge.  The fact that the judge might have ruled in their favor in the suit is irrelevant to the bribe because the propriety of the decision is not an issue.

The wire fraud charge based on the right of honest services theory may be a bit more difficult to defend as charged in the indictment.  These two counts allege that Scruggs and the others sought to deprive the citizenry of Mississippi of the honest services of the state judge as part of a wire fraud scheme.  The judge is supposed to perform is job "free from deceit, bias, self-dealing and concealment" according to the indictment.  Honest services fraud is a rather malleable concept, to say the least, and the statue has been used in a variety of public corruption cases.  The problem is that Scruggs and the defendants did not owe the state a fiduciary duty, and the real victim of the crime was the opposing party in the attorney's fee lawsuit, and only indirectly the state if the judge had taken the bribe.  Absent the judge's participation, and he clearly was not going to accept the bribe, was there a scheme to defraud Mississippi of honest services, or is this case better cast as a scheme to defraud the litigants of an honest judge by depriving them of whatever value the lawsuit had?  The better victim might well have been the opposing party because the defendants were trying to take money, or at least the opportunity for a fair claim to the attorney's fee, and not the more ephemeral right of the citizenry to an honest judge.  That said, prosecutors love to charge honest services fraud with public servants, even when they are not corrupt themselves, and I suspect any defense challenge based on failure to charge an offense will likely fail.

The federal anti-corruption laws are a bit of a mishmash, with the key to cases being things like "honest services fraud" or showing under Sec. 666 that a state or local agency received $10,000 in a twelve-month period from the federal government.  As I've argued before (see my article Federalism and the Federal Prosecution of State and Local Government, 92 Kent. L.J. 75 (2003))), federal prosecutors have a crucial role to play in policing corruption at the state and local level.  While there are efforts in Congress to expand Sec. 666 and make it a bit easier to pursue these types of bribery, skimming, and embezzlement cases through other modest changes (see S. 1946 here), it may be even more helpful to prosecutors to have coherent laws that don't rise and fall on how a court construes the scope of a phrase like "honest services fraud."  But then, asking for coherence out of Congress may be just a bit too much.  (ph)

Download us_v_scruggs_indictment_nov_28_2007.pdf

Download us_v_scruggs_contempt_charge_aug_2007.pdf

November 30, 2007 in Corruption | Permalink | Comments (0) | TrackBack (2)

Thursday, November 29, 2007

Sentencing for White Collar Crimes Article

The sentencing of white collar defendants, especially high-profile corporate executives convicted of a variety of fraud-related offenses, has been in the news a great deal these days.  From the 20+ year sentences handed out to Bernie Ebbers and Jeffrey Skilling to the upcoming sentencing of Lord Conrad Black in which the government has asked for upwards of 30 years, the severity of these punishments has called into question the rationale and efficacy of sentencing in white collar crime cases.  Blog co-editor Professor Ellen Podgor has a new article that will appear in the Journal of Criminal Law & Criminology entitled "The Challenge of White Collar Sentencing."  The abstract states:

Sentencing white collar offenders is difficult in that the economic crimes committed clearly injured individuals, but the offenders do not present a physical threat to society. This Article questions the necessity of giving draconian sentences, in some cases in excess of twenty - five years, to non - violent first offenders who commit white collar crimes. The attempts by the U.S. Sentencing Commission to achieve a neutral sentencing methodology, one that is class - blind, fails to respect the real differences presented by these offenders. As the term white - collar crime has sociological roots, it is advocated here that sociology needs to be a component in the sentencing of white collar offenders.

The article is available on SSRN here. (ph)

November 29, 2007 in Scholarship | Permalink | Comments (1) | TrackBack (0)

Getting Ready for the Sentencing in US v. Black

Both sides filed their objections to the presentence report (PSR) in the prosecution of Lord Conrad Black and three other former Hollinger International executives -- Peter Atkinson, John Boultbee, and Mark Kipnis -- mail fraud charges in connection with non-compete payments.  Lord Black was also convicted for obstruction of justice related to his removal of boxes of documents from his Toronto office while the SEC was investigating the company, a conviction that may have a significant effect on the final sentence imposed.  While the PSR is not made public, the objections filed by both sides are, and we can get a pretty good idea of what the Probation Office is recommending, and where U.S. District Court Judge Amy St. Eve may end up in the sentencing.  Each of the filings is available below.

Two key points in the calculation under the Federal Sentencing Guidelines is the amount of the loss and which version of the Guidelines will be applied.  The former is the primary driver of the sentence, and the choice of which edition will be used can effectively increase the sentence by up to three times.  For Atkinson, Boultbee, and Kipnis, the PSR recommends the 2000 version (here) in effect at the time of the primary transaction for which they were convicted.  For Black, the recommendation is to use the current version of the Guidelines (here) because his obstruction of justice took place in 2005, and so the more recent version should apply -- there is no significant difference between the 2005 and 2007 editions, so the current one works just as well.  Black objects to the use of the more recent version, while the government objects to applying the 2000 version to the other three defendants, arguing that all should be subject to sentencing under the 2007 Guidelines. 

On the loss issue, the PSR calculates the amount at $5.5 million, based on the dollar figures involved in the transaction that formed the basis for the convictions of all four defendants.  Needless to say, each side objects to the loss calculation.  The defendants argue that the amount should be limited to their individual gain from the diversion of funds through the non-compete agreement, not the total, and even seek a lower figure, such as Atkinson's recommendation of $15,000 as the loss to Hollinger.  Meanwhile, the government has proposed a $32.15 million figure based on relevant, i.e. acquitted, conduct connected to other diversions charged in the case.  While Judge St. Eve could opt to use the higher or lower amounts, I suspect she will adopt the PSR calculation because it reflects the total amount in the transaction on which the jury convicted and does not give the defendants a discount for what they didn't take directly. 

Using the $5.5 million figure illustrates the difference between the potential sentence depending on which version of the Guidelines applies.  Under the 2000 version, the loss amount would increase the sentence by 14 offense levels, on top of the base offense level of 6.  Adding in potential enhancements for more than minimal planning and abuse of a position of trust brings the offense level to 24.  The sentence under the Guidelines would be 51-63 months, a bit over four years, and if the Judge grants a minor role adjustment to a defendant then the sentence could drop into the 37-46 months range.  Using the 2007 Guidelines, on the other hand, starts with a base offense level of 7, then the increase for a $5.5 million loss would be 18.  Under the Sarbanes-Oxley Act, the conviction of a corporate executive, such as the CEO, triggers an additional four-level enhancement, and add to that Black's obstruction of justice which can add another two levels.  He would be looking at a sentence of 108-135 months, and it could easily jump to 151-188 months if other enhancements are applied -- more than ten years

The selection of the applicable version of the Guidelines probably will be among the first issues Judge St. Eve decides at the sentencing, and the year chosen will give an early indication about whether she will impose a substantial term of imprisonment on the defendants.  Each of the defendants argues that the Guidelines calculation overstates the severity of the offense, a position I doubt the Judge will accept.  They also argue for a below-Guidelines sentence based on personal factors related to the defendants.  As we've come to expect in corporate executive cases, the defendants -- especially Black -- have had a number of letters written on their behalf urging Judge St. Eve to go lightly on the sentence.  Black's brief also devotes a lot of space to recounting his personal background to show what a good individual he is.  That argument might not strike a cord with the court, given that at one point during the trial the Judge told Black's counsel to rein in his client because of Black's somewhat intemperate comments to the press. 

Of course, the sentencing is just the final stop in the district court before the case leaves for the Seventh Circuit.  It will be interesting to see what issues each defendant advances in their briefs, and the oral argument is sure to be grueling given the number of lawyers who will be addressing the court. (ph)

Download us_v_black_atkinson_sentencing_memorandum_nov_27_2007.pdf

Download us_v_black_boultbee_sentencing_memorandum_nov_27_2007.pdf

Download us_v_black_kipnis_sentencing_memorandum_nov_27_2007.pdf

Download us_v_black_sentencing_memorandum_nov_27_2007.pdf

Download us_v_black_government_objections_to_psr_nov_27_2007.pdf

November 29, 2007 in Fraud, Securities, Sentencing | Permalink | Comments (1) | TrackBack (0)

Get Me the Geeks!

You just can't make some of this stuff up, even if you tried to while writing a final examination.  The head of the Office of Special Counsel, Scott Bloch, is purportedly leading the investigation of improper political briefings at agencies and alleged misuse of government resources to support Republican candidates by White House aides, including former senior adviser Karl Rove.  According to its website, the OSC "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."  To call OSC obscure, at least in the pantheon of Washington D.C. offices involved in high-profile investigations, is an understatement.  A Wall Street Journal article (here) gives us the Felliniesque specter of Bloch possibly destroying files, or dare we say e-mails, from computers in his office while being investigated himself by the IG of the Office of Personnel Management for allegedly retaliating against staffers and dismissing whistleblower complaints improperly.  Not exactly something to inspire confidence.

According to the Journal, Bloch brought in a computer technician from "Geeks on Call" -- surely a fun bunch -- to eradicate a virus on his computer.  He apparently didn't bother to contact OSC's tech department.  What the Geeks did was conduct a so-called "seven-level wipe" which gets rid of virtually everything on the computer, making it impossible to reconstruct files.  As the article notes, that's not the usual way to get rid of a virus, and in addition to his computer, Bloch had the computers of his two top political deputies who had recently left OSC wiped clean too.  I'm not aware of many computer viruses that only invade the computers of the head of an office and two top deputies, but then this computer stuff is beyond me.  We all know how much trouble e-mails can cause, because for some reason people seem to think that when they hit "send" -- or "delete" -- the message no longer exists.  Using an outside service to wipe clean the hard drive is perhaps equally questionable, but whether there was anything suspicious, or even incriminating, on the hard drives of the computers will likely remain a mystery.  Thus, that old D.C. favorite: plausible deniability.

Whether the OSC's investigation of possible Hatch Act violations goes anywhere is certainly an open question, and there may not be much hope that any recommendation from Bloch will be noticed.  With Rove gone from the government, he is outside OSC's jurisdiction.  The Journal notes that Bloch recommended disciplinary action against another federal official for a Hatch Act violation related to the political briefings, but to this point the recommendation has not been acted on by the White House.  Would "ignored" be a better word? (ph)

November 29, 2007 in Investigations | Permalink | Comments (0) | TrackBack (0)

Tuesday, November 27, 2007

McFarland - Unpublished

Doug Berman's Sentencing Law & Policy Blog is getting traffic on the 30 year sentence that was affirmed in an unpublished opinion by the Eleventh Circuit. (see posts here and here) And the comments he is receiving are very telling. (see here).  A copy of the opinion and our original post can be found here.

So can a 30 year sentence for a first time white collar offender on a mortgage fraud case be justified.  Many blame the prosecution for asking for this draconian sentence. And then there is also the sentencing guidelines that allow for this sentence.  But I keep going back to the remarks of President Bush when he said of Scooter Libby's sentence that it was "excessive."  I keep wondering how he feels about McFarland's 30 year sentence.   

My recent article on SSRN titled, "The Challenge of White Collar Sentencing" questions the necessity of giving draconian sentences in white collar cases. It looks at whether the attempts to achieve a class-blind sentencing system end up with a disregard for real differences.

But there is something else that I can't help but keep thinking about, and that is the fact that this is an unpublished opinion. A review of a thirty year sentence for a first offender provides nothing new to the legal literature? It is good to see Professor Berman noting how this decision is in tension with the Rita decision. (see here). 

(esp)

November 27, 2007 in Sentencing | Permalink | Comments (0) | TrackBack (0)

The Wyatt Sentence

As noted here, Oscar Wyatt received a sentence of a year and a day on his guilty plea.  Tom Kirkendall at Houston ClearThinkers calls it "Hedging the Trial Penalty."  This sentence for Wyatt's role in the U.N.'s Oil-For-Food program is a below guidelines sentence.  It is a sentence being given to an 83-year-old man who pleaded guilty mid-trial to conspiracy to commit wire fraud. As noted here he faced an enormous risk in going to trial.  On one side you have him waiving the right to a jury trial.  On the other side he is choosing not to roll the dice and risk the chance of a guilty finding after a jury trial, a finding with severe ramifications because of the higher sentence given post-trial.

But should individuals receive a higher sentence because they avail themselves of their constitutional right to a trial by jury?  Is efficiency so important to our system that we should so heavily reward individuals who enter pleas?

(esp)

November 27, 2007 in Sentencing | Permalink | Comments (1) | TrackBack (0)

NatWest Hearing Today

Tom Kirkendall of Houston Clearthinkers reminds us here that there will be a hearing today for the NatWest 3. And the predictions are appearing that something may happen today - The Guardian Unlimited titles their piece "Three May Plea Bargain Over Enron Charges." The Houston Chronicle (see here) also calls it a "rearraignment" or as some may say - an opportunity to change one's plea to guilty.  the charges may be different from the original wire fraud charges, but that remains to be seen - as does whether these three will plead to any charges. The three British bankers were a source of controversy during their extradition to the United States. (see here).

(esp)

Addendum - As anticipated, there was a plea.  See Houston Chronicle here.

November 27, 2007 in Enron | Permalink | Comments (0) | TrackBack (0)

Oscar Wyatt - 1 Year and a day

The Houston Chronicle headline is "Oscar Wyatt Receives 12 Month Sentence." (see here). Commentary to follow - stay tuned.

(esp)

November 27, 2007 in Sentencing | Permalink | Comments (0) | TrackBack (0)

When Fraud Is Your MAC

Corporate acquisitions can be quite lucrative, and when a merger agreement goes down the tube it can be a particularly nasty affair.  But can a failed merger be the basis for a criminal investigation?  Specialty retailer Genesco Inc. is involved in a nasty fight with The Finish Line and investment bank UBS over their moves to back out of a deal to buy Genesco for $54.50 on the grounds that Genesco's financial statements were, shall we say, less-than-completely forthright.  In the parlance of the M&A world, that's called invoking the MAC (Material Adverse Change) clause, a provision in the merger agreement that allows the acquirer to get out of a deal due to changed circumstances, although it's usually something more than a shift in market conditions.  For the best coverage on the current MAC controversies swirling around several companies in addition to Genesco, please check Professor Steven Davidoff's thorough analysis over at the inestimable M&A Law Prof Blog

This would appear to be an ordinary fight between corporations in which each side blusters and rattles legal sabers, only to reach an agreement to settle the matter in which everyone goes away unhappy -- except the lawyers, of course, who never come out on the short end.  Only this time someone has upped the ante, because the U.S. Attorney's Office for the Southern District of New York has sent a grand jury subpoena to Genesco requiring the production of documents related to the merger agreement.  A Genesco press release (here) states that "the documents are sought in connection with alleged violations of federal fraud statutes."  That would be the mail, wire, and securities fraud provisions, no doubt.  Genesco's CEO is quoted in the release stating, "The U.S. Attorney subpoena comes on the heels of the baseless fraud allegations made by UBS ten days ago. These allegations are completely without merit and are simply part of UBS’ litigation tactics to avoid their contractual obligations; we will fully cooperate with the U.S. Attorney in connection with their inquiry. Most importantly, we will not be deterred from enforcing our rights under the merger agreement.”  In other words, UBS called out the big dogs on this one, and Genesco isn't going to roll over (to keep with the canine metaphor).

A grand jury subpoena as a litigation tactic?  The legal battles over M&A deals can be rather contentious, to say the least, and getting the upper-hand on an opponent as leverage for a settlement is common.  A grand jury investigation is something else altogether, though, because once started it takes on a life of its own, and the parties cannot terminate it as part of a global settlement of their claims.  It would be more than a bit scary if a U.S. Attorney's Office did the bidding of one side of a corporate deal, and one would at least hope that the prosecutors were shown something to indicate that this is more than the usual overheated rhetoric that accompanies most corporate litigation -- where everyone claims to want their day in court and no one ever seems to end up there.  Whether there's anything more than smoke here remains to be seen.  But look for references to Genesco's press release to appear in the next filing by Finish Line and UBS in the civil litigation.  (ph)

November 27, 2007 in Fraud, Investigations | Permalink | Comments (0) | TrackBack (0)

Monday, November 26, 2007

McFarland Sentence Affirmed With Unpublished Opinion

The 11th Circuit affirmed the conviction and sentence of Chalana McFarland with a 14 page unpublished opinion.  This first offender had her 360 - month sentence (yes, 30 years) affirmed for crimes of "money laundering, bank fraud, wire fraud, and conspiracy to commit such acts as well as obstruction of justice and perjury." The court states that "McFarland and her co-conspirators defrauded mortgage lenders and insured depository financial institutions by inflating the fair market values of properties which were then used to secure fraudulent loans for straw buyers."  The sentence in this case appears to a large extent to be a function of the numerous charges filed (170 counts) and the calculation of loss.  In its decision, this appellate court states -- in response to a defense argument -- that the trial court "felt duty bound - not legally bound - to sentence within the Guidelines range."

For some of the prior posts, and background on this case, see here and here.

The opinion is here.

(esp) 

November 26, 2007 in Sentencing | Permalink | Comments (1) | TrackBack (0)

Indictment - Brooke Astor's Son and Attorney

The NYTimes reports that Brooke Astor's son and one of her former lawyers were indicted.  The case emanates from an investigation of the "Elder Abuse Unit, which is part of the Special Prosecutions Bureau of the [Manhattan] district attorney’s office." 

(esp)

November 26, 2007 in Prosecutions | Permalink | Comments (0) | TrackBack (0)

Sunday, November 25, 2007

BAE Investigation

Nelson D. Schwartz and Lowell Bergman have a fascinating NYTimes article titled, "Payload Taking Aim at Corporate Bribery" here.  And without doubt, the BAE investigation is one that needs to be followed. The article details some of the major Foreign Corrupt Practices Act (FCPA) cases of recent vintage. And it notes that Alice Fisher, head of the DOJ Criminal Division is noting the increased prosecution of FCPA cases, and saying the trend will continue. For a discussion of some of the FCPA investigations and cases discussed on the blog - go here. It is interesting to see that TRAC reports white collar crime prosecutions as being down (see here), and Ms. Fisher is saying that FCPA cases are up. Are FCPA not included in the white collar figures?  Or is that other forms of white collar crime are so very low to allow for this higher number here? 

(esp)

November 25, 2007 in FCPA | Permalink | Comments (0) | TrackBack (0)

FCPA - Getting a Basic Education

How does the DOJ interpret the Foreign Corrupt Practices Act (FCPA), and what guidance is available to those attempting to understand its language?

Actually there is more available than one might suspect.  First there is a lay person's guide on the DOJ website here. And then there are opinion releases found here.  The one problem with the web-based opinion releases is that one doesn't find an index available and thus, one may have to hunt through the many there to find applicable guidance - or ask again. But as websites go for the DOJ, this is clearly one of the better ones, with helpful guidance to businesses in that interpretations are offered. For those who advocate for administrative rule-making, you can appreciate what is offered here. 

(esp)

Addendum - Another place to find materials/cases on FCPA - see here (Shearman & Sterling site)(w/ a hat tip to Paul Lekas)

November 25, 2007 in FCPA | Permalink | Comments (0) | TrackBack (0)