Saturday, December 8, 2007

How Do You Charge a Dead Person With Fraud?

Frauds come in many different forms. There is mail fraud, wire fraud, securities fraud and even computer fraud. But death fraud? And how do you charge a dead person with fraud? The Washington Post discusses such a charge in a recent case in England.(see here).

(esp)

December 8, 2007 in Fraud | Permalink | Comments (0) | TrackBack (0)

What to Watch For at Lord Black's Sentencing

Lord Conrad Black and his three codefendants, Peter Atkinson, Jack Boultbee, and Mark Kipnis, are scheduled to be sentenced by U.S. District Judge Amy St. Eve on December 10.  An earlier post (here) discussed the contentions of the U.S. Attorney and the defendants over various Sentencing Guidelines issues, and the Judge has a range of issues to decide that will affect the sentence.

Unlike a movie or play, which builds to a climax, the sentencing of the four former Hollinger International executives goes in reverse order of public interest and corporate authority.  Lord Black's sentencing is scheduled for 10:00 a.m. (CST), then comes Atkinson at 1:00, Boultbee at 2:30, and finally Kipnis at 3:30.  It looks like Judge St. Eve has set aside two hours for Black, which may not be enough time given the number of issues the court will have to resolve.  If you're looking for a Playbill for the proceedings, here's my run-down of the major issues that will affect the sentencing:

  1. Which Set of Guidelines: First up will be which version of the Sentencing Guidelines the Judge applies.  The presentence report (PSR) recommends the 2007 edition for Black, which will trigger a substantially higher sentence than the 2000 version that is recommended for the other three defendants.  The basis for recommending the current edition for Black is his conviction for obstruction of justice that occurred in 2005 when he was caught on camera removing files from his Toronto office.  If Judge St. Eve opts for the PSR recommendation, and I think she will, then Lord Black is looking at a substantial prison term.  For the other three defendants, the decision on this issue in Black's sentencing will be the tip-off for their sentencings.  I expect Judge St. Eve to follow most of the recommendations in the PSR, so if she follows it for Black there's a good chance she will do the same for the other three.
  2. What Loss Amount:  The loss figure applied to the crime is the primary driver of the sentence, and the PSR recommends $5.5 million as the applicable amount.  The government wants $32 million, while the defendants want much less, to a low of $15,000 offered by Atkinson.  The decision on which Guidelines to use plays into this issue because the 2007 version increases the sentence by four more levels with a $5 million loss than the 2000 Guidelines, resulting in a sentencing range that is about 50% greater.  If Judge St. Eve opts for a figure other than that recommended in the PSR, that will tell you which direction the sentences are headed -- the higher the loss, the longer the sentence. 
  3. Public Company Executive.  After adoption of the Sarbanes-Oxley Act in 2002, the Sentencing Commission added a provision to crack down on senior corporate executives who engage in misconduct by adding a four-level enhancement for officers convicted of crimes in their role at the company.  The PSR recommends against this enhancement for Black -- and it is inapplicable to the other three if the 2000 Guidelines are used -- because he did not misuse his position.  This is the one issue on which I think Judge St. Eve might well reject the PSR's position because the enhancement is fairly clear and, based on the parties' briefs, the Probation Office may not have interpreted the provision correctly.  If the four-level enhancement is added to Black's Guidelines calculation, then he's looking at a sentence 200% higher than he would receive under the 2000 Guidelines when the loss enhancement is taken into account.  Add in the obstruction of justice enhancement recommended in the PSR, and his sentencing range is 97-121 months.
  4. Departures: The Sentencing Guidelines are advisory only, not mandatory, but Judge St. Eve is a former Assistant U.S. Attorney and unlikely to stray far from them.  Once the Guidelines analysis is complete, then the Judge will have to address grounds for departure offered by the defendants.  I doubt she will adjust the sentences significantly from the Guidelines range, but she could grant a small downward adjustment for each as a means of establishing the "reasonableness" of the prison terms, the requirement for all federal court sentences these days.  This is a means but "bullet-proofing" the sentence.
  5. Bail Pending Appeal.  After announcing of the sentence for each defendant, the court will have to decide on bail pending appeal.  The presumption in the federal statute, 18 U.S.C. Sec. 3143, is that the defendant starts the prison term unless there is a substantial basis for an appeal that would result in overturning the conviction -- there's no issue that any of these men pose a threat to the community that requires incarceration immediately.  It is really a crapshoot in white collar crime cases these days trying to figure out whether a judge will allow a defendant to remain out on bail until the conclusion of the appeal.  While I think there's about a 1% chance of the defendants being taken into custody immediately, as happened to Richard Scrushy and Don Siegelman in Alabama, I suspect Judge St. Eve will not grant bail pending appeal and instead will give them a reporting date four to six weeks out -- after the holidays, to be sure.  I base this on her opinion rejecting the defendants' motion for a post-verdict judgment of acquittal, which reads like a decision finding an inadequate basis for believing the court of appeals will overturn the verdicts.  That is not a strong feeling, but more of a hunch.  Even if Judge St. Eve denies bail, the defendants can appeal that decision immediately to the Seventh Circuit under Federal Rule of Appellate Procedure 9, which they are sure to do if their request is denied.  While those motions are difficult to win, it is not impossible, as demonstrated by the Tenth Circuit's decision to order bail for former Qwest CEO Joseph Nacchio after the trial judge denied his motion.
  6. Where Will They Go to Prison.  If Judge St. Eve denies bail pending appeal, then the Bureau of Prisons will determine where they will start to serve their prison terms.  The defendants can request the court to recommend a specific facility, which Judge St. Eve would probably do, but the final decision is up to the BOP and it is even more of a crapshoot trying to figure out where they will end up.  The BOP tries to place prisoners within 500 miles of their residence, but Jeffrey Skilling is enjoying the cold weather in the FCI in Waseca, Minnesota, which is not exactly a short hop from Houston.  Because they are not U.S. citizens, the BOP rules require that Black, Atkinson, and Boultbee be assigned to a low-security facility, which would likely preclude an initial assignment to a prison camp.
  7. Can a Prisoner Be Transferred to Another Country to Serve The Term.  As Canadian citizens, Atkinson and Boultbee could take advantage of the prisoner transfer treaty between the U.S. and Canada and request that their term be served there.  Lord Black is a British citizen, having given up his Canadian citizenship to become a Lord, so he is not eligible under the U.S.-Canada treaty.  He could seek to be transferred to the U.K., or under an international convention that both Canada and the U.S. have signed, he could seek a transfer to Canada as a "national" of that country, even though his citizenship is British.  It all depends on how Canada defines who is a "national," a point on which I'm ignorant, and whether that country would be willing to accept him.  This is all a bit premature, however, because the treaties require that the conviction be "final" and so long as an appeal is pending in the case I don't think there is the necessary finality.

I hope I got everything right in here, and if you see anything mistaken, aside from my judgment which is usually flawed, please let me know.  Now, for the final question: What sentence will Black and the others receive?  There's enough uncertainty that I can't make a firm prediction, but I can give an over/under based on two scenarios.  If Judge St. Eve follows the PSR on the Guidelines version to apply to each, I would put the over/under on Lord Black at 100 months, with 45 months for Atkinson and Boultbee, and 36 months for Kipnis.  If Lord Black is sentenced under the 2000 version, then the over/under for him would be 50 months.  We shall see. (ph

December 8, 2007 in Fraud, Sentencing | Permalink | Comments (1) | TrackBack (4)

Friday, December 7, 2007

Update on Bonds' Appearance in Federal Court

Above the Law has eyewitness reports (here) on the initial appearance and arraignment of Barry Bonds.  In addition to the usual procedures, such as Bonds being released without having to post bond or surrender his passport, it appears that the conflict of interest issue with one of his new attorneys, Christine Arguedas, is an issue, at least for the moment.  From various reports, it sounds like prosecutors raised the question about one of Bonds' lawyers representing other witnesses in the case, which is probably Arguedas' representation of witnesses in the Balco grand jury investigation in which Bonds allegedly committed perjury.   Of course, a defendant can waive the conflict, but the court is not required to accept it.  This may be the first test regarding the relationship between the two sides, and if the government takes a hard line and files a motion to disqualify then things are likely to get pretty frosty. 

The defense also said it will seek dismissal of the indictment, which will probably require briefing and a hearing on the motion.  The next court date is February 7, at which time the judge may set a trial date.  With a flurry of motions like to come soon, it is unlikely the case will be completed before the end of the 2008 season, which raises the question whether any major league team will take a chance and sign Bonds to a contract.  (ph)

                                                                                       

UPDATE:  Here's the text of the court's order recounting the hearing:

The defendant’s appearance maybe waive at the next appearance. The appropriate waivers shall be filed in advance of the next hearing.  The government indicated that there may be a conflict issue with certain defense counsel. The government shall e.file a letter indicating the situation as they see it and the Court will determine if a hearing is necessary. If the Court determines that a hearing is necessary, the defendant must be present.  Defendant indicated that they may file a motion to dismiss the indictment.

(ph)

December 7, 2007 in Obstruction, Perjury, Prosecutions | Permalink | Comments (0) | TrackBack (0)

Would You Take Barry Bonds As a Client?

Home run king Barry Bonds is supposed to appear in federal court for his initial appearance -- and most likely an arraignment -- on perjury and obstruction of justice charges contained in a federal indictment issued in San Francisco.  A Wall Street Journal article (here), by Bay Area legal maven Justin Scheck, points out the problems Bonds has had in hiring a new attorney with significant federal court experience to conduct the defense at trial.  The article notes that Bonds met with John Keker, of Keker & Van Nest, a nationally-known white collar defense lawyer who has defended, among others, former investment banker Frank Quattrone, who was also charged with obstruction of justice arising from a forwarded e-mail.  There may have been an issue in hiring Keker because he represented the baseball players union in its fight to keep the government from getting the results of drug tests players took (see a New York Daily News story here).  In discussing the approach to Keker, and various in-fighting among Bonds' current legal team, the WSJ article raises in my mind the question whether a lawyer would really even want Bonds as a client.

There are obvious benefits to being the attorney for one of the most famous players in professional sports history, in a trial that will gain national -- and probably even international -- attention.  Bonds' lead counsel will be on television daily whenever there is any court proceeding, and the chance to have your picture appear over the shoulder of an ESPN SportsCenter anchor on a regular basis is publicity you just can't buy.  The lawyer will join the pantheon of well-known defense counsel in this country, one of the "usual suspects" who will begin to appear regularly in a variety of cases, or be asked to comment on them.  Pretty tempting, isn't it?

But from this ivory tower, I have to say that there are certainly a few major red flags that a lawyer has to think about seriously before undertaking the representation.  The article notes that Bonds asked Keker for a discount on his $900 hourly rate, and wanted another law firm to review the billings.  That certainly goes against the grain in white collar cases, in which cost is often not an obstacle.  Bonds' past baseball income plus future earnings potential, regardless of the outcome of the case, probably means he can afford Keker's rate.  There's nothing wrong with asking for a discount, and it makes good business sense to double check bills.  Not the best way to begin a relationship, but it shouldn't be a showstopper, either.

If that was all, then the fact that Bonds wants a discount and will flyspeck bills would hardly be of interest beyond the stereotype of the allegedly cheapskate athlete.  But the article also says that "Keker was concerned he wouldn't have control over Mr. Bonds's public relations and legal strategies and bridled at the prospect of collaborating with the player's current legal team." [Italics added] That starts to spell trouble for the lawyer.  The fact that Bonds' current legal team is a bit on the dysfunctional side is problematic, but if the strings in the case will be pulled by someone else, then there is a significant danger for the lawyer.  A defense lawyer being pulled in different directions, or forced to clear legal strategies through the "home office," may not be effective.  Trust is a two-way street, and if the lawyer is not going to be trusted, then why take on the case? 

It is always difficult to control a high-profile client who is used to being in charge of everything -- look no further than Lord Conrad Black, when the judge in his case threatened to take action against him for out-of-court comments during the trial if his lawyers didn't muzzle him.  I'm not saying the lawyer has to control everything, but a trial is a lot like any theatrical production in which everyone has a role to play.  The client who believes he or she can "talk my way out of this" or who showers the government with disdain, no doubt believing it is richly deserved, is looking for trouble.  Heaven forbid the client demand the opportunity to testify to "explain" everything for the jury so they will understand how misunderstood the defendant really is -- that drooling person would be the prosecutor waiting for the cross-examination.  Especially in a perjury and obstruction prosecution, portraying the defendant as an honest person whose statements were just misunderstood is paramount, but the defendant may be the worst person to say that.  The hardest decision in a case, especially a white collar prosecution, is whether the defendant will testify, and there can only be two people involved: the lead counsel and the client.  If there is a fight over control of the case from the beginning, then it means other agendas may be playing out, with the trial lawyer getting the blame if things go wrong.

So, would you really want to be Barry Bonds' lawyer?  Tough call, but it would be pretty cool to appear on SportsCenter right after the Patriots highlights. (ph)

                                                                                              

UPDATE:  The San Jose Mercury News reports (here) that Bonds has added two Bay Area attorneys: Allen Ruby and Christine Arguedas.  Ruby has represented the NFL in one of Oakland Raiders owner Al Davis' many lawsuits against the league, and Arguedas is well-known in white collar crime circles for her work recently on behalf of various corporate executives caught up in options backdating, including the former GC at Apple, and the former general counsel of Hewlett-Packard in that company's pretexting imbroglio. 

Arguedas has represented others in connection with the Balco (Bay Area Laboratory Cooperative) steroids investigation, including witnesses who appeared before the grand jury.  That gives her some familiarity with the case.  While it can be dicey to represent different people involved in a grand jury investigation, I doubt there is a conflict of interest problem for her because there does not seem to be any overlap between the witnesses who testified before the Balco grand jury and those who are likely to be called in the Bonds trial.  It remains to be seen, however, whether prosecutors will look for a potential conflict of interest as the basis to move to knock Arguedas off the case.  Another interesting question will be whether Ruby or Arguedas takes the lead in the case, or whether they are co-leaders of the defense -- which one gets to be on SportsCenter.  No word yet on whether either discounted his/her fees for the case. (ph)

December 7, 2007 in Defense Counsel, Obstruction, Perjury | Permalink | Comments (1) | TrackBack (0)

Thursday, December 6, 2007

How Do You Lose a Search Warrant?

Compared to a grand jury subpoena, obtaining a search warrant involves quite a bit of hassle for the prosecutor.  While the subpoena is just mailed out, a warrant requires a detailed affidavit, preparation of the warrant that meets the Fourth Amendment specificity requirements for the place to be searched and items to be seized, and then approval by a "neutral and detached magistrate."  Warrants are still uncommon in white collar crime cases, and the decision to try to get one is usually of some significance in an investigation.  Once the warrant is issued, the next phase can be even more daunting, requiring the organization of the volume of records obtained by the agents.  It is not unknown for agents to cart away hundreds of boxes of documents from a search because the descriptions are usually so broad, such as "all documents related to the sale of X since 2003."  That's why an article in Corporate Counsel (available on Law.Com here) is so strange because it states that the prosecutors in a corporate investigation thought a search warrant had been executed but it does not appear that the search ever occurred.

The case involves the investigation of Chiquita for protection payments to a Columbian right-wing paramilitary group that was designated as a terrorist organization.  An earlier article in Corporate Counsel about the case (available on Law.Com here), which Chiquita settled, stated that a warrant was executed at the company's headquarters in 2004.  That statement was based on informationi provided by two prosecutors on the case, but counsel for the company denied that a search ever occurred.  No one can seem to locate the records related to the warrant, and the Department of Justice has refused to comment on the matter. 

What is so odd about this is that executing a warrant involves steps that create a paper trail.  Federal Rule of Criminal Procedure 41(f) requires that "[a]n officer present during the execution of the warrant must prepare and verify an inventory of any property seized," and then the "officer executing the warrant must promptly return it — together with a copy of the inventory — to the magistrate judge designated on the warrant."  Not to mention the documents that are seized in a search, which have to go somewhere.  How is it that the prosecutors could think a warrant was issued when it appears no search ever took place?  Did they ever ask to see the records seized, or to review the inventory to make sure the agents seized all the records covered by the warrant? 

It's a little hard to believe something like this could have fallen through the cracks, and the article notes that the mystery remains about what happened to the Chiquita warrant -- no one at the Justice Department is talking much about it.  Maybe this one joins the Loch Nest monster and the flying saucers over Roswell as another great mystery: the Case of the Disappearing Search Warrant. (ph)

December 6, 2007 in Investigations | Permalink | Comments (0) | TrackBack (0)

The Slow Moving Freight Train That Is U.S. v. Stein

If you've ever sat at a railroad crossing waiting for a freight train to pass, it is such agony as an endless stream of cars rolls by.  I suspect the participants in the KPMG tax shelter prosecution may be feeling the same way as the case moves at a languid pace.  U.S. District Judge Lewis Kaplan issued an order on November 29 (available below) scheduling the trial for the remaining defendants in the case, with voir dire to begin on September 25, 2008, and the opening arguments on October 2.  The original indictment came down in October 2005. 

The case has been through a number of proceedings, including the dismissal of thirteen defendants after the district court determined that prosecutors violated their Fifth and Sixth  Amendment rights related to pressuring KPMG to cut off payment of their attorney's fees.  That issue is now before the Second Circuit, which has granted an extension to the defendants to file their brief until January 11, 2008, with the government reply due on January 25.  At that point the case will be ready for oral argument, and it's anyone's guess how quickly the court of appeals can rule on the case. 

There is a possibility that the Second Circuit will issue its decision by September 2008, and it if reverses Judge Kaplan's order and reinstates the indictment, then the current trial may be postponed yet again to figure out whether to try all the defendants together.  I think that regardless of who wins in the Second Circuit, there's at least a decent chance of the case going to the Supreme Court because the issues involving the right to counsel are coming up with greater regularity in corporate crime investigations.  Will there be a trial by 2009?  2010?  Perhaps even 2011?  Keep counting those freight cars.  (ph)

Download us_v_stein_order_setting_trial_nov_29_2007.pdf

December 6, 2007 in Prosecutions, Tax | Permalink | Comments (0) | TrackBack (0)

Wednesday, December 5, 2007

Former Brocade HR Manager Found Guilty

The second defendant from Brocade Communications was found guilty by a jury in San Francisco on charges related to options backdating at the company.  Stephanie Jensen, the former human resources manager for the company, was convicted on one count of conspiracy and one count of filing false records with the SEC.  Jensen was charged with former Brocade CEO Gregory Reyes in 2006, and initially there were eight charges against her.  After the district court granted a severance motion, the government dismissed six counts, presenting a simpler case that focused on her work with Reyes to backdate options grants to a number of new hires at Brocade and the resulting false statements to the SEC because the backdated options were not properly accounted for in the financial statements.  According to an AP story (here), Jensen's primary defense was her lack of knowledge about the accounting for stock options.

Similar to the Reyes conviction, the government's case did not include evidence that Jensen benefited personally from the backdating, which is often a key component in such prosecutions.  The government relied in large part on the testimony of co-workers who raised questions about the backdating practices and Jensen's reassurances about who would be held responsible.

For a white collar crime case, this one was over almost before it began, with the trial lasting just a bit over one week.  The district court postponed the sentencing of Reyes until after Jensen's trial, so that should take place in the near future. (ph)

December 5, 2007 in Prosecutions, Securities, Verdict | Permalink | Comments (0) | TrackBack (0)

The Defense of Dickie Scruggs

The week since the indictment of Mississippi tort lawyer Dickie Scruggs and four other defendants for allegedly trying to bribe a state court judge to rule in their favor in a dispute over $26.5 million in attorney's fees has had enough twists and turns to qualify for the first few chapters of a John Grisham potboiler.  Speaking of whom, the well-known novelist is a friend of Scruggs, and in an interview with the Wall Street Journal (here) described the indictment as "a boneheaded bribery scam that is not in the least bit sophisticated."  Those writers sure know how to turn a phrase, don't they?  Grisham's comment does contain a kernel of Scruggs' likely defense to the charge: "If I was going to bribe a judge, I'd do a whole lot better job of it than this."

One twist in the case was the fact that a key codefendant, Tim Balducci, the payer of the bribe, was not arraigned with the other four defendants in the case, leading to speculation that he was a cooperating witness.  Then, on December 4, Balducci appeared and entered a not guilty plea to the indictment.  If he had been cooperating in the case, the U.S. Attorney's Office likely would have had him plead to a separate criminal information and not be charged in the main indictment.  At least that's the usual way of proceeding, so it does not appear at this point that Balducci is cooperating, although he could down the road.

The indictment (available below) quotes extensively from various conversations among the defendants, which in addition to Scruggs and Balducci include Scruggs' son, another attorney at the Scruggs law firm, and Balducci's non-lawyer partner, Steven Patterson, a former Mississippi State Auditor [NB: How is it that Patterson and Balducci are partners in a firm that includes a law practice when Patterson is not a lawyer?  Mississippi Rule of Professional Conduct 5.4(b) provides "[a] lawyer shall not form a partnership with a nonlawyer if any of the activities of the partnership consist of the practice of law."  Just wondering]  The speculation about Balducci's cooperation was based on the indictment's quoting of conversations between the defendants.  It is possible that Balducci gave a proffer to the government in the hope of striking a deal, but that never occurred and any proffer agreement should prohibit the government from using his statements directly against him.  Another possibility is that the government had a wiretap on the telephone in Balducci's firm.  A number of the conversations appear to be telephone calls to or from Balducci and Patterson and others in the conspiracy, and that may be the source of the information.

If there are recorded telephone conversations on top of videotapes of the meetings between Balducci and the state judge, something that has already been disclosed, then the defense will have to begin by attacking any ambiguity in those conversations.  That would be one component of what I suspect will be a two-prong legal strategy: first, throw Balducci under the bus as someone who lied to Scruggs and the others to carry out his own (delusional) bribery scheme, and then argue that someone as smart as Scruggs would never concoct a "boneheaded bribery scam" with the scheming Balducci. 

The first step is to portray -- or demonize -- Balducci as a misguided sycophant who wanted to curry favor with Scruggs in order to jump on his gravy train.  Then, assert that Balducci lied to Scruggs and the others in order to win a favorable ruling in the attorney's fee dispute -- a variant on the Richard Scrushy Defense in the HealthSouth prosecution.  This is a delicate maneuver, of course, because it requires Scruggs and the others to come across as gullible enough to fall for the entreaties of Balducci.

The second phase is to castigate the bribery scheme described by the government as a product of Balducci's imagination.  The fact that there was any documentation for the payments shows that Scruggs and the others thought Balducci was on the up-and-up because who in their right mind creates a paper trail for a bribe?  This is the flip-side of the gullibility argument, that if this really was a bribery scheme then Scruggs would have done a better job of hiding it.  That argument is dangerous, however, because it risks having the jury conclude that Scruggs was really using Balducci as a cut-out to hide the scheme, and the "boneheaded" paperwork was part of a grand plan to hang him out to dry if necessary. 

This type of argument essentially says to the government (and the jury) that "if you could find it, I couldn't have been doing anything wrong because I would have hidden it better."  Pointing out how much smarter you are than the investigators could be problematic, and recall that one of the seven deadly sins is "superbia," i.e., pride but also sometimes translated as hubris.  Offering intelligence as a defense to charge may backfire.

Balducci is certainly the linchpin of the case, and the defendants and their supporters have already begun to attack him.  We haven't heard anything yet from Balducci, and his lawyer would be smart to keep him quiet for now.  As it turns out, his lawyer for the moment is none other than Tim Balducci, who has to avoid validating the adage that a lawyer who represents himself has a fool for a client.  Staying quiet for now is his best defense, because his conversations with the state judge certainly put him in a bad light. (ph)

Download us_v_scruggs_indictment_nov_28_2007.pdf

                                                                                 

UPDATE: The AP reports (here) that Balducci pleaded not guilty at a hearing at 1:30, then at 4:00 the same day pleaded guilty to one count of conspiracy and has been cooperating in the investigation of Scruggs et al. (plea agreement available below).  Indeed, Balducci's cooperation has already qualified as substantial under Section 5K1.1 of the Sentencing Guidelines and the government will move for a reduced sentence so long as he continues to assist the prosecutors. 

The procedure here is rather strange.  Balducci was not arrested, so the prompt appearance requirement of Federal Rule of Criminal Procedure 5 does not apply, and Rule 10, which governs arraignments, does not have any time requirements.  Why have a defendant plead not guilty, only to turn around and plead guilty?  It could be as simple as the U.S. Attorney's Office not having the paperwork ready, but it is yet another twist in the Scruggs prosecution.  The post above was written based only on Balducci pleading not guilty.  With him cooperating, the defense strategy of demonizing him remains the key. (ph)

Download us_v_balducci_plea_agreement_dec_4_2007.pdf

December 5, 2007 in Corruption, Prosecutions | Permalink | Comments (1) | TrackBack (1)

The Oracle of Omaha On the Witness Stand

The prosecution of four former senior officers of General Reinsurance, including its former CEO, and a former officer from American International Group (AIG) is set to begin shortly in Connecticut.  General Re is a subsidiary of Berkshire Hathaway, and the case involves a transaction between the company and AIG that the government alleges was designed to help AIG prop up its reported loss reserves, thus creating false financial statements because the transaction was not a bona fide reinsurance agreement.  AIG subsequently restated its financials for the transaction, and the government claims that the General Re defendants knew that the contract was to help AIG falsify its records.  Doesn't that sound like something to keep jurors on the edge of their seats?  The superseding indictment (available below) has sixteen counts, charging conspiracy, securities fraud, false statements to the SEC, and mail fraud.

The government's list of possible witnesses (available below) includes the CEO of Berkshire Hathaway, famed investor Warren Buffett, nicknamed the "Oracle of Omaha" for his legendary ability to buy assets on the cheap.  If there is any such thing as an investment rock star, the 77-year old Buffett certainly qualifies.  Buffett was interviewed in the government's investigation, and media reports indicated that he asserted the General Re defendants, which include the company's former general counsel and CFO in addition to its CEO, did not tell him the real purpose of the AIG transaction.  Buffett no doubt brings a little star power to a case that has all the potential to be a major snoozer given the complexity -- or perhaps impenetrability -- of reinsurance.

If Buffett testifies for the government, how will the defense lawyers handle someone referred to as an "oracle"?  The defense counsel in the case come from some of the leading firms with well-known white collar defense groups -- Steptoe & Johnson (including Reid Weingarten, who defended Bernie Ebbers), Covington & Burling (including Alan Vinegrad, former U.S. Attorney in Brooklyn), Cadwalader & Wickersham (including Jim Robinson, former head of the Criminal Division at DOJ), Proskauer Rose, and litigation boutique Hafetz & Necheles.  How these different lawyers handle Buffet will the interesting to watch, should he testify.

The government lists thirty witnesses it may call, not including possible rebuttal witnesses, while the defense has sixty-five potential witnesses.  Those lists of witnesses are usually inflated so that neither side can be accused of calling a witness who the other side didn't know about.  Even these inflated numbers indicate that the case is unlikely to be a quick one.  (ph)

Download us_v_ferguson_superseding_indictment_oct_2006.pdf

Download us_v_ferguson_government_witness_list_dec_3_2007.pdf

December 5, 2007 in Fraud, Prosecutions | Permalink | Comments (0) | TrackBack (0)

Tuesday, December 4, 2007

Limiting the Scope of Sun Diamond

The Second Circuit issued an opinion in the case of U.S. v. Ganim, a case with multiple convictions including RICO, honest services mail fraud, bribery under section 666, conspiracy, and tax. In affirming the conviction, the court held that "the government was not required to prove a direct link between a benefit Ganim received and a specific act he performed, so long as the government proved that Ganim received benefits in exchange for his agreement to perform specific official acts or to do so as the opportunities arose."  Ganim, the former mayor of Bridgeport, Conn. was sentenced to 108 months imprisonment.

The most fascinating aspect of the opinion pertains to whether proof "of a government official's promise to perform a future, but unspecified, official act is sufficient to demonstrate the requisite quid pro quo for a conviction."  The defendant attempted to use the case of U.S. v. Sun-Diamond to argue "that a specific act be identified and directly linked to a benefit at the time the benefit is received."  Thus, the defense was claiming that the Sun Diamond case, a gratuities case, should be extended to bribery under section 666.  The Second Circuit, however, rejected this argument after examining the difference between the two statutes and the policy rationale in Sun Diamond for distinguishing between legal and illegal gratuities.  The court states that the limiting principle found in Sun Diamond is not needed in the context of this bribery statute. The next question will likely be whether the Supreme Court thinks that an extension of Sun Diamond to bribery under 666 merits review.

(esp)

December 4, 2007 in Judicial Opinions | Permalink | Comments (0) | TrackBack (0)

Monday, December 3, 2007

Backdating Plea

A press release of the Center District of California reports that "[a] former vice president of human resources at Broadcom Corporation has agreed to plead guilty to obstruction of justice in connection with a government investigation of options backdating at the Irvine-based technology company." The plea agreement was to a one count Information that "alleges that the [defendant] instructed a subordinate to delete an electronic mail that was evidence of option backdating by Broadcom senior executives and board members."  The agreement includes cooperation. 

One finds the typical language in the agreement that relates to a possible 5K1.1 motion by the government. The agreement states:

"d) At this time the USAO makes no agreement or representation as to whether any cooperation that defendant has provided or intends to provide constitutes substantial assistance. The decision whether defendant has provided substantial assistance rests solely within the discretion of the USAO.

e) The USAO's determination of whether defendant has provided substantial assistance will not depend in any way on whether the government prevails at any trial or court hearing in which defendant testifies.

Should the prosecution be allowed to determine whether there has been sufficient substantial assistance.  Even though one finds that it will not rest on someone being found guilty, it does place undue pressure on the cooperating witness to please the government.  One has to wonder whether the credibility of the evidence is compromised by the government influence over the witness's future.  Wouldn't it be better placed in the hands of the judiciary?

Press Release -

Download broadcom_tullos.151.pdf

Plea Agreement -

Download broadcom_tullos_plea_agreement.pdf

(esp)

December 3, 2007 in Securities | Permalink | Comments (1) | TrackBack (0)

New Article - "Deterrence and the Corporate Death Penalty"

Professors Assaf Hamdani (Hebrew University) and Alon Klement (Interdisciplinary Center Herzliyah - Radzyner School of Law) have a piece on SSRN titled, "Deterrence and the Corporate Death Penalty."  They argue that "the corporate death penalty may undermine deterrence."  The abstract and article for download can be found here.

(esp)

December 3, 2007 in Scholarship | Permalink | Comments (0) | TrackBack (0)

Name the Top Cities For Corporate Crime Prosecutions

Check out here the findings of Russell Mokhiber, of the Corporate Crime Reporter, on the cities with the most corporate crime prosecutions.

(esp)

December 3, 2007 in Prosecutions | Permalink | Comments (0) | TrackBack (0)

Sunday, December 2, 2007

Olis - Was There A Brady Violation?

The latest in the Jamie Olis case is a Brief on why Jamie Olis should receive bail. It includes arguments on the likelihood of success on appeal.  There is a motion for discovery that raises issues of whether Olis was properly given exculpatory material by the Government. Attorney Cassman has an affidavit that provides support.  A key issue will be whether the U.S. Attorney's Office had contact with Dynegy and failed to disclose this to the accused.  The affidavit states that "testimony at the recent Yates v. Dynegy civil trial demonstrates that the USAO had frequent contact with other Dynegy employees — including attorneys in Dynegy’s general counsel’s office — during the prosecution of Olis."

In recent years we have seen issues of the government using civil matters collaterally with criminal matters.  In most cases this benefits the government.  But, this case may be the warning sign to the government about having tangential civil matters, especially when these matters may provide evidence that needs to be disclosed to the defense.  Certainly the government cannot claim that the civil and criminal divisions are separate and therefore the items are not subject to discovery.  If the government intends to continue to use doctrines like "collective knowledge" against defendants then they too must be subject to its rules.  What was the collective knowledge of the government here, and was the discovery properly provided to defense counsel prior to trial?

Download 327OlisMotionforDiscovery.pdf

Download 327-2ProposedOrder.pdf

Download 328CassmanDeclreMotionforDiscovery.pdf

Download 326OlisReplyreBail.pdf

(esp)

December 2, 2007 in Sentencing | Permalink | Comments (0) | TrackBack (0)

Challenging the SEC Over the Denial of Attorney's Fees

One of the defendants in the SEC's civil lawsuit (amended complaint here) against a number of former Nortel Networks defendants for alleged accounting fraud has filed a motion to dismiss based on the claim that the Commission sought to improperly pressured the company to deny her the payment of attorney's fees.  The argument is reminiscent of the KPMG case, which is cited in the brief, in which the indictment of thirteen defendants was dismissed because of pressure from prosecutors on the accounting firm to deny attorney's fees to a number of former partners and employees later charged for their work on tax shelters.  A Globe & Mail article (here) discusses the filing, and notes the connection with the KPMG case.  Whether the two are the same is questionable because there are differences between the cases that may be crucial.

The motion by Mary Anne Poland (available below), a former assistant controller at Nortel, makes two interconnected arguments.  First, Nortel Networks cut off payment of her attorney's fees when the SEC indicated that it was looking at her as a possible defendant in an enforcement action.  Unlike the company's former CEO and CFO, also defendants in the suit, she does not have the deep pockets necessary to fight an SEC securities fraud case, which usually involves significant discovery and a long trial if it gets that far.  The motion states that Nortel's counsel, who was the former head of the Enforcement Division at the SEC, counseled the company to terminate the payment so that it could appear cooperative with the SEC in the case.  Nortel eventually settled the accounting case by paying a $35 million civil penalty. 

Poland's motion points to the company's cooperation as evidence of the Commission's involvement in the decision to terminate the attorney's fees.  The SEC's Litigation Release (here) announcing the settlement with Nortel states that "the Commission acknowledges Nortel's substantial remedial efforts and cooperation."  In addition, the motion notes that the SEC announced in another case -- involving telecom equipment manufacturer Lucent -- the Commission highlighted the company's cooperation that involved terminating attorney's fee payments for employees.  The argument is that the Commission, at least indirectly, caused Nortel to terminate Poland's attorney's fees.  Hence, the specter of the KPMG case, in which such governmental pressure led the firm to cut off the attorney's fees that eventually triggered the dismissal of the indictment. 

The problem for Poland is that the SEC's policy was not as explicit as the Thompson Memo that the defendants pointed to in the KPMG case as the basis for terminating the attorney's fees.  The motion leads off with the district court decision in United States v. Stein that found the violation of the defendant's rights based on the governmental pressure to deny attorney's fees.   While the SEC's policy certainly emphasizes a company's cooperation, it is not nearly as explicit at the Thompson Memo was on the attorney's fee issue -- a point changed in the current iteration of the Department of Justice's policy on charging corporation, the McNulty Memo.  It is not clear whether there is any direct evidence of pressure by the Commission staff on Nortel to cut off attorney's fees, and pointing to the company's lawyer as the source of that decision may be a crucial distinction from the KPMG case.  Moreover, unlike Stein, a criminal case, there is no Sixth Amendment right to counsel in a civil case, so that ground is unavailable to dismiss the complaint.

The second related claim is that while Poland did not have counsel, the SEC sought and obtained two tolling agreements that allowed the investigation to continue beyond the five year limitations period.  The motion argues that the denial of attorney's fees was related to these requests because the Commission took advantage of Poland's position of acting without legal advice.  She claims that the SEC staff pressured her to agree to the tolling, once even saying that an FBI agent might join the interview.  Because there is no Sixth Amendment claim, the argument is that the government violated Poland's due process rights.  That was one basis for the Stein decision, but the due process concerns in criminal cases are different from those in a civil case.  Poland could have refused to sign the tolling agreement, or could have hired counsel with her own resources to advise on that issue.  Moreover, she is now represented again by lawyers.  Unlike a criminal case, the SEC cannot seek a prison term, so the decision to sign the tolling agreement may be viewed by the courts as less significant under the Due Process Clause.

The motion relies largely on the overtones of the governmental policy that was castigated in the KPMG case and has led to significant criticism of the Department of Justice on Capitol Hill.  The connection, however, between Nortel's decision to cut off the attorney's fees and any particular pressure from the SEC is less clear in this case.  The fact that a company decides to terminate the payment of fees, even if it is based on the hope that it will curry favor with the SEC, does not necessarily mean the Commission acted improperly.  Whether the dismissal motion gains any traction remains to be seen, but the damage from the government's actions in the KPMG case show how widely felt its effects will be for other cases and agencies. (ph -- thanks to YH for passing along the information)

Download sec_v_dunn_motion_to_dismiss_poland_nov_2007.pdf

December 2, 2007 in Civil Enforcement, Defense Counsel, Securities | Permalink | Comments (1) | TrackBack (0)

Long Sentences for First Offenders

A press release of the U.S. Attorneys Office in Massachusetts tells of 20 and 35 year sentences being issued to first offenders who committed white collar offenses. The press release states that the individuals were "operators of a pyramid scheme which took in approximately $27 million from roughly 500 victims, most from the Cambodian-American community."  "U.S. Attorney Sullivan stated that “[t]he victims are hard working people who were led to believe that they were making safe and responsible investments. Sadly a number of these victims are now facing the loss of their homes and financial ruin.”  The two were convicted of conspiracy, mail fraud, and yes - what seems to be common in white collar cases today - money laundering. This is yet another example of long sentences being issued in a white collar case. (See also here for a discussion of the McFarland case).  More importantly, we again see the long sentence in a case where the defendants risked a trial as opposed to taking a plea agreement, and a case where the dollar figure seriously influenced the sentence.

(esp)

December 2, 2007 in Sentencing | Permalink | Comments (0) | TrackBack (0)

NatWest - What Really Happened

Tom Kirkendall over at Houston ClearThinkers has an extensive and thoughtful blog item on what really happened in the NatWest 3 Plea.(see here)

(esp)

December 2, 2007 in Sentencing | Permalink | Comments (0) | TrackBack (0)

Rejection of Privilege Claim for the Executive

The ABA Jrl reports on the Senate Judiciary Committee rejecting claims of executive privilege on the investigation of the U.S. Attorney firings. (see also NY Times here)

(esp)

December 2, 2007 in Privileges | Permalink | Comments (0) | TrackBack (0)

Bad Movies - Good Movies

Paul Caron, King of the LawProf Blogsphere tagged me here.  It seems that a dean and some professors are playing tag and if tagged you have to name your "bad movie". (See Dean Jim Chen here, Professor Nancy Rapoport here, Professor Ann Bartow here) It's all part of the "truly bad movie meme" Well that's all well and good, but I do need to add some comments here before I drop the name.

  • First I have to point out that my initial reaction was - gee this looks like it might be the start of a pyramid scheme - did they come to the correct blog on this one, a white collar crime blog?  But, I think that can be ruled out.  The money isn't there.
  • My second thought - Why always the bad - I hate negativity - couldn't they do the "good" movies.  That would be easy as Being There would be my choice. It's a true classic.
  • My final thought (with the help of dinner colleagues from Stetson - Janice McClendon and Candace Zierdt)  - my choice -  Paper Chase.

The Paper Chase is "bad" because it has stigmatized us as a profession. We have the viewing public seeing the law prof as someone without the "caring" we so need in our profession.  To some extent this movie exposed  the Kingsfield professor, but to another extent it reinforced a Socratic methodology that is cold and unfeeling. For that it rates my choice as the "bad movie."

My tag goes to Paul Butler at Blackprof.

December 2, 2007 in About This Blog | Permalink | Comments (1) | TrackBack (0)