Saturday, February 3, 2007
A DOJ Press Release reports on a plea agreement being reached between the United States Attorney for the District of Connecticut and a former employee of Duracell. According to the press release, court documents state that -
"between March and June 2006, [ ] who was employed as a cell development technologist at Duracell, copied and downloaded to his computer research regarding Duracell’s AA batteries. [This individual] emailed the information to a home computer and also carried the information from the Duracell offices. [The accused] then sent the trade secret information to two competitors of Duracell in order to cause economic injury to Duracell and to provide the competitors with an economic advantage."
Sentencing is set for April 23rd. See also Wall Street Jrl. here.
The pending merger between Bank of New York and Mellon Financial may present what looks like a first in the field of non-prosecution agreements: two companies joining their monitors appointed as a result of settling criminal investigations. Bank of New York entered into a non-prosecution agreement with the U.S. Attorney's Offices for the Southern and Eastern Districts of New York in November 2005 (press release here) related to improper procedures for monitoring possible money laundering and fraud in its accounts. The settlement involved $38 million in penalties and restitution, and Bank of New York agreed to appoint a monitor for three years to ensure its compliance with the transaction reporting obligations imposed on financial institutions. Meanwhile, in August 2006, Mellon Financial reached a settlement with the U.S. Attorney's Office for the Western District of Pennsylvania and the IRS (see press release here) related to "the April 2001 destruction of over 77,000 tax returns and payments at the Mellon Client Service Center in Pittsburgh, United States." Six former employees were indicted and a seventh entered a guilty plea to charges arising from the destruction of the returns. The company made restitution of $18 million and appointed its own monitor for the ubiquitous three-year term to oversee its compliance.
With the banks merging, the question is whether the monitors will also merge. An article from Corporate Counsel (here) notes that the Department of Justice may agree to such a combination into a single monitor's office, but that nothing has been worked out yet. With deferred and non-prosecution agreements growing in popularity, this situation was almost inevitable, and the decisions made in this transaction are likely to become the template for future mergers or acquisitions of corporations with monitors. (ph -- thanks to Yolanda H. for passing this item along)
The U.S. Attorney's Office for the Southern District of New York charged John H. Whittier with one count of securities fraud and three counts of failing to disclose to the SEC the ownership interest in companies in which hedge funds managed by Whittier had a substantial interest. He owned Wood River Capital Management, which operated two hedge funds with over $120 million in assets. According to a press release (here), the hedge funds took large positions in two companies, Endwave and MediaBay, in violation of the funds' operating agreements that limited the investment in any one company to 10% of the assets. The release states:
WHITTIER’s scheme to defraud hedge fund investors and the general investing public involved, among other things, falsely representing to investors that he would pursue a broad investment strategy -- that no investment would ever constitute more than approximately 10 percent of the hedge funds’ holdings -- and purposefully failing to make required public filings that would have disclosed his concentrated holdings in one stock.
In order to conceal the hedge funds' large stakes in the company, Whittier is accused of intentionally failing to file the SEC disclosure forms required when a individual or group controls over 5% of a company's stock. Due to the large stakes in the companies, which suffered substantial drops in their share prices, the government accuses Whittier of causing the hedge funds to lose $88 million, and that the violation of the agreements requiring diversified investments constitutes securities fraud. (ph)
Friday, February 2, 2007
A jury convicted Joya Williams, a former secretary to the global brand director of the Coca-Cola Company in Atlanta, of conspiracy to steal trade secrets and sell them to rival Pepsi. Williams was one of three defendants arrested in July 2006 after Pepsi notified the FBI that individuals were trying to sell information and samples of Coke products. An undercover operation involved giving $30,000 as a down payment for the trade secrets. Two co-defendants pled guilty and one testified against Williams, who maintained her innocence when she testified at trial. She asserted that the two defendants may have stolen the items that were to be sold to Pepsi by using a key under the front mat to enter her house, and that she had the company's secret information to protect herself from a claim that she was not working. Williams also testified that a $4,000 cash deposit to her account after the $30,000 payment was a loan from a friend, but the friend testified that the most he had lent her was $400 after her arrest.
It's not clear whether Williams' testimony helped or hurt her. The jury initially told that court it was deadlocked before being instructed to continue deliberating, so it was at least a close enough case to require the jury to resolve significant differences before returning their jury verdict. An Atlanta Journal Constitution story (here) discusses the jury deliberations, and an AP story (here) discusses Williams' testimony at trial. (ph)
The prosecution of plaintiffs class action firm Milberg Weiss and two of its partners took another turn when Steven Cooperman admitted to accepting payments from the firm for serving as the representative plaintiff in class actions. His guilty plea includes an admission to accepting $175,000 from "Partner B," widely speculated to be former Milberg Weiss partner William Lerach, who split away from the firm in 2004 to form Lerach Coughlin. It has been noted that Cooperman is an eminently impeachable witness, having served time for insurance fraud and then prosecuted for breaching his plea agreement by conducting another fraud (involving forged doctors signatures on health insurance forms) while in prison -- how often will he be asked "Which time were you lying?" on cross-examination? Moreover, his guilty plea in the Milberg Weiss case effectively admits that he lied to the courts about not receiving any remuneration for serving as the representative plaintiff. A story in The Recorder (here) has a telling quote from Cooperman's attorney, who asserts that his client has "been 100 percent truthful with the government as to Milberg Weiss." Not much of an endorsement.
While there is considerable speculation that prosecutors may be "closing in" on Lerach and his former partner, Mel Weiss, who has been identified as "Partner A" in other plea documents, it is hard to conceive the government building a case around the testimony of the defendants who have entered guilty pleas already, all of whom have a checkered past, particularly Cooperman. I suspect that, unless the government can obtain incriminating information from someone inside Milberg Weiss, or cooperation from one of the firm's former partners charged in the indictment, it will be difficult to think that a breakthrough will occur that leads to charges against Lerach and Weiss after nearly seven years of investigation. (ph)
No one really wants to go to jail, but once you're in, it would probably be nice to get assigned to a decent facility to serve out your term rather than spend time in a cramped holding facility for over a year. That is the plight of Jamie Olis, however, who seems to be in the netherworld of the federal Bureau of Prisons, having been in the Houston Detention Center since December 2005 awaiting resentencing and then reassignment. As a picture of the Houston federal jail shows (here), this is not a particularly pleasant place, one that former Enron CFO Andrew Fastow found particularly despicable. A Houston Chronicle story (here) discusses the delay in assigning Olis after his resentencing in October 2005 to a six-year term for his fraud conviction, down from the original twenty-four year sentence. It recounts the BOP's excuses for not sending him to a regular facility, even after other high-profile defendants from the Enron case who were sentenced after him have received their assignments.
By focusing media attention on the BOP, the Chronicle story could have the unintended consequence of prodding the bureaucracy into assigning Olis to a facility even further away from his wife and child, who live in San Antonio. Beware of rousing the sleeping bureaucrat, particularly one with virtually unreviewable discretion on where to send a person to spend a substantial period of time. Tom Kirkendall has a good post on this topic on the Houston's Clear Thinkers blog (here), noting that the BOP's excuses for not assigning Olis to a permanent facility ring pretty hollow. (ph)
Thursday, February 1, 2007
The fallout from the bribery of former Representative Randy "Duke" Cunningham looks like it is about to hit, according to an article in the North County Times (here). Brent Wilkes, who Cunningham admitted paid him substantial bribes to win no-bid defense contracts, has been under investigation by the U.S. Attorney's Office for the Southern District of California for over a year, and government "sources" are saying that charges are imminent. U.S. Attorney Carol Lam was among the seven federal prosecutors forced out by the Department of Justice, and before she closes the books on her tenure, she reportedly has asked that the Wilkes indictment be finalized.
One aspect of the media reports may be a bit troublesome for the U.S. Attorney's Office, however. The North County Times story has the following quotes:
"I know we are so close," said one official, who agreed to speak with the North County Times on the condition that his name not be published. A preliminary draft indictment is under review by "many eyes on what is going to be proposed to the grand jury," according to the source.
Talking about a draft grand jury indictment and stating how "close" it is looks like a violation of the grand jury secrecy requirement of Federal Rule of Criminal Procedure 6(e), which provides that any government attorney or agent "must not disclose a matter occurring before the grand jury." A decision to seek an indictment likely comes within the scope of a "matter occurring before the grand jury," which is not limited to just what takes place in the grand jury room. Rule 6(e)(7) states that "[a] knowing violation of Rule 6 . . . may be punished as a contempt of court." Wilkes's attorney is Mark Geragos, who is known for defending Scott Peterson and Barry Bonds' former trainer, Greg Anderson, and he has not been shy in advocating on behalf of his clients. This type of disclosure to the media from an unnamed government source is likely to trigger a call by Geragos for an internal investigation of the prosecutors and agents involved in the case to learn who violated Rule 6. These types of investigations are never pleasant, to be sure, and probably would draw the reporter into the inquiry, raising once again issues related to confidential sources. (ph)
No, it's not Jeffrey Skilling, that would merit major headlines. The convictions of Kevin Howard, the former CFO of the Enron Broadband unit, were overturned by U.S. District Court Judge Vanessa Gilmore (opinion available below). A jury convicted Howard in May, 2005, just a few days after the verdict in the Lay/Skilling trial in the same courthouse in Houston, of conspiracy, wire fraud, and falsifying books and records related to transactions at the Broadband division. The government conceded in November 2005 that the Fifth Circuit's decision in United States v. Brown, 459 F.3d 509 (5th Cir. 2006), overturning the fraud convictions in the Enron Nigerian Barge trial controlled four of the five counts in Howard's case. In Brown, the appellate court found that the government's theory of wire fraud based on deprivation of the right of honest services was improper because the defendants believed that their interests were aligned with the company's, and therefore they did not have the intent to defraud even if they breached their fiduciary duty. The government used the same theory in the Broadband prosecution, and so the fraud and conspiracy convictions had to be reversed because the jury verdict did not provide any indication about whether the improper legal theory played a role in the decision.
The fifth conviction, for falsifying books and records, was different because it did not involve proof of an intent to defraud. Judge Gilmore reversed the conviction, however, because one basis on which the jury could find Howard guilty was by applying the Pinkerton doctrine that would permit a conviction because of his participation in the conspiracy. This gets tricky, but it works like this: the court instructed the jury that it could find Howard guilty based on his knowledge of the falsified books, or based on his participation in the conspiracy. Under Pinkerton, if a person is a member of a conspiracy, then that person is liable for all the crimes committed by any other member of the conspiracy, even if they did not do anything themselves for that crime. The conspiracy finding, in turn, could be based on an agreement to commit wire fraud based on the improper honest services theory. Because the wire fraud charge was tainted by the bad honest services theory, the conspiracy falls, and because the falsifying records charge could have been based on the bad conspiracy charge, so it too must it be reversed. Kind of like knocking down the first in a row of dominoes -- once one goes, they all go.
The government can retry Howard on all of the counts because the reversal was based on legal error and not insufficient evidence. This would be the third trial for him, however, the first having ended in a hung jury after a presentation that was at best stultifying. With the Enron Task Force dissolved, the decision shifts to the U.S. Attorney's Office for the Southern District of Texas, which still has an indictment of three other Broadband defendants to pursue and a decision to make on whether to retry the Nigerian Barge defendants whose convictions were overturned in Brown. Does that office have the resources and commitment to continue these cases, especially when it also has the NatWest Three on the docket? (ph -- thanks to Tom Kirkendall of the Houston's Clear Thinkers blog for providing the Judge's order)
Wednesday, January 31, 2007
The new contract Barry Bonds agreed to with the San Francisco Giants that will pay him $15+ million has an unusual clause allowing the team to void the contract if he is indicted for perjury in the ongoing Balco (Bay Area Laboratory Co-operative) steroids investigation. Some baseball contracts permit a team to back out if a player sustains a certain type of injury, such as the recent contract J.D. Drew signed with the Boston Red Sox relating to a previously-injured shoulder. Baseball also has a "good conduct" requirement, but a criminal indictment alone would not necessarily keep him from pursuing Hank Aaron's home run record.
Bonds has been under investigation for nearly two years for possible perjury related to his grand jury testimony in 2003 in which he denied knowingly taking steroids. Another issue that emerged relates to possible tax evasion for not reporting income from autograph signings and memorabilia sales. Whether Bonds is charged is very much an open question since the U.S. Attorney for the Northern District of California, Kevin Ryan, lost his position. That change raises doubts about whether new leadership in the office will continue to pursue a case that has already triggered civil contempts and appeals to the Ninth Circuit for three witnesses who have refused to testify: Bonds' former trainer and two San Francisco Chronicle reporters.
It could be, though, that the Giants know something about the direction of the case. In July 2006, the team submitted Bonds' medical records to the grand jury, and a team physician and trainer testified. It is not clear whether the contract provision will pass muster with the players union or the Commissioner's office, so it may come to naught. A Chronicle story (here) discusses Bonds' new contract. (ph)
Special Counsel Patrick Fitzgerald opened the prosecution's case-in-chief with five high-level government witnesses, including former White House spokesman Ari Fleischer, who each testified to having given I. Lewis Libby at least some information about Valerie Plame's role as a CIA operative. The trial has now switched to the media witnesses, beginning with New York Times reporter Judith Miller, who testified that Libby first spoke to her about Plame on June 23, 2003 -- the twenty-first anniversary of the famous "smoking gun" conversation between President Nixon and H.R. Haldeman about covering up the Watergate break-in. As with the earlier witnesses, Miller had some recall problems in her earlier grand jury testimony when she did not mention this meeting with Libby the first time she testified. According to an AP story (here), Libby's counsel, William Jeffress, asked Miller about her inability to recall the meeting until reviewing her notes, and she responded that "it's really easy to forget details of a story you're not writing." How she could have missed this "detail" entirely, at least for a time, is a bit mystifying, if you will, given that Miller spent 85 days in jail for civil contempt for refusing to testify about her discussions with a secret source who turned out to be Libby.
Like so much in this trial, it is the details of the story that will tell the tale, and Miller palming off a lapse of memory like this may not play well with the jury. Nevertheless, the drumbeat of witnesses from inside the Administration and in the media saying the same basic thing, that Libby told (or questioned) them about Plame's CIA status, will make it difficult to mount successfully a "gosh, it must have slipped my mind when I spoke with the FBI and testified before the grand jury" defense. The case remains a credibility battle, and the stakes will go up with each additional witness who says Libby raised the issue of Plame's role at the CIA first. (ph)
UPDATE: For an interesting first-hand perspective on Miller's testimony, including an issue related to questioning her about confidential sources, check Jeralyn Merritt's thorough post on TalkLeft (here).
A former finance official for the Coalition Provisional Authority in southern Iraq received a nine-year sentence on corruption, money laundering, and weapons charges. Robert Stein worked for the CPA in administering the rebuilding effort, and engaged in a wide-ranging corruption scheme to award contracts to favored companies. According to a Department of Justice press release (here):
Stein admitted to participating in a complex bribery, fraud and money laundering scheme while serving as the Comptroller and Funding Officer for the CPA-SC. From December 2003 through December 2005, Philip H. Bloom, a U.S. citizen who owned and operated several companies in Iraq and Romania, Bruce D. Hopfengardner, a Lieutenant Colonel in the U.S. Army Reserves, and numerous public officials, including several high-ranking U.S. Army officers, conspired to rig the bids on contracts being awarded by the CPA-SC so that all of the contracts were awarded to Bloom. In return, Bloom provided the public officials with over $1 million in cash, SUVs, sports cars, a motorcycle, jewelry, computers, business class airline tickets, liquor, future employment with Bloom, and other items of value.
In addition, Bloom laundered over $2 million in currency that Stein and his co-conspirators stole from the CPA-SC that had been designated to be used for the reconstruction of Iraq. Bloom then used his foreign bank accounts in Iraq, Romania and Switzerland to send the stolen money to Stein, Hopfengardner and other public officials in return for the awarded contracts. In total, Bloom received over $8.6 million in rigged contracts.
Bloom, one of the coconspirators identified in the government statement, also entered a guilty plea and is scheduled to be sentenced on February 16, 2007.
This is not the only front in the investigation of corruption and contract abuse involving the Iraqi reconstruction. The House Oversight and Government Reform Committee will be conducting hearings on the topic, and a statement on the Committee website (here) states:
Rep. Waxman and other members of Congress have been seeking information on contracts entered into by the Administration for reconstruction and development work in Iraq, including several billion dollar contracts with a subsidiary of Halliburton Corporation. Many questions have been raised about the Iraq contracting process, including questions on the seemingly inflated prices charged by Halliburton to import gasoline from Kuwait into Iraq and Halliburton's admission of kickbacks to company officials.
Needless to say, the change in control on Capitol Hill will make these hearings quite contentious. (ph)
Monday, January 29, 2007
Testifying under a grant of immunity, Ari Fleischer disclosed to jurors in the I. Lewis "Scooter" Libby case that he had in fact been told about CIA Valerie Plame's undercover status by the accused. (see Washington Post and New York Times). Because he is testifying under a grant of immunity, his testimony cannot be used against him. In essence he is testifying, although it appears that there is no written guarantee of anything being given to him for this testimony. The only assurance he has is that prosecutors will not use his testimony against him, or the fruits of that testimony. Absent perjury, it is rare a prosecutor indicts on the same conduct, and when they do it can be subject to enormous scrutiny (see United States v. Webster Hubbell).
Prosecutors are often reluctant to put in writing specific terms of a deal, or to guarantee a deal, as this then becomes the heart of a cross-examination. If they offer a deal, it has to be disclosed and the witness's testimony may be considered biased as influenced by the terms of the deal. Thus, irrespective of whether a witness has criminal exposure, a grant of immunity allows the individual to at least receive protection for any statements that they make on the witness stand that respond to the question asked. How this will play out may be seen tomorrow, when Fleischer gets cross-examined.
Exhibits admitted at the trial can be found here.
While Patrick J. Fitzgerald is busy prosecuting I. Lewis "Scooter" Libby, his office back home in Chicago filed its brief in the case U.S. v Ryan. Former Governor Ryan had been convicted of fraud and other charges (see here). The brief responds to defense claims including arguments that "[t]he district court properly dismissed two jurors and replaced them with alternates," the mail fraud "honest services" provision was not vague, and that the RICO charge was proper. In the last argument, the government claims that the State of Illinois can be a proper RICO Enterprise. Although this last point has been held acceptable by other courts, it raises interesting federalism concerns that may at some point be addressed by higher courts.
Sunday, January 28, 2007
The TalkLeft Blog discusses whether Libby's attorneys have all statements by Karl Rove, noting that:
"Fitz has taken the position since day 1 that he's not obligated to turn over statements of defense witnesses, only those of witnesses he intends to call. (That wouldn't be acceptable in my federal District, which has a more open file policy, but each District is different.)"
This is an interesting point that rings true to those of us who have researched the Jencks Act. If the discovery material is exculpatory to the accused, the government is obligated under Brady to turn that evidence over to the defense. Otherwise, the Jencks Act (18 U.S.C. s 3500) merely requires that once the witness testifies for the government, the defense is entitled to the prior statements of that witness before cross-examination is conducted. (see also Fed. Criminal Rules of Procedure, Rule 26.2). So if the prosecutor calls Karl Rove, the statements would become available to the defense.
In reality, most prosecutors turn over Jencks material in advance of trial. In a study I conducted years ago and reported in a symposium article titled, Criminal Discovery of Jencks Witness Statements: Timing Makes a Difference, 15 Georgia St. L. Rev. 651 (1999), a survey of defense attorneys noted that they received Jencks material days before trial, in many cases either 3, 5, 7, 10, or longer before the trial began.
Several things are clear here: 1) there is no uniformity on when witness statements will be received by defense counsel from the government. It seems odd that the government pushes for uniformity in sentencing, but is unable to offer the same within the trial; 2) that some prosecutors seem reluctant to give these important trial materials to the defense (don't they want the truth to prevail); 3) that if the prosecutor and defense counsel decide not to call Karl Rove, we may never know the contents of his testimony before the grand jury.
The sentences for two individuals who plead guilty to a 3 count indictment that related to polluting navigable waters were: 1) 5 months in prison and 2 months supervised release and 2) 3 years probation. Both individuals had restrictions placed upon them to preclude them from polluting U.S. waters. According to the DOJ press release,
"A joint factual statement filed in federal district court in New Jersey stated that on the night of Jan. 3, 2006, U.S. Coast Guard inspectors boarded the Sun New and discovered that members of the engine room crew had used bypass hoses to discharge oily wastes overboard into the ocean without using the vessel’s oily water separator. Upon further investigation, inspectors discovered that the crew of the Sun New had disposed of significant amounts of oil waste into the ocean at least twice during the voyage from South Korea to New Jersey. In September a grand jury in Newark, N.J., returned a three-count indictment charging Chang-Sig O and Mun Sig Wang with conspiracy, obstruction of justice, and a violation of the Act to Prevent Pollution from Ships in connection with the use of the two bypass hoses."
It is interesting to see the sentences given with respect to an environmental offense, albeit an obstruction of justice charge in one case and a violation of the Act to Prevent Pollution from Ships in the other case. Perhaps the greatest deterrent in this sentence was their restrictions on operating ships in U.S. navigable waters. The company, Sun Ace Shipping Company, had previously plead guilty and was "fined $400,000 [and] ordered to pat $100,000 as a community service payment. They were prohibited from "returning to the U.S. for three years for similar violations in conjunction with this case."
DOJ may be a step behind the Army as this military branch begins its own fraud investigations. (see Washington Post AP here). But with the opening of fifty (50) investigations of contractors one has to wonder if this action is a bit late. Was there no adequate compliance program in place to make certain that fraud did not occur? And was there an "effective program" to oversee contractors who were working in foreign countries? And if the Army failed to monitor its contractors, is this recent effort to investigate sufficient? But unlike the corporation that fails to have an "effective program," you probably won't be seeing a deferred prosecution agreement here. The real question will be whether the legislature will intervene here.