Saturday, December 22, 2007

Commentary on Skilling's Reply Brief

The Skilling Reply Brief is lengthy as noted here, although not as long as defense counsel would have liked. Their opening line in the Statement of Facts is that "[s]pace limitations preclude a full recitation of the Task Force's distortion of the trial record." (emphasis added)  The irony in the opening portion that details some of the alleged discrepancies including a chart showing some of the "task force's descriptions" along-side a listing of "actual evidence," is that it is followed by the first argument - an argument pertaining to "honest services" fraud. This entry into their first argument is a masterpiece in the art of skillful brief writing.  Some other thoughts:

  • The defense does not present a lay back approach to differences in the record.  They call the government on the carpet with forceful words that emphasize their view of inaccuracies in the government recitation of the facts.  As the appellate court decides the law, and the trial court the facts, this may not be as strong an argument as it reads. But it could become important in light of the legal issues being presented.
  • This case highlights the problems with the "honest services" doctrine. The dissent in Rybicki noted the different views held by jurisdictions on a host of points related to section 1346 of the fraud statutes. And with the Brown decision within the court's reach, the government needed to present clear arguments on why Skilling's case was different. Here again we see an interesting tone in the rhetoric by the defense.  For example, they state in the Reply Brief - "[t]his, to be sure, is nothing more than a call for a 'Jeff Skilling' exception to be grafted onto the wire fraud statute." 
  • Whichever way the court goes on the honest services issue, it will be an issue that is likely to repeat itself until the Supreme Court provides additional clarification.  The question will be whether this case will serve as the next McNally, a case that reigned in the mail fraud statute when the government used an intangible rights doctrine approach.  Or will it be more like what happened in Carpenter, where the Supreme Court expanded property to include intangible property.  Or will the Court sit back, since after all 1346 was enacted post- McNally by the legislature.   
  • The reply brief hits hard on the government response to the giving of the ostrich instruction.
  • The materiality and venue arguments get buried in the middle of the brief.  The reality here being that although they were key factors in the conviction, they may be the hardest to demonstrate as legal errors.
  • The chart on page 109 of the brief is very telling.  It provides a chart of some high profile cases and the length of the jury selection.  (e.g. Bernie Ebbers - 2 days, I "Scooter" Libby - 4 days, Martha Stewart - 6 days). Uniformity only seems to matter to the Sentencing Commission.
  • The "document dump" argument could be a sleeper, although the strong rhetoric at the end of this section is just that - strong rhetoric.
  • The brief ends with a request for bail pending appeal.  And although strong arguments are presented here, it doesn't seem likely that Skilling will be home for holidays.

See also co-blogger Peter Henning's points from this article by Mary Flood in the Houston Chronicle here and Professor Doug Berman of Sentencing Law & Policy Blog here.


Addendum - Check out Tom Kirkendall's Houston ClearThinker's here.

Second Addendum - The comment above on the materiality and venue issues should not be interpreted to seem like these aren't important issues.  They are extremely important ones that the appellate court will need to examine carefully.

December 22, 2007 in Enron | Permalink | Comments (4) | TrackBack (0)

Mortgage Fraud: Déjà Vu All Over Again

The Wall Street Journal had a front-page article (here) about a mortgage fraud scheme in Atlanta that implies a substantial portion of the foreclosures occurring around the country involve some type of fraud by an assortment of buyers, appraisers, closing attorneys, mortgage brokers, and assorted scam artists.  The title is "Fraud Seen as a Driver in Wave of Foreclosures," as if the record number of foreclosures would be significantly less if there was not any mortgage fraud.  The particular scheme in Atlanta seems awfully simple, despite claims by lender Bear Stearns, which suffered over $6 million in losses, that it is quite "sophisticated."  The scheme involved falsified loan applications, property appraisals, and financial statements, with people posing as wealth borrowers to purchase homes and divert a portion of the loan.  Even better, many of the loans required no documentation of the borrowers' financials or employment, making this type of loan especially ripe for fraud.

Is this really some new form of fraud that somehow crept into the system and caught lenders unaware?  Please!  For those of us with a memory that stretches back fifteen to twenty years, there was this thing called the S&L crisis in which a number of banks in Texas, New England, Florida, California, and any place else where real estate boomed collapsed due to bad loans for homes, condo developments, and smaller commercial properties.  What is going on now is not really much different from what occurred back in the late 1980s that led to many banks having to write off billions of dollars of loans on properties that went into foreclosure.  Was the S&L crisis due primarily to fraud?  Certainly not, although there was more than enough shady dealings to account for a sizable number of cases. 

We are, if you will, experiencing déjà vu all over again, in the words of Yogi Berra.  The names and titles are different, but the conditions that led to the increase in mortgage fraud and the types of industry practices that allowed it to flourish are pretty much the same.  Let me highlight a few of the similarities I see:

  • Loan Documentation: Back then, they were called "No-Doc" loans, and now they are called "Stated Income" loans.  Either way, the borrower tells the lender what his/her/its/their assets and income are, and there is no verification by the lender, who simply wants to close the loan and move on to the next transaction.  Will people lie to get a loan, or perhaps to steal?  If you will allow me to quote a teenager in my house: "DUH!" 
  • A Rising Tide Lifts All Boats: Have you heard this one: the housing market is booming, prices are skyrocketing almost overnight, with bidding wars breaking out and sellers getting multiple offers, and banks lending freely to take advantage of the high volume of applicants.  Welcome to the late 1980s in Boston, Silicon Valley, Washington D.C., Los Angeles, etc.  Much like what we've seen in the sub-prime market, increasing home values back then meant no one really paid much attention to whether the borrower could meet the payment schedule because refinancing was just a phone call away . . . until the values started dropping.  For those of us who bought houses in the late 1980s, at least in the D.C. suburbs, we didn't get back above water until 1994 or thereabouts.
  • Inexperienced Lenders Jump Into the Market and Get Burned: The WSJ story talks about how Bear Stearns' Alt-A mortgage group that it had just acquired got burned on these "Stated Income" loans, and that the firm had no fraud detection measures in place.  Well, who cares about a little bit of truth-shading when the loan can be refinanced or the house sold to the next willing purchaser (nee sucker).  How did we get an S&L crisis anyway?  Well, these sleepy financial institutions had to start competing in areas where they were inexperienced, lending to developers with no history rather than those dull, 30-year fixed rate mortgages to local homeowners who would pay off their mortgage and then retire.  There was no "juice" in those loans, so the pressure was on these S&Ls to expand into new areas, just like lenders over the past few years who had to show exponential growth to feed the Wall Street quarterly numbers beast.  The only real difference I can see is that the criminal charges back then were mostly under 18 U.S.C. Sec. 1344, the bank fraud statute, while the frauds today involving mortgage companies will probably require charges under the mail and wire fraud statutes -- no biggie to a federal prosecutor.
  • Grow Market Share: This plays off the previous point about inexperienced lenders, and the fact that even experienced bankers got caught up in the rush to make more, and riskier, loans so they too could keep Wall Street happy.  Washington Mutual has been around a long time, and survived the S&L crisis just fine, but it is now having all sorts of trouble because of its various mortgage products.  Ditto banks like First Horizon, Regions Financial, and  Sun Trust.  Some of their problems are traceable to mortgage securities, which have spread the pain much wider than the more localized issues that triggered the S&L crisis, but many of those institutions are also increasing their loan loss reserves for mortgages they made.  No one rewards a conservative lender when it is a boom, and that was certainly the case both in the 1980s and over the past few years.  Whoever survives the shakeout will do rather well, but it's too early to declare the winners and the losers.  Does anyone remember when Citicorp's stock dropped under $10 back in the early 1990s?  Wanna bet whether that will happen again? Don't make the mistake of thinking that banks learn from the past.
  • These New-Fangled Loans Were Used to Lure in Gullible Borrowers: For those who think "negative amortization" is a new phenomenon in mortgage loans, that was proclaimed as an example of lender overreaching back in the mid-1980s after interest rates were uncapped by the Garn-St Germain Act.  Borrowers have fallen for the siren song of the slick mortgage broker for decades now, and these aggressive loans are nothing more than the adjustable rate mortgages that trapped so many borrowers in the late 1980s and forced them into foreclosure.  Does anyone really think mortgage brokers were more ethical twenty years ago?  I agree that the pain will be much wider this time because of the larger number of sub-prime borrowers who have little chance of recovering financially, but the fact that more people are being hurt does not really make it any different.

Back in 1990-1992, the Department of Justice formed Task Forces to pursue investigations into bank and mortgage frauds in Texas, New England, and San Diego.  I was hired to work in the New England group, and got to spend three years looking at loan documents, financial statements, etc., from loans made by collapsed banks.  There were rotten apples in the banking industry then, just as there was more recently, albeit with different names .  We have not reached the level of bank closures that was seen in 1991, when S&Ls in Texas and savings banks in New England were closing on what seemed like a weekly basis, and let's hope that doesn't happen this time around. 

Fraud always comes to the surface when the housing market collapses, because the acceptable excesses of a boom became the crimes of the bust.  Fraud is a crime of opportunity, and the mortgage scams that are coming to light occur when the conditions are right, such as impatient lenders who will lower lending standards to show a growing book of business.  The increase in mortgage fraud cases is more a symptom of the rise of the housing market than a cause of the increased foreclosures being seen these days. (ph)

December 22, 2007 in Fraud | Permalink | Comments (1) | TrackBack (0)

Friday, December 21, 2007

Skilling's Reply Brief Arrives, Just In Time for the Holidays

In case you need a nice 161-page brief to get you through those colds nights this holiday season, below is Jeffrey Skilling's reply brief challenging his convictions in the Enron prosecution.  This is the shortest brief filed to this point, less than the 200-page tomes filed by both sides in their initial submissions -- but that's not saying much, is it.  As is often the case when one side gets the final word, this brief takes the gloves off and aggressively attacks the prosecutors on a range of issues.  As I've said before, the key issue in Skilling's appeal is how far the honest services issue will spread from the conspiracy count to other counts, based on the Fifth Circuit's decision in United States v. Brown limiting the use of that theory in business fraud cases.  Needless to say, there is a lot of detail in those 161 pages, including challenges to the ostrich instruction, the government's evidence on various counts, and the venue issue. 

Under the Fifth Circuit's rules, the usual amount of time alloted to each side for oral argument is twenty minutes per side, which hardly allows for a discussion of two issues, much less the myriad of points raised by Skilling.  After the oral argument, an early tip-off about whether the Fifth Circuit is leaning toward reversing the convictions will be whether it grants Skilling bail pending the final disposition of the case.  In the Brown case, shortly after oral argument the court granted bail to the defendants and then issued its opinion reversing the convictions.  Skilling's brief alludes to its pending request for bail, and his lead appellate lawyer, Walter Dellinger, is sure to renew it after the oral argument. (ph)

Download us_v_skilling_defendant_reply_brief_dec_21_2007.pdf

December 21, 2007 in Enron | Permalink | Comments (0) | TrackBack (0)

Fifth Circuit Recommends Impeachment of Federal District Judge

The Judicial Council of the Fifth Circuit filed a report (available below) that will be sent to Chief Justice Roberts recommending the impeachment of U.S. District Judge G. Thomas Porteous, Jr., who sits on the U.S. District Court for the Eastern District of Louisiana.  Judge Porteous served as a state court judge in the 24th Judicial District, which covers Jefferson Parish (i.e. New Orleans), before his appointment to the federal bench in 1994.  The report gives four grounds for impeachment:

  1. "[N]umerous false statements under oath during his and his wife’s Chapter 13 bankruptcy, including filing the petition under a false name; concealing assets of the bankruptcy estate; failing to identify gambling losses; and failing to list all creditors."  He is also accused of taking extensions of credit from casinos and paying off certain creditors in violation of bankruptcy court orders.
  2. "[F]raudulent and deceptive conduct concerning the debt he owed to Regions Bank prior to bankruptcy."
  3. Receiving "gifts and things of value from attorneys who had cases pending before him" and failure to disclose his financial relationship with a lawyer in one case before him in which he refused to recuse himself.
  4. "[F]inancial disclosure statements for the years 1994-2000 are inaccurate and misleading because they fail to report the gifts and things of value he received from attorneys, and in the year 2000 failed to report accurately significant amounts of reportable indebtedness owed by Judge Porteous."

Judge Porteous was a subject of a federal investigation involving a bail bondsman that relates back to his state court days, but an AP story (here) notes that federal prosecutors notified him earlier in 2007 that he would not be charged in that case. 

The 1980s saw three federal judges impeached and removed from office: Harry Claiborne of Nevada for tax evasion, Alcee Hastings of Florida for perjury and conspiracy to solicit a bribe, and Walter Nixon of Mississippi for perjury before a grand jury.  In each of those cases, the judge was charged with a federal offense before the impeachment, with Hastings acquitted of the charges before impeachment while Claiborne and Nixon were in jail when the impeachment process started.  Both Claiborne and Nixon received their full salary as Article III judges while serving time before their removal from office by the Senate.  Nixon challenged the Senate's impeachment procedures, which the Supreme Court rejected on non-justiciability grounds (Nixon v. United States, 506 U.S. 224 (1993)).  Interestingly, Hastings is now a Congressman, and would be called upon to vote on Judge Porteous' impeachment if the case gets to the full House of Representatives.

Judge Porteous' case is unusual, at least compared to the three 1980s impeachments, in that he has not been charged with a crime.  Two of the violations alleged in the Fifth Circuit's report could trigger a federal prosecution.  The federal bankruptcy fraud provisions are quite broad, with 18 U.S.C. Sec. 152(2) reaching any persor who "knowingly and fraudulently makes a false oath or account in or in relation to any case under title 11."  Similarly, the bank fraud statute, 18 U.S.C. Sec. 1344, and false statement to a financial institution provision, 18 U.S.C. Sec 1014, would cover the dealings with Regions Bank.  The fourth ground, related to false financial reports, appears to fall outside the statute of limitations period. 

According to the report, Judge Porteous testified at a hearing before the Fifth Circuit's Judicial Council and later argued his case before the decision was made to adopt the report.  The only reference in the report to the vote states that it was by a majority, so it is not clear whether any of the judges dissented.  There is no indication at this point that federal prosecutors plan to pursue any charges.  I would expect that Judge Porteous' statements would be available to a grand jury to review in considering a case, so prosecutors may wait until the impeachment process plays out. 

In case you wondered, the Constitution explicitly provides that impeachment by the House of Representatives and conviction and removal from office by the Senate does not affect a criminal case against the official.  The general impeachment provision is in Article II, Sec. 4, relating to the President, Vice President, and other civil officers, and states that they can be removed from office upon "Conviction of, Treason, Bribery, and other high Crimes and Misdemeanors."  While that sounds like a criminal case, Article I, Sec. 3, Cl. 7 provides, "Judgment in cases of impeachment shall not extend further than to removal from office, and disqualification to hold and enjoy any office of honor, trust or profit under the United States: but the party convicted shall nevertheless be liable and subject to indictment, trial, judgment and punishment, according to law."  In other words, a full-fledged criminal prosecution can come after the impeachment, and there is no double jeopardy bar arising from the Congressional action despite the reference to "conviction" for a high crime or misdemeanor.  (ph)

Download fifth_circuit_judicial_conference_impeachment_report_judge_porteous.pdf

December 21, 2007 in Corruption, Investigations, Judicial Opinions | Permalink | Comments (0) | TrackBack (0)

When Will Scruggs Go to Trial?

The prosecution of Dickie Scruggs and three co-defendants on charges related to alleged bribes paid to a state court judge had been scheduled for trial on January 22, but the defendants have asked for a three- to four-month delay because they claim not to have received all the discovery in the case.  The government filed a brief (available below) rejecting the defense claim that prosecutors have not turned over relevant material, arguing that most of the surveillance materials have been provided, which are the key to the case.  The prosecutors assert, "Although the discovery deadline is still six days away, the government has voluntarily made the bulk of discovery in this case. Evidence seized pursuant to the warranted search of The Scruggs Law Firm is still in the hands of a 'taint' team from another jurisdiction, whose job it is to ensure that prosecutors in the Northern District of Mississippi do not receive any evidence that is privileged or outside the scope of the warrant. The evidence sought pursuant to that search warrant is relatively minor, and will be disclosed to the defense in supplemental discovery, if in fact it exists." [Italics added]  The FBI executed a warrant at the law firm the day the charges were filed, but it appears that the material was not all that important anyway, which raises the question about why the search was even conducted or what prosecutors hoped to find.  It's also a bit puzzling that they can describe the value of documents they have not seen yet because they're still with with "taint team."

While the government does not oppose the defendants' motion, its brief concludes that "the case is straight forward and not sufficiently complex to require a protracted continuance."  While the charges are fairly simple, don't take that to mean it will be an easy case, or a short one.  There will be major battles over the meaning of the recorded and videotaped conversations, and the credibility of the cooperating defendant, Tim Balducci, will be front-and-center from the opening.  With four sets of defense lawyers to deal with, this will not be a simple trial.  The judge is likely to grant the motion, so look for the fireworks to start in the spring, when there is no better time to be in MIssissippi. (ph)

Download us_v_scruggs_government_response_to_defense_motion_for_continuance_dec_20_2007.pdf

December 21, 2007 in Corruption, Prosecutions | Permalink | Comments (0) | TrackBack (0)

Thursday, December 20, 2007

Will a Perjury Trap Be Set for Roger Clemens on Capitol Hill?

There is nothing quite like a high-profile scandal to attract Congressmen like moths to a flame, and the Mitchell Report on steroid and HGH use in baseball is one of the brightest flames around these days.  Two Congressional Committees have scheduled hearings in January on the issue, inviting former Senator George Mitchell and MLB Commissioner Bud Selig to testify.  Back in March 2005, in the first round of publicity-mongering on steroids in baseball, the House Oversight and Government Affairs Committee invited a number of major leaguers to testify about steroid use.  That hearing produced Mark McGwire's famous non-assertion of the Fifth Amendment when he proclaimed he would only talk about the future -- who cares about what a retired baseball player does after his playing days -- and Rafael Palmeiro aggressively asserting that he never used steroids -- only to test positive a couple months later, thus ending his career.

The prospect of such enticing nuggets showing up on YouTube may well result in one or more invitations to superstar pitcher Roger Clemens to testify about his reported steroid use.  Clemens is the highest profile player, perhaps after Barry Bonds, named in the Mitchell Report, and he issued the following statement denying the assertions in the Report: "I want to state clearly and without qualification: I did not take steroids, human growth hormone or any other banned substances at any time in my baseball career or, in fact, my entire life.  Those substances represent a dangerous and destructive shortcut that no athlete should ever take."  A USA Today story (here) quotes Representative Tom Davis as stating that no players will be subpoenaed, but they are free to appear voluntarily and testify under oath.

The source of the information about Clemens is a former trainer, Brian McNamee, who is reported to have spoken to Mitchell and his investigators pursuant to a proffer agreement with federal prosecutors that limits any subsequent use of his statements against him while requiring him to be truthful.  This type of limited immunity, sometimes called a "Queen for a Day" agreement, usually is a prelude to a plea bargain with the government that will include a recommendation of leniency from prosecutors based on the defendant's cooperation.  There is no report at this point that McNamee has agreed to plead guilty to any charges, and there's a chance prosecutors could decide not to charge him or even grant full immunity.  Either way, the limited protection does not mean he is a credible witness automatically.

Given Clemens' denial and McNamee's statements to Mitchell, could there be much better theater than having them both appear on Capitol Hill, a surefire lead story on the evening news?  While statements to the media are not subject to the perjury or false statement laws, much to the consternation of many journalists, testimony before Congress is under oath.  If you were Clemens' attorney, would you have your client testify, especially if there were others out there aside from McNamee who could provide information against him?  On the other hand, given the clarity of his denial of steroid and HGH use, can counsel advise Clemens not to testify if given the opportunity?  While Clemens declined to speak with Mitchell, now that his name it out in public, there will be enormous pressure on him to go to Capitol Hill.  In his statement he said "I plan to publicly answer all of those questions at the appropriate time in the appropriate way."  Is a Congressional hearing the "appropriate" forum, or was he thinking about perhaps going on Larry King?

Of course, Congress would learn nothing of any importance from having Clemens testify, just like no real legislative purpose was served in 2005 when McGwire, Palmeiro, Sammy Sosa, and others were dragged in front of the Committee -- but not Barry Bonds, as it turns out.  The invitation is really asking Clemens to step into a perjury traps because Congressional testimony is under oath, and hence subject to a perjury prosecution.  The trap is easily avoided, if Clemens is not subpoenaed to testify, because he can just decline the invitation while castigating the media.  Indeed, he may already have laid the groundwork for such a position when his statement included the following: "I am disappointed that my 25 years in public life have apparently not earned me the benefit of the doubt."  Perhaps he will simply ask for the benefit of the doubt, but at what cost to his credibility if there's an open invitation to reiterate under oath what he has already said to the media. (ph)

December 20, 2007 in Congress, Media, Perjury | Permalink | Comments (0) | TrackBack (0)

Film Exec and Wife Charged with FCPA Violation

A Press Release of the DOJ tells that "a film executive and his spouse were arrested today on allegations of making corrupt payments to a Thai government official in order to obtain lucrative contracts to run an international film festival in Bangkok, in violation of the Foreign Corrupt Practices Act (FCPA)."  The case - -charged in early December, but just unsealed -- alleges that the defendants "conspired to make more than $1.7 million in bribe payments for the benefit of a government official with the Tourism Authority of Thailand (TAT) in order to obtain the film festival contract and contracts with TAT worth more than $10 million."  The defendants are alleged to have been bidding "for the management contract for the annual Bangkok International Film Festival."


December 20, 2007 in FCPA | Permalink | Comments (0) | TrackBack (0)

Wednesday, December 19, 2007

Outside Lawyer Charged in Refco Fraud -- Who Pays the Legal Fees?

The lead outside lawyer for the now-defunct commodities brokerage Refco Inc. was indicted on charges of aiding the company's CEO in hiding debts by engaging in "round-trip" transactions at the end of quarters.  The eleven-count indictment (available below) includes conspiracy, false filing, wire fraud, bank fraud, and securities fraud counts in connection with the spectacular collapse of Refco, which went into bankruptcy only two months after its initial public offering.  The prosecution is part of a growing trend in which corporate lawyers are finding themselves as targets of investigations and defendants in criminal and civil enforcement actions -- the SEC filed charges against the lawyer, too.

The prosecution raises an interesting question for me about the payment of attorney fees for the indicted lawyer.  The defense will probably cost at least $10 million if the criminal case goes to trial, and could reach $20 million is there is a conviction and an appeal.  Defense counsel is from Cooley Godward's New York office, so the rates will not be cheap.  The lawyer is a partner at Mayer Brown and was head of its derivatives group, so he certainly has been well-paid, but the financial drain in this type of case is enormous.  For executives at public companies, there is usually an indemnification clause in the corporate by-laws or an employment agreement to cover the attorney's fees that also includes in most cases an advancement requirement.  For example, corporate defendants like Conrad Black and Joseph Nacchio had a substantial portion of the attorney's fees in their prosecutions covered by their former corporate employers.

I doubt an outside lawyer would be covered by a corporate indemnification clause for work on behalf of the business.  It may be that the retainer agreement would require the company to cover any costs related to the representation, although in this case Refco is in bankruptcy and unlikely to pay anything toward the defense, especially when the alleged fraud is what triggered its collapse.  Mayer Brown is an LLP, and its partnership agreement may have an indemnification clause similar to what one would see in a corporation.  I'm not familiar enough with such things -- being up in an ivory tower -- so I can't say whether that is a realistic possibility.  Advancement of fees is perhaps of greater importance because a defendant would prefer not to have to wait until the end of the case to get the funds to pay the lawyers, who cannot work on a contingency basis in a criminal case.

A recent filing by former Milberg Weiss partner Stephen Schulman seeks payment of his attorney's fees in a criminal prosecution against the firm and a number of its former partners that is illustrative of a claim for fees by outside counsel.  Schulman filed his claim to compel arbitration (available below) because the firm cut off payment of the fees after he agreed to plead guilty and a grand jury indicted former name partner Melvyn Weiss.  The legal fees until Schulman's guilty plea were $4.5 million, which have been paid, and he has incurred another $1.2 million since then that the firm has refused to pay.  The Milberg Weiss partnership agreement states, "Any amounts for which a Partner becomes liable in connection with the rendition of services to a client  . . . whether or not insured or insurable against (and whether or not insurance has been or is obtained) shall be an expense of the Partnership."  Schulman's claim is not based solely on this provision, but it does provide an example of a partnership provision that may provide some protection for outside lawyers who are charged with a crime or in a civil enforcement action related to their work for a client.

With the increased focus on attorneys by federal prosecutors and the SEC, it may be a good time for lawyers to check the indemnification provisions in their firm's organizing documents to see just how much protection they have. (ph)

Download us_v_collins_refco_indictment_dec_18_2007.pdf

Download schulman_v_milberg_weiss_attorneys_fees_motion_nov_27_2007.pdf

December 19, 2007 in Attorney Fees, Fraud, Prosecutions | Permalink | Comments (0) | TrackBack (0)

Creating a Structure for Deferred Prosecution Agreements

New Jersey Congressman Bill Pascrell, Jr., has proposed that the House Judiciary Committee and the Department of Justice work together on legislation, or at least adopt internal policies, to guide the drafting and implementation of deferred prosecution agreements.  Hardly a month goes by without a DPA or non-prosecution agreement being reached with a company under investigation, the most recent one in the District of Rhode Island with the local Blue Cross & Blue Shield insurance provider related to improper payments to elected officials (see earlier post here).  While these agreements are now the preferred means for resolving a wide array of corporate crime investigations, there are no guidelines for when a company can receive one or how the outside monitors, a common feature of most agreements, should be selected and compensated. 

Representative Pascrell submitted to the Committee and Department a Statement of Principles on Deferred Prosecution Agreements that outlines four areas that should be addressed:

  1. Require guidelines on deferred prosecution agreements;
  2. Restore judicial oversight of deferred prosecution agreements;
  3. Take the selection of federal monitors out of the hands of U.S. Attorneys;
  4. Require full disclosure of deferred prosecution agreements.

A letter to Attorney General Mukasey from Congressman Pascrell (available below) notes that these issues could be addressed by internal DoJ guidelines, but at this point there has not been any apparent move in that direction.  Now that Congress has started to pay attention to DPAs, the issue most likely is whether future regulation is done internally or through legislation.  For the U.S. Attorneys who have enjoyed substantial freedom in crafting these agreements, the process of negotiating and implementing DPAs probably will get a bit more complicated. (ph)

Download statement_of_principles_on_deferred_prosecution_agreements_dec_17_2007.pdf

Download letter_from_rep_pascrell_to_ag_mukasey_dec_17_2007.pdf

December 19, 2007 in Congress, Deferred Prosecution Agreements | Permalink | Comments (0) | TrackBack (0)

Tuesday, December 18, 2007

More On Nacchio Appellate Argument

It is not surprising to hear from TalkLeft that the 10th Circuit Court of Appeals scrutinized the materiality issue in the Nacchio case. (see here)  As co-blogger Peter Henning said to the Denver Post  (here) "the most compelling argument relates to jury instructions on the materiality or significance of information Nacchio had and publicly disclosed." "'If he's going to win, I believe it will be on the materiality argument,' Henning said." The defense raised a multi-faceted approach on the materiality issue.  The crux of the argument is that: "the jury was improperly instructed on the elements of materiality and scienter" and "that expert opinion testimony was erroneously excluded." (see here).  The Rocky Mountain News (here) provides a lay-person's guide to understanding this issue and other issues raised by the defense.


December 18, 2007 in News | Permalink | Comments (0) | TrackBack (0)

Nacchio Appellate Argument

For live blogging on the 10th Circuit appellate argument in the former Qwest CEO Joe Nacchio case check out Jerri Merritt  of TalkLeft at 5280.


December 18, 2007 in News | Permalink | Comments (0) | TrackBack (0)

Monday, December 17, 2007

Looks Like the Government Needs Some Corporate Accountability

The 2007 Government Accountability Office Report can be found here. How would the DOJ use this evidence if this were a private company and they were proceeding against this private company in a criminal case?  Will criminal/corporate defense counsel be permitted to use this report as a point of comparison when under scrutiny by DOJ?

In part the report states:

"A significant number of material weaknesses (fn5) related to financial systems, fundamental recordkeeping and financial reporting, and incomplete documentation continued to (1) hamper the federal government’s ability to reliably report a significant portion of its assets, liabilities, costs, and other related information; (2) affect the federal government’s ability to reliably measure the full cost as well as the financial and nonfinancial performance of certain programs and activities; (3) impair the federal government’s ability to adequately safeguard significant assets and properly record various transactions; and (4) hinder the federal government from having reliable financial information to operate in an economical, efficient, and effective manner. We found the following:

• Certain material weaknesses in financial reporting and other limitations on the scope of our work (fn6) resulted in conditions that continued to prevent us from expressing an opinion on the accompanying accrual basis consolidated financial statements for the fiscal years ended September 30, 2007 and 2006. (fn7)

• The 2007 Statement of Social Insurance (fn8) is presented fairly, in all material respects, in conformity with GAAP; we disclaim an opinion on the 2006 Statement of Social Insurance.(fn9)

• The federal government did not maintain effective internal control over financial reporting (including safeguarding assets) and compliance with significant laws and regulations as of September 30, 2007.

(fn5) A material weakness is a significant deficiency, or combination of significant deficiencies, that results in more than a remote likelihood that a material misstatement of the financial statements will not be prevented or detected. A significant deficiency is a control deficiency, or combination of control deficiencies, that adversely affects the entity’s ability to initiate, authorize, record, process, or report financial data reliably in accordance with generally accepted accounting principles such that there is more than a remote likelihood that a misstatement of the entity’s financial statements that is more than inconsequential will not be prevented or detected. A control deficiency exists when the design or operation of a control does not allow management or employees, in the normal course of performing their assigned functions, to prevent or detect misstatements on a timely basis.

(fn6) Three major impediments continue to prevent us from rendering an opinion on the accrual basis consolidated financial statements: (1) serious financial management problems at the Department of Defense, (2) the federal government’s inability to adequately account for and reconcile intragovernmental activity and balances between federal agencies, and (3) the federal government’s ineffective process for preparing the consolidated financial statements.

(fn7) We previously reported that certain material weaknesses prevented us from expressing an opinion on the consolidated financial statements of the U.S. government for fiscal years 1997 through 2006.

(fn8) The valuation date is January 1 for all social insurance programs except the Black Lung program, for which the valuation date is September 30.

(fn9) We disclaimed an opinion on the fiscal year 2006 consolidated financial statements, including the Statement of Social Insurance."


December 17, 2007 in Government Reports | Permalink | Comments (0) | TrackBack (0)

The Cost of Going to Trial

Tom Kirkendall at Houston ClearThinkers calls it a "trial penalty," (see here), I see it as the "value of cooperation."  But whatever one wants to call it, there is yet another example this week of the high cost associated with the risk of taking a chance on a trial.  Unlike Conrad Black who risked trial and received a 6.5 year sentence (see here) upon a finding of guilt by a jury, F. David Radler, the former Chicago SunTimes publisher plead guilty, cooperated, and assisted the government in Conrad Black's prosecution.  Radler received a sentence of less then one-half of that given to Conrad Black, as Radler's sentence came in at 29 months.  But like Conrad Black, Radler is given time to report to prison.

As usual, the Chief Operating Officer (in some cases we have seen it as the CFO) is the one obtaining the plea agreement.  After all, the one who handles the business dealings or knows the money trail is perhaps the most valuable witness for the government. In this case the judge recognized the equal culpability of the testifying witness saying at Conrad Black's sentencing hearing that "Mr. Radler is at least as culpable as Mr. Black on the fraud."  (See Chicago Tribune here)   But there is a quantifiable "value for cooperation" and in this case it is 49 months.   


December 17, 2007 in Sentencing | Permalink | Comments (1) | TrackBack (0)

Settlement in HealthSouth and MD Case

A press release of DOJ states, "HealthSouth Corporation and two physicians have agreed to pay the United States a total of $14.9 million to settle allegations that the Birmingham, Ala.-based company submitted false claims to the government and paid illegal kickbacks to physicians who referred patients for care in some of its hospitals, outpatient rehabilitation clinics, and ambulatory surgery centers."


December 17, 2007 in HealthSouth | Permalink | Comments (0) | TrackBack (0)

Sunday, December 16, 2007

Looking at the Numbers?

Professor Doug Berman on his Sentencing Law & Policy Blog here writes about David Voreacos and Bob Van Voris' Bloomberg News article titled, "Bush Fraud Probes Jail Corporate Criminals Less Than Two Years."  But I guess I want to see more. I am not as convinced that the white collar offenders are getting off so easy. For example, do the statistics include all the money laundering cases that started as typical white collar cases of fraud, but had money laundering tacked onto them?  Does it include cases with a RICO charge, since after all RICO has wire fraud, bank fraud, and mail fraud as its predicates? And admittedly there is no way of actually knowing what percentage of these cases were reduced because of pleas, tokens for acceptance of responsibility, and cooperation agreements with the government. 

The latter portion of this article points out the "trial penalties" (see Houston ClearThinkers here) and the lack of available information on some matters.  And clearly there is a disparity between the sentences given to those who go to trial and those who plea.  But is it to the extent of the Andy Fastow/Jeff Skilling disparity?  And most important I want to know if they included the Chalana McFarland's of the world, who were given 30 years for mortgage fraud. Or is this not within the confines of corporate fraud? 

And if the numbers show this "less than two years" why did Conrad Black get such a greater sentence?

So, I liked the article, but I think we all need to know exactly what is included in white collar or corporate criminality. (see here)


December 16, 2007 in News | Permalink | Comments (0) | TrackBack (1)

Freddie Mac Goes to YouTube

Michelle Singletary (here) at the Washington Post found a good YouTube site that may assist those who might be scammed by mortgage fraudsters.  It seems that Freddie Mac has realized the a good place to find viewers is YouTube.  And the YouTube scene may help those facing foreclosure in realizing that the deal being presented is really a fraud. You'll find some of their advice on mortgage fraud here.


December 16, 2007 in Fraud | Permalink | Comments (0) | TrackBack (0)