Friday, February 29, 2008

Conrad Black Off to Prison

Conrad Black was ordered to prison and denied bail pending appeal.  After receiving a sentence of 6 1/2 years, and being given 12 weeks before having to report to prison (see here), Conrad Black will now enter a prison facility in Florida. The appellate court denied the newspaper leader bail pending appeal, although the Chicago Tribune notes here that the court acknowledged that a substantial question was raised. Conrad Black's two co-defendants were granted bail pending appeal.

To obtain bail pending appeal, the accused needs to show that he or she is not a flight risk and not a community danger.  It is also required that the defendant show that the case raises a "substantial question." The substantial question test is somewhat amorphous and courts are left to provide order in using this standard.   And although the court did not rule in favor of Conrad Black, they allowed him some time prior to ordering him to report to prison.

Conrad Black will be reporting to Coleman - here.

(esp)   

February 29, 2008 in Sentencing | Permalink | Comments (1) | TrackBack (3)

Thursday, February 28, 2008

This is News?

FBI Probing Whether Clemens Lied to Congress (AP) -- What a shocker!

House Ethics Committee Launches Investigation Into Conduct of Rep. Renzi (AP) -- The 35-count indictment came out almost a week ago, so this surely ranks as a "rapid response."

Pelosi Calls For Grand Jury Investigation Of Bolten, Miers (The Politico) -- Talk about falling on deaf ears, and this one took two weeks to formulate.

(ph)

February 28, 2008 in Congress, Investigations, Perjury | Permalink | Comments (0) | TrackBack (0)

Two More Plead Guilty to Insider Trading

Two more defendants, one an officer at UBS, pleaded guilty to insider trading.  According to a press release (here) issued by the USAO for the Southern District of New York:

Between December 2001 and August 2006, GUTTENBERG repeatedly sold to TAVDY and another individual material,nonpublic information regarding upcoming upgrades and downgrades in UBS analysts’ securities recommendations. Investors, including institutional investors and professional money managers, regularly relied on UBS analysts’ ratings of public companies’ securities.  As a result, changes in UBS analysts’ recommendations regarding a particular company’s securities were material to investors and often had a direct effect on the trading price of that company’s stock.

The two defendants were among thirteen charged with insider trading that included employees from Bank of America, Morgan Stanley, and Bear Stearns in addition to UBS.  Only one defendant is still awaiting trial as all the others have now entered guilty pleas. (ph)

February 28, 2008 in Insider Trading | Permalink | Comments (1) | TrackBack (0)

Springing the Perjury Trap on Roger Clemens

House Oversight and Government Reform Committee Chairman Henry Waxman and ranking member Representative Tom Davis sent a letter to Attorney General Mukasey asking for an investigation of possible perjury by Roger Clemens about his use of steroids and HGH -- and his attendance at a party in 1998 at Jose Canseco's house.  The letter (available below) does not come out and explicitly accuse Clemens of being a liar while under oath during his February 5 deposition or February 13 Congressional testimony, but it does say that "Congress cannot perform its oversight function if witnesses who appear before its committees do not provide truthful testimony. Perjury and false statements before Congress are crimes that undermine the integrity of congressional inquiries. For these reasons, we take evidence that a witness may have intentionally misled the Committee extremely seriously."  Of course, Representative Waxman said after the hearing that he regretted even holding it, and nothing of any legislative importance occurred during the session, but thos minor annoyences won't stand in the way of a criminal referral.

What started out as a perjury trap has now been sprung on Clemens, with the FBI sure to begin an investigation because Congress wants one.  It was clear that either Clemens or his former trainer, Brian McNamee, was lying because they told diametrically opposed stories.  But the question now is whether a federal prosecutor could prove Clemens committed perjury, a much more difficult task than just saying "I don't think he's telling the truth."  The Committee also released a memorandum (available below) from the staff that outlines the various contradictions in Clemens' testimony, based largely on the testimony of McNamee and former teammate Andy Pettitte, who discussed two conversations with Clemens about using HGH.  The memo contains no new surprises, and sets forth the inconsistencies in Clemens' testimony in great detail. 

The problem is that the standard used by the Committee staff is not what a prosecutor must use to decide whether to pursue a case.  The analysis points out places where what Clemens said was "implausible" or that certain facts "bolster" McNamee's statements.  But a perjury prosecution that will ride on the credibility of McNamee will involve much more than just whether there is a rational basis to believe him rather than Clemens.  A criminal prosecution will involve asking a jury to believe that McNamee is truthful, not just plausible.

McNamee admitted during the Committee hearing that he has made a number of inconsistent, or even false statements, in addition to not disclosing the syringes and gauze pads he claims were used to inject Clemens until well after his interview for the Mitchell Report.  Pettitte is a more credible witness, but he only remembers two conversations, one of which took place nearly ten years ago.  Will Pettitte bring down his old friend, or will he waffle just enough that his testimony might not be sufficiently credible to a jury?

Perjury is among the most difficult crimes to prove because the government must establish that the defendant told an outright lie, and not just that the person dissembled or made statements that seem implausible.  The standard for sending a referral to the Department of Justice is quite low, basically something doesn't look right, and an investigation can be initiated just to placate Congress.  Even sending out grand jury subpoenas and calling witnesses to testify does not require anything more than a suspicion that wrongdoing occurred, which is certainly the case with the Clemens-McNamee smackdown.  But the leap to proving perjury is significant, and as I've said before, if McNamee is the linchpin of the case then it will be a very difficult one to win.  (ph)

Download oversight_government_reform_committee_letter_clemens_feb_27_2008.pdf

Download oversight_government_reform_committee_memo_clemens_feb_26_2008.pdf

February 28, 2008 in Congress, Investigations, Perjury | Permalink | Comments (2) | TrackBack (2)

Wednesday, February 27, 2008

With the Defense Motions Gone, Will There Be a Plea in the Scruggs Case?

Senior U.S. District Judge Neal Biggers rejected the remaining motions filed by Dickie Scruggs and his two co-defendants, son Zach and Sidney Backstrom, clearing the way for trial at the end of March on the charges related to an alleged attempted bribe by confederate Tim Balducci.  With that goes the best chance Backstrom may have of avoiding a trial in which the spillover from the government's Rule 404(b) bad acts evidence is likely to paint the defendants as three peas in a corrupt pod.  The decisions are available below.

The key ruling by Judge Biggers was the rejection of the defense motion to exclude evidence related to a benefit provided to another state court judge -- a potential offer of a seat on the U.S. District Court by Dickie's brother-in-law, Senator Trent Lott (see earlier post here) -- that the government will use to show that Dickie and Zach engaged in a pattern of corruption under.  As described by the court:

There is no question that the extrinsic evidence offered in the present case constitutes a similar alleged act within the meaning established by the aforementioned case law. The 404(b) evidence reveals (1) the employing of a person not an attorney of record to approach a state court judge (2) with the intent to corrupt the state court judge in regard to (3) a fee dispute (4) involving two of the defendants herein as well as two others who have already entered guilty pleas in this case – all substantially the same elements as charged in the conspiracy count before the court in the present case.

This leads to the second rejected motion, the request by Zach and Backstrom to have their trials severed from Dickie's.  Judge Biggers accepted the government's assertion that Zach was also implicated in the other instance of corruption, and found that Backstrom can be protected by a jury instruction.  Unfortunately for Backstrom, the spillover effect may be significant because this appears to be particularly potent evidence.  While Backstrom has no direct connection to it, the impact may be substantial despite any instructions to the jury to consider the evidence only against his two co-defendants. The old "birds of a feather flock together" problem for the uninvolved co-defendant.

The third defense motion that fell on deaf ears was a request to suppress the wiretap evidence because of alleged government misconduct.  Judge Biggers rejected the defense claims that the government's lead agent misled the magistrate in order to obtain the wiretap warrant, and sent a message regarding his perception of the evidence of the attempted bribe:

In this court’s opinion, to send an attorney to a judge to get him to rule in a certain way – when that attorney is not of record in the case and professes to be a friend of the judge and when opposing counsel has no knowledge of the visit – amounts to an effort to corrupt a judge. In the same meeting with Judge Lackey, Balducci offered Judge Lackey a job as “of counsel” in Balducci’s law firm when the judge chose to retire. These actions are certainly a clear and gross violation of all known codes of ethics applicable to attorneys and judicial officers.  Indeed, when an act such as this occurs, perceived by the judge possibly to be an attempt to corrupt or bribe, it is incumbent on the judge to report the matter to appropriate authorities, which is what Judge Lackey did.

I get the feeling that the three defendants are not going to have the friendliest of judges presiding at their trial.  So the question now is whether Backstrom will break ranks and agree to cooperate against Dickie and Zach.  While I doubt we've seen the last defense motion before trial, and the closer we get the more such missives we're likely to see, the issue now becomes whether one -- or even two or three -- of the defendants decide not to risk a trial and the likely substantial sentence a conviction would bring.  This case only gets more interesting. (ph)

Download us_v_scruggs_order_denying_motion_in_limine_feb_26_2008.pdf

Download us_v_scruggs_order_denying_motions_to_sever_feb_26_2008.pdf

Download us_v_scruggs_order_on_motion_to_suppress_feb_26_2008.pdf

February 27, 2008 in Corruption, Judicial Opinions | Permalink | Comments (0) | TrackBack (1)

Hedge Fund Founder Gets 5 Years

A press release of the U.S. Attorney's Office for the Central District of California states, "The founder of an investment firm that operated a hedge fund called the GLT Venture Fund was sentenced today to the statutory maximum penalty of 60 months in federal prison for lying to investors about his fraudulent operation that resulted in approximately $6 million in losses to investors."

(esp)

February 27, 2008 | Permalink | Comments (0) | TrackBack (1)

Former AG Aschcroft Will Testify About His Monitorship

The controversy over the appointment of monitors under deferred prosecution agreements will be the subject of a hearing on Capitol Hill, and former Attorney General John Ashcroft has agreed to testify at the proceeding.  Ashcroft was appointed by Christopher Christie, the U.S. Attorney for the District of New Jersey, to serve as a monitor for Zimmer Holdings, the medical device manufacturer that settled charges that it made improper payments to doctors.  The company disclosed that the monitorship with Aschcroft's consulting firm would cost between $28 million and $52 million, which drew the attention of two New Jersey Congressmen who questioned the appointment by USA Christie of his former boss.  There were rumblings that the House Judiciary Committee would subpoena Ashcroft if he did not agree to testify, and that threat is now gone.  An AP story (here) discusses the former Attorney General's decision. (ph)

February 27, 2008 in Deferred Prosecution Agreements | Permalink | Comments (0) | TrackBack (3)

Monday, February 25, 2008

Blog Survey

Please provide feedback and assist in improving this blog by taking this quick survey.  It should take less than 2 minutes and your answers will be very much appreciated.  Just click this link here.  Thanks.

(esp)

February 25, 2008 in About This Blog | Permalink | Comments (0) | TrackBack (2)

The Latest on Former Alabama Governor Siegelman

Washington Post (AP) reports in a story titled Ex Ala. Gov. Wants Special Prosecutor, on the latest development in Don Siegelman's case.  The former Alabama Governor received a sentence of 88 months and was ordered to go directly to prison (see here).  Serious concerns have now been raised about the testimony of one of the government witnesses and whether certain evidence was properly disclosed to the defense.  This is a case that is not likely to go away quietly.

(esp)

February 25, 2008 in News | Permalink | Comments (1) | TrackBack (1)

Insurance Executives Convicted

Five former insurance company executives, four from General Re and one from American International Group, were convicted of conspiracy, securities fraud, false statements to the SEC, and mail fraud in connection with a "finite insurance" contract used to make AIG's reserves look stronger than they were.  The defendants include the former CEO of General Re, Robert Ferguson, the company's former CFO, senior vice president, and long-time assistant general counsel in addition to a vice president from AIG.  The case revolved around reinsurance transactions in 2000 and 2001 that helped AIG report an increase in its insurance loss reserves, something that analysts had been critical about, negatively affecting the stock price.  According to prosecutors, the contracts were a sham transaction because no real risk passed to General Re, so AIG's accounting for it as a reinsurance agreement was improper.

An interesting twist in the case was the government's identification of former AIG CEO Maurice Greenberg as an unindicted co-conspirator, although he has never been charged with any crime.  Naming such a well-known executive as a member of the conspiracy may have been a means to undermine the defendants' "empty chair" defense that sought to blame the problems with the transactioin on Greenberg.  He was forced out of his position as CEO by then-New York Attorney General (and now Governor) Eliot Spitzer, who demanded Greenberg's termination on the threat of criminal prosecution of the company, an almost sure death sentence for an insurer.  General Re is a wholly-owned subsidiary of Berkshire Hathaway, whose CEO is Warren Buffett, once named as a potential witness in the case but never called by either side.

While the case is primarily an accounting fraud prosecution, it is different from more typical cases of this type because the main defendants were not from the company whose accounting was improper.  Indeed, there was no claim that General Re's recording of the transaction was improper, only AIG's.  In that sense, General Re was an enabler of AIG, the type of enterprise liability rejected by the Supreme Court in the Stoneridge case for private securities fraud actions.  One rationale for rejecting that theory of liability in Stoneridge was the presence of the SEC and federal prosecutors to crack down on companies that aid others in violating the securities laws.  An AP story (here) discusses the verdict, which the defendants have vowed to appeal. (ph)

February 25, 2008 in AIG, Fraud, Securities, Verdict | Permalink | Comments (1) | TrackBack (0)

Analyzing Rep. Renzi's Indictment

The indictment of Rep. Richard G. Renzi is 26 pages in length and has 35 counts.  There are two co-defendants also charged, although these two do not face all the charges levied against Renzi.

The opening passages of the Indictment are descriptive and include items such as the location of his law degree, something his law school may not be too happy about. This is interesting in itself as it shows that he graduated in 2001 and was elected to the house in November 2002, although he has an extensive background in Renzi Investments, since 1995, something that is also discussed in this charging document.

Count One charges conspiracy, with the substantive acts of Hobbs and mail and wire fraud being the essence of the illegal agreement. The government, despite recent losses in the honest services realm, uses section 1346 as an unlawful act which formed the conspiracy. There are 28 overt acts specifically outlined in the indictment.  Although the overt acts appear to be many, they could easily be collapsed into relatively few items as they include separate counts for when a check is written and when it is deposited.

Counts Two - Ten charge honest services wire fraud. They are the substantive acts and are very much repetitive of what was described in the conspiracy count.  Thus, the fax of July 6th appears in both places. This is not unusual as the federal system allows the government to charge both the conspiracy and substantive act for the same conduct.

Count Eleven charges conspiracy to commit money laundering with count twelve being the concealment of money laundering, and counts thirteen to twenty-five being transactions in criminally derived funds.

Counts Twenty-Six and Twenty-Seven present Hobbs Act charges.

Counts Twenty-Eight, yet another conspiracy count, presents a conspiracy to commit insurance fraud.

Counts Twenty-Nine through Thirty-Two are the substantive charges of insurance fraud.

Count Thirty-Three through Thirty-Five pertain to false statements to influence insurance regulatory investigations.

The Indictment then presents a claim for forfeiture.

This indictment, like so many, is a classic example of the discretion afforded the government in charging in that many different statutes will often fit the conduct alleged to have been committed. As one finds in many cases, the government uses a good number of the tools in its box when presenting the charges. This is contrasted against cases where there has been an agreement already reached and the government may use an Information to charge one or just a few counts.

(esp)

February 25, 2008 in Celebrities, Congress, Money Laundering, News, Prosecutions | Permalink | Comments (0) | TrackBack (1)

Saturday, February 23, 2008

Jury Tells Government to Stick to Tax Charges

The government was again sent the message to stick to tax charges.  The brother of the former mayor of Philadelphia was acquitted of mail and wire fraud charges (See Phil. Inquirer here).  After a three day deliberation, the jury found T. Milton Street Sr. (also a former state senator) guilty of three counts of failure to file income tax returns. Other tax counts resulted in a hung jury.

As previously discussed here, this case has similarities with the prosecution against Wesley Snipes in that both were charged and acquitted of substantive charges beyond the failure to file taxes.  In both cases, the individuals accused of crimes was only found guilty of misdemeanor tax offenses for some of the years in question. And in both cases the jury did not immediately reach a verdict.  This last factor was also exhibited in the case of U.S. v. Cheek, where the accused represented himself pro se and kept the jury out for some time.

(esp)(w/ a hat tip to Peter Goldberger)

February 23, 2008 in Fraud, Tax, Verdict | Permalink | Comments (0) | TrackBack (0)

Arizona Congressman Indicted

Add Arizona Representative Rick Renzi to the list of Congressmen indicted over the past couple years.  A grand jury in Tuscon, Arizona indicted the three-term Representative -- who announced in August 2007 that he would not stand for re-election -- on thirty-five counts of mail and wire fraud (including right of honest services), insurance fraud, money laundering, Hobbs Act, and conspiracy for his role in a purported land swap that netted a business partner $4.5 million (indictment available below).  According to a press release issued by the U.S. Attorney's Office for the District of Arizona (here), Representative Renzi allegedly demanded that two companies purchase his partner's interest in land on which Renzi held a note in exchange for the Congressman's support for land exchange legislation.  The partner and a third participant were also indicted.

Representative Renzi is the second member of the current Congress to be indicted, joining Louisiana Representative William Jefferson, who was charged with soliciting bribes and violating the Foreign Corrupt Practices Act.  As a side note, Representative Jefferson filed a notice of appeal of the district court's decision (available below) rejecting his motion to dismiss the indictment because of violations of the Speech or Debate Clause immunity.  This is one of only two constitutional protections that can be the basis for an interlocutory appeal, the other being a claimed violation of the Double Jeopardy Clause.  That will delay Representative Jefferson's trial at least six months, and possibly a year depending on how quickly the Fourth Circuit acts.  Because the charges against Representative Renzi involve what may constitute legislative acts, i.e. his support for legislation, a Speech or Debate Clause claim will come at some point, no doubt.  Two other Representatives who entered guilty pleas while in Congress in its last term are Randy (Duke) Cunningham, serving a 100-month sentence for bribery, and Bob Ney, sentenced to thirty months for not reporting gifts (and recently transferred to a half-way house in Cincinnati).  Other members of the House of Representatives remain under investigation for transactions with former superlobbyist Jack Abramoff, who has been cooperating with prosecutors.  Another black eye for the House of Representatives. (ph) 

Download us_v_renzi_indictment_feb_21_2008.pdf

Download us_v_jefferson_memorandum_opinion_feb_13_2008.pdf

February 23, 2008 in Congress, Corruption, Prosecutions | Permalink | Comments (0) | TrackBack (0)

NatWest Three Sentenced to 37 Months and May Be Headed Back to England . . . Eventually

Three former British investment bankers for NatWest Bank who were charged for their role in helping former Enron CFO Andrew Fastow dress up the company's balance sheet were sentenced to thirty-seven month prison terms.  The so-called "NatWest Three" -- David Bermingham, Giles Darby, and Gary Mulgrew -- became a cause célèbre over their extradition from Great Britain under a new treaty between the U.S. and U.K. designed to facilitate the transfer of terrorist suspects.  The appeal went to the House of Lords, which upheld the extradition order, and the three have been living in Houston for the past two years.  Their guilty plea in November 2007 to wire fraud ended one of the few remaining cases arising from the Enron collapse.  A Houston Chronicle story (here) discusses the sentencing.

As foreign nationals, the NatWest Three will be eligible to apply to the Department of Justice's International Prisoner Transfer Program to serve their terms in Great Britain.  The DOJ website on the Program (here) notes that "[w]hen a prisoner is transferred to another country, the completion of the transferred offender's sentence is carried out in accordance with the laws and procedures of the receiving country, including those governing the reduction of the term of confinement by parole, conditional release, or otherwise."  The Chronicle article points out that in England a defendant has to serve one-half the prison term and is then released on a type of probation.  This is much less stringent than the federal sentencing law, which requires a prisoner sentenced to a term such as those given here to serve 85% of the time, i.e. about two and one-half years. 

Among the criteria considered for authorizing a prisoner transfer are acceptance of responsibility, criminal history, seriousness of the offense, and ties to the two nations.  Also considered is whether the prisoner will remain in the home country or return to the United States -- rest assured, the NatWest Three are unlikely to darken our shores again any time soon.  In addition, according to the Bureau of Prisons Policy Statement (here) on transferring foreign prisoners, the transfer cannot be authorized until the prisoner pays any outstanding fine.  In addition to the sentence in this case, U.S. District Court Judge Ewing Werlein ordered the three to repay the $7.3 million they received from the transaction that triggered the charges.  While not a fine but restitution, I suspect there won't be a transfer until that money is repaid.  Even then, the application process will take at least a few months to complete ,once they begin their prison terms, as the bureaucracy processes the requests. (ph)

February 23, 2008 in Enron, International, Sentencing | Permalink | Comments (0) | TrackBack (1)

Friday, February 22, 2008

Can Prosecutors Call Lott to Testify at the Scruggs Trial?

The latest bombshell in the prosecution of Dickie Scruggs and two co-defendants on charges related to an attempted bribe of a state judge was the revelation by federal prosecutors that they intend to call former Senator Trent Lott -- Scruggs' brother-in-law -- to testify at trial about conduct that may involve a scheme to influence a second state court judge.  The government notified the defendants earlier that it intends to offer Rule 404(b) evidence against Dickie regarding his conduct to influence Judge Bobby DeLaughter in a case over which he was presiding involving a dispute over attorney's fees, the same type of suit in the main corruption prosecution.  Unlike the attempted bribe, however, the alleged influencing of Judge DeLaughter involved the possibility that Senator Lott would recommend him for appointment as a federal district court judge, and Dickie purportedly offered to intercede with his brother-in-law to help get the appointment. 

At a hearing on various defense motions (see Clarion-Ledger story here), the prosecutors revealed the potential witnesses they would call to establish the influencing of Judge DeLaughter, including the fact that Senator Lott called the judge to discuss his interest in an appointment to the federal bench.  Records indicate that the call was in fact made, although Judge DeLaughter was never nominated and it appears that the issue never went any further than the single telephone call.  The federal corruption statutes do not require success for a violation, and the quid pro quo need not be money or property, only something of value to the recipient, so an offer to help get a federal judgeship would likely constitute a criminal violation.  Senator Lott's involvement appears to be innocent on his end, making what appears to be largely a courtesy call to someone who had virtually no chance of being nominated -- Judge DeLaughter is a Democrat.  The fact that Senator Lott resigned his seat two days before Dickie's indictment is certainly fodder for the conspiracy theorists, but the fact that he made a telephone call, even at the behest of his brother-in-law, does not mean Senator Lott knew there was anything questionable taking place.

An interesting question is whether Senator Lott can be called to testify, or will the immunity granted under the Speech or Debate Clause bar any questioning about the telephone call to Judge DeLaughter.  That provision provides that "for any Speech or Debate in either House, [Members of Congress] shall not be questioned in any other Place.”  U.S. Const. Art. I, Sec. 6 (italics added).  The protection afforded by the Constitution means a Senator or Representative cannot be charged with a crime or sued in a civil case about the person's legislative acts.  The language of the provision would also appear to include questioning in a criminal investigation or prosecution, such as a grand jury or at trial.  In Gravel v. United States, 408 U.S. 606 (1972), the Court described what comes within the immunity provided to legislators:

The heart of the Clause is speech or debate in either House. Insofar as the Clause is construed to reach other matters, they must be an integral part of the deliberative and communicative processes by which Members participate in committee and House proceedings with respect to the consideration and passage or rejection of proposed legislation or with respect to other matters which the Constitution places within the jurisdiction of either House.

Id. at 626.

The Senate is required to give advice and consent to judicial nominees, and contacting someone about an appointment to the federal bench sure looks like it comes within Gravel's description of a legislative act.  Thus, naming Senator Lott as a witness to testify about the telephone call, which could include questions his motivations for it or discussions that led up to it, would appear to come within the prohibition on questioning a member of Congress about their legislative activities.  Imagine the questions that might be posed by either prosecutors or defense counsel to Senator Lott, such as "Was Judge DeLaughter a serious candidate for a nomination, and what other candidates were you considering?" or "What is the process by which you review candidates for nomination as a federal district court judge?"

The Speech or Debate Clause protection is jealously guarded by Congress, and I doubt counsel to the Senate would be willing to allow such questions, even if Senator Lott wants to testify.  While the Senator could give a voluntary statement because he would not be "questioned" in violation of the Congressional immunity, I doubt it would be admissible for any number of reasons, including problems under the Confrontation Clause if Dickie is not given the chance to cross-examine him under oath.  While the prosecutors and perhaps even the defendant are anxious to have Senator Lott testify, I don't know if we will ever see that take place in this always-interesting case.  (ph)

February 22, 2008 in Congress, Corruption | Permalink | Comments (0) | TrackBack (0)

Thursday, February 21, 2008

Deferred Prosecution Agreement with Flowserve

A press release of the DOJ states that "Flowserve Corporation (Flowserve) has agreed to pay a $4 million penalty as part of an agreement with the U.S. government regarding charges brought in connection with an ongoing investigation related to the United Nations Oil for Food program." Flowserve notes the agreed upon penalty on their website as being "a fine, profit disgorgement and related prejudgment interest to the SEC totaling $6,574,225 and a penalty to the DOJ of $4,000,000."

DOJ notes that "[t]he Information [filed by the government] charges that Flowserve Pompes engaged in a conspiracy to commit wire fraud and to violate the books and records provisions of the Foreign Corrupt Practices Act."

(esp)

February 21, 2008 in Deferred Prosecution Agreements, FCPA, Settlement | Permalink | Comments (0) | TrackBack (0)

Société Générale Isn't Too Hard On Itself Despite Losing $7.2 Billion

When you are the victim of a $7.2 billion fraud perpetrated by an employee, one would think that there would be a fair measure of self-criticism for not detecting the misconduct.  French banking giant Société Générale issued an progress report (available below) on its internal investigation, called "Mission Green," into the losses caused by rogue trader Jerome Kerviel, based on the work of its General Inspection department -- which sounds like the equivalent of the internal auditors -- and reviewed by PriceWaterhouseCoopers.  While Kerviel's unauthorized trades began in 2005 or 2006, they increased substantially in size in March 2007, and went undetected until mid-January 2008.  That's nine months in which he took increasingly risky positions, estimated to total as much as 50 billion euros at the peak. 

The obvious question is how Kerviel could get away with trading such huge amounts when he was a fairly low-level trader dealing in a narrow range of market indexes.  The progress report is not particularly critical, making Kerviel's trading the result of what almost seems like just minor oversight glitch:

The General Inspection department believes that, on the whole, the controls provided by the support and control functions were carried out in accordance with the procedures, but did not make it possible to identify the fraud before January 18th 2008. The failure to identify the fraud until that date can be attributed firstly to the efficiency and variety of the concealment techniques employed by the fraudster, secondly to the fact that operating staff did not systematically carry out more detailed checks, and finally to the absence of certain controls that were not provided for and which might have identified the fraud. The Inspection General department has refrained from drawing any conclusions at this stage regarding the responsibility of the front office managers supervising the fraud's author, given the ongoing legal investigation which has not enabled it to interview all those concerned. At this stage of the investigations, there is no evidence of embezzlement or internal or external complicity (i.e. the existence of a third party who knowingly assisted the fraudster to conceal his positions).The investigations are continuing, in particular, to cover a wider area than the activities of the author of the fraud. [Italics added]

Société Générale may give itself only a B- in the internal controls department, but it's hard to see any oversight system that misses such a large amount of unauthorized trading for nearly nine months as anything other than a  abject failure.  The bank continues to maintain that Kerviel acted alone, and to this point it hasn't identified any accomplices nor even any theft or personal enrichment from the trading.  Kerviel admitted his role in the transactions, but asserts that there were warning signs about what he was doing that were ignored by his superiors, or perhaps even worse, they acquiesced in his conduct because at one point he had generated profits for Société Générale of over 1 billions euros.  An International Herald Tribune story (here) discusses the report. (ph)

Download socit_gnrale_progress_report_feb_20_2008.pdf

February 21, 2008 in Fraud, International, Investigations | Permalink | Comments (2) | TrackBack (0)

Wednesday, February 20, 2008

Is Sid in Some Trouble?

In response to the flurry of defense motions (severance, change of venue, dismissal for outrageous government conduct, bar 404(b) evidence, and suppression of evidence) from the defendants in the Scruggs corruption prosecution (see earlier post here), the government filed its responses that set forth a number of details about the case (see WSJ Law Blog here for links to the filings).  The most interesting part of the government response is the inclusion of transcripts from two recorded conversations between Tim Balducci, who was cooperating in the case after being caught trying to bribe a state court judge, and the three members of the Scruggs Law Firm under indictment: Dickie Scruggs, his son Zach, and fellow associate Sidney Backstrom (available below).

The recordings include the usual male bonding-type locker room banter, with lots of "hey dude" and swearing, in addition to discussions of upcoming parties and Halloween candy.  I have viewed Sid Backstrom as the pressure point in the case, and the one most likely to make a deal if indeed anyone from the Scruggs Law Firm does agree to cooperate.  It is not clear from the indictment how Backstrom is involved in the alleged attempted bribe, and the transcript fleshes out his role as one of the main contacts with Balducci.  The tapes may present him with a problem because it appears that Backstrom understood what was going on related to the payment to the judge, even if he did not orchestrate it.

As with many cooperating witnesses, Balducci comes across as talking too much, and making vague references to the bribe that do not elicit much in response.  For example, at one point he says in reference to making another payment that "I've gotta go back for another delivery of uh, another bushel of sweet potatoes down there."  Backstrom's response of "Mm-hmm" is hardly telling, and the use of "sweet potatoes" is not very incriminating.  Unfortunately for Backstrom, later on he implicates himself and Dickie when he says, "DICK was like, no we can go about this another way.  Don't call TIM.  I'll, I'll go about it another way . . . a more indirect way.  And I was like well what are you plannin' on doin'?  And he was like, I'm, I'ma handle it.  I'ma handle it.  And kinda givin' me the you don't wanna know kinda thing."  In a telephone conversation two weeks later, Backstrom responds to Balducci's suggestion to get the state court judge to just dismiss the whole case that led to the attempted bribe: "I think we're gonna get ourselves in trouble by you know, just f***** around with the thing to be honest.  I mean I, I think if we um, if we overreach again probably come back to bite us, so."

While there is nothing plainly incriminating in the transcripts, such as one of the defendants using the word "bribe" or speaking directly about how much was to be paid to the judge, there are enough comments that show Backstrom's involvement with Balducci -- not to mention other conversations with Dickie and Zach -- that the case is likely to move forward with all three defendants sitting together in court.  The severance claim is a difficult one to win, and the transcripts show the involvement of Backstrom and Zach along with Dickie, so I think it's unlikely the judge will split either one off for a separate trial. That puts Backstrom in particular in the difficult position of facing the potential spill-over from the other bad acts evidence that government has against Dickie and takes away the "empty chair" defense of blaming it all on the boss (i.e. Dickie).  I think Backstrom remains the focal point for the government, and if he enters into a plea agreement then Dickie and Zach Scruggs will face an even more difficult task of defending themselves. (ph)

Download us_v_scruggs_transcript_of_nov_1_2007_recording_01.pdf

Download us_v_scruggs_transcript_of_nov_1_2007_recording_02.pdf

Download us_v_scruggs_transcript_of_nov_13_2007_recording.pdf

February 20, 2008 in Corruption | Permalink | Comments (0) | TrackBack (0)

Tuesday, February 19, 2008

Collateral Consequences After a Plea

The Wall Street Jrl reports on the SEC suing the former chief at Refco.  This comes on the heals of Phillip Bennett entering a plea with the government (see here). He is set to be sentenced on May 20, 2008 (see here).  This recent suit emphasizes the importance of looking at white collar cases globally - that is beyond the individual criminal charges.  The collateral consequences of a white collar matter can result in civil law suits, loss of licenses, debarment and a host of other ramifications that need to be factored in when handling this type of case. Sometimes, despite efforts to resolve extraneous matters as part of the plea in a criminal case, one can be left with significant exposure because the collateral consequences are just not a part of the criminal matter.

(esp)

February 19, 2008 in Civil Litigation | Permalink | Comments (1) | TrackBack (0)

White Collar Crime Blog Ranking

Paul Caron, over at TaxProf Blog, ranks the law professors blogs (see here) with the White Collar Crime Prof Blog coming in at # 15 on traffic ranking.  He also ranks page views.  So thanks to all who are reading this blog.

Law Prof Blog Traffic Ranking -- Visitors (Feb. 2007 - Jan. 2008)

1.   InstaPundit 70,748,231
2.   Hugh Hewitt 13,392,343
3.   Volokh Conspiracy 8,647,368
4.   Althouse 4,429,672
5.   Leiter Reports: Philosophy Blog 1,629,699
6.   TaxProf Blog 1,358,016
7.   Balkinization 1,294,363
8.   Concurring Opinions 1,125,512
9.   Sentencing Law & Policy 907,141
10. Professor Bainbridge.com 856,240
11. Jack Bog's Blog 776,272
12. Leiter's Law School Reports 726,005
13. PrawfsBlawg 639,468
14. Discourse.net 451,091
15. White Collar Crime Prof Blog 383,443
16. Conglomerate 378,787
17. Opinio Juris 323,519
18. Workplace Prof Blog 298,525
19. Is That Legal? 242,119
20. Chicago Faculty Blog 235,028
21. CrimProf Blog 211,119
22. Wills, Trusts & Estates Prof Blog 202,324
23. Ideoblog 186,511
24. ImmigrationProf Blog 181,055
25. ContractsProf Blog 167,861
26. Empirical Legal Studies 148,157
27. Election Law Blog 127,488
28. Religion Clause 122,352
29. Family Law Prof Blog 108,608
30. MoneyLaw 100,298

(esp)

February 19, 2008 in About This Blog | Permalink | Comments (1) | TrackBack (0)