Saturday, March 8, 2008

The Skilling Case - Stay Tuned

Tom Kirkendall, over at Houston ClearThinkers, has landed on some interesting court entries in the Jeff Skilling matter. (see here) And yes, we both are wondering if this development is in some way tied into the Fastow Notes (see here).

(esp)

March 8, 2008 in Enron | Permalink | Comments (1) | TrackBack (0)

U.S. Attorney Firings -- The Book

Former U.S. Attorney David Iglesias of New Mexico, one of the seven (or eight or even nine) federal prosecutors fired by the Department of Justice in 2006, will be publishing a book, "In Justice," that discusses his career and the process by which he and the others were terminated.  In the fashion of other tell-all books that leak certain details to pique our interest, a story in the McClatchey Newspapers (here) reveals that Iglesias spoke with U.S. Attorney Johnny Sutton of the Western District of Texas, the head of the U.S. Attorneys committee and a close ally of the President, to see if he could intercede to save Iglesias' job.  According to Iglesias, Sutton said that his name was on a list, and that the firings were "political."  While not exactly earth-shattering, the fact that Sutton was shown the list and acknowledged the political nature of the decision shows how the decision-making process was tainted.  Prior to being fired, Iglesias received a call from New Mexico Senator Pete Domenici questioning the slow progress of a corruption case involving a Democrat official, and complained about the case not moving forward quickly enough before the 2006 election.  Iglesias was fired less than two months later.  There are sure to be further disclosures from the book until its release in a few months.  I can't wait for the movie, and I wonder who will play Alberto Gonzales, Monica Goodling, Carol Lam, Kevin Ryan, and the rest of the crew.  Iglesias was the model for Tom Cruise's role as a Navy lawyer in "A Few Good Men," but he may not be right for the part this time.  Suggestions are welcome. (ph)

March 8, 2008 in Media, Prosecutors | Permalink | Comments (5) | TrackBack (0)

Friday, March 7, 2008

What's Up at Reddy Ice?

How is this for a cryptic press release: "Reddy Ice Holdings, Inc. (NYSE: FRZ) announced that federal officials executed a search warrant at the Company's corporate office in Dallas on March 5, 2008.  The Company is cooperating with the authorities."  That's it on the search (the release is below), and there's nothing more in the press about what was seized or the potential crimes being investigated.  Reddy Ice touts itself as "the largest manufacturer and distributor of packaged ice in the United States," and it's business doesn't appear to be all that complicated -- even I can make ice. 

There have been a few things going on at the company over the past four months that could be connected to the search.  Reddy Ice had agreed to be bought out by a private equity firm in a deal that finally collapsed on January 31, with the buyer paying the company a $21 million termination fee (see Steve Davidoff's Deal Professor story [here] for an analysis of the transaction's demise).  There doesn't seem to be anything untoward there because any number of private equity deals have cratered since the credit crunch hit last August, but due diligence at a company sometimes has a way of turning up skeletons.  On the management front, Reddy Ice's chief operating officer stepped down on January 3 "to pursue other business interests," so something may be going on there.  The CEO resigned in November 2007 "due to medical reasons," which means its two senior officers left in a bit over a month.  While corporate officers usually leave when there is a buyout, so whether these resignations are related to the search or just something in the normal course of business remains to be seen, but the timing is enough to raise at least some suspicions. 

A search of a corporate headquarters often indicates that prosecutors believe there are documents and other items at the company that may not be produced in response to a grand jury subpoena.  Executive computers are particularly valuable because they often contain e-mails and other electronic files that might not be on the main company server.  While there's no word yet on what was seized, it would not surprise me to hear that desktop and laptop computers, or at least the hard drives, were seized by agents.  What the underlying investigation involves will come out eventually once subpoenas are served or perhaps a cooperation agreement is reached with a former employee.  (ph)

Download reddy_ice_press_release_march_6_2008.pdf

                                                                                        

UPDATE: Reddy Ice issued another press release that states, "The execution of the search warrant was directed by the Antitrust Division of the United States Department of Justice in connection with an investigation of the packaged ice industry."  This certainly clarifies the basis for the investigation.  The potential violations being investigated probably would be some type of bid-rigging by the company and others in the packaged ice industry, or perhaps some type of agreement to divide markets along geographical or industry lines.  The fact that the FBI conducted a search indicates that another company has taken advantage of the Antitrust Division's amnesty program that gives immunity to the first one in the door to report a violation.  This policy has worked remarkably well because it gives companies, and their executives who can also receive immunity for their cooperation, a strong incentive to inform the government of illegal conduct.  Unlike the Department of Justice's McNulty Memo that looks to various factors in deciding whether to charge a company with a crime, the Antitrust Division policy gives a measure of certainty about the treatment for the first company to report.  For those who get caught up in the subsequent investigation, the government is not quite as forgiving, and fines are a likely outcome of an investigation.  The use of a search warrant indicates that Reddy Ice is unlikely to get a free pass from the Department of Justice, and the interesting issue will be whether any individuals get caught up in the investigation. (ph)

March 7, 2008 in Investigations | Permalink | Comments (0) | TrackBack (0)

Thursday, March 6, 2008

Plea Agreement Reached for Founder of Band

The founder of the Backstreet Boys, Lou Pearlman (see here), plead guilty to "two counts of conspiracy to commit an offense against the United States (Counts one and two), one count of money laundering (Count three), and one count of presenting or using a false claim in a bankruptcy proceeding (Count four)." (Plea Agreement here) The press release of the United States Attorney's Office for the Middle District of Florida notes that Pearlman will be cooperating with the government and will "help identify any assets that may be available for restitution to victims of his criminal conduct." In addition to providing restitution to victims, the plea also provides that he "is also required to forfeit to the United States immediately and voluntarily any and all assets and property."

(esp)

March 6, 2008 in Settlement | Permalink | Comments (0) | TrackBack (0)

Virginia Supremes Uphold Spamming Conviction

A press release of the Attorney General of Virginia, announced that the Virginia Supreme Court upheld the nation’s first felony SPAM conviction.  Virginia’s Anti-Spam Act "prohibits the sending of unsolicited bulk e-mail by fraudulent means, such as changing the header or routing information to prevent recipients from contacting or determining the identity of the sender."  According to the press release, "such conduct is punishable as a class 1 misdemeanor or as a class 6 felony if any one of the following conditions applies:

  • The volume of Spam transmitted exceeds 10,000 in any 24-hour time period, 100,000 in any 30-day time period, or one million in any one-year time period.
  • Revenue generated from specific Spam exceeds $1,000 or total revenue from all Spam transmitted to any ISP exceeds $50,000.
  • The defendant knowingly hires, employs, uses or permits any minor to assist in the transition of Spam."

The defendant in this case was sentenced to a term of nine years. 

(esp)

March 6, 2008 in Computer Crime | Permalink | Comments (0) | TrackBack (0)

Zach Scruggs, Meet Frank Costello

Mob boss Frank Costello, one--time head of the Luciano crime family, faced charges in the 1950s for tax evasion, the favored means to attack the Mafia before the advent of RICO -- think Al Capone.  Costello's case went to the Supreme Court on the question of whether a defendant can challenge a grand jury indictment on the ground that there was insufficient admissible evidence on which to charge a crime.  Costello came to mind when I read Zach Scruggs' latest challenge to the attempted bribery charges against him and his father, Dickie Scruggs.  In a motion filed on March 3 (available below), Zach seeks dismissal for prosecutorial misconduct because two government witnesses, an FBI agent and the alleged offeror of the bribe, Tim Balducci, gave testimony to the grand jury that he claims was "patently false and misleading in material respects and undoubtedly led to the erroneous indictment of Defendant Zach Scruggs."

While not quite the same claim as Costello, Scruggs is asking for dismissal because the evidence to charge him with a crime was insufficient.  Calling it a motion to dismiss for "prosecutorial misconduct" is a way to avoid the Supreme Court's decision in Costello v. United States, 350 U.S. 359 (1956), which held that "[a]n indictment returned by a legally constituted and unbiased grand jury, like an information drawn by the prosecutor, if valid on its face, is enough to call for trial of the charge on the merits."  The Court rejected Costello's claim that the grand jury did not have enough evidence to charge him because only summary witnesses testified, and further denied his request to use its supervisory power to require prosecutors to present admissible evidence to the grand jury.  The Court stated, "Petitioner urges that this Court should exercise its power to supervise the administration of justice in federal courts and establish a rule permitting defendants to challenge indictments on the ground that they are not supported by adequate or competent evidence. No persuasive reasons are advanced for establishing such a rule."  It seems that Zach's motion is exactly that, asking the district court to review the evidence and find it so flawed that he would not have been indicted.  Costello rejected the use of supervisory power to fashion a rule to challenge indictments, and the Court has been rather hostile to dismissal based on generalized claims of misconduct (see United States v. Williams, 504 U.S. 36 (1992)).

Defendants who want to challenge an indictment because they don't believe there is sufficient evidence to even charge them with a crime have only one option: go to trial and win the case.  That's not the most inviting way to challenge an indictment, but Costello makes it clear that a head-on challenge to an indictment is not going to succeed.  (ph)

Download us_v_scruggs_zach_scruggs_motion_to_dismiss_indictment_march_3_2008.pdf

March 6, 2008 in Corruption, Grand Jury | Permalink | Comments (0) | TrackBack (0)

Wednesday, March 5, 2008

Hollywood Private Eye Trial Begins

The trial of the private investigator to the stars got under way in Los Angeles, and the witness list includes more than a few Hollywood names who will be witnesses or at least referenced during the testimony.  Pellicano and four co-defendants, including a former LAPD officer and a telephone company official, will be tried for their roles in secretly taping litigants in divorce and other cases.  Among the likely witnesses are actors Sylvester Stallone and Keith Carradine along with superagent Michael Ovitz.  Among those who have entered guilty pleas related to Pellicano's actions are a director of one of the Die Hard movies and Carradine's ex-wife.  This is not the end of Pellicano's troubles as he's slated to go on trial for additional charges that also include a well-known Los Angeles entertainment attorney. A Los Angeles Times story (here) gives a preview of the case. (ph)

March 5, 2008 in Prosecutions | Permalink | Comments (1) | TrackBack (0)

How Not to Ask Questions

Perjury is definitely in the news these days, with the FBI investigating Roger Clemens for his statements before a Congressional committee and Detroit Mayor Kwame Kilpatrick's testimony in a whistleblower lawsuit denying a relationship with an aide under review by the local prosecutors office.  One of the highest profile perjury cases involves home run king (and apparently unwanted free agent) Barry Bonds, whose charges was dismissed by U.S. District Judge Susan Illston because of flaws in the indictment.  Judge Illston ordered the release of the transcript of Bonds' grand jury testimony in 2003 (available below) that now reveals the entirety of the nearly three-hour examination by two Assistant U.S. Attorneys. 

While the indictment presents Bonds in a bad light by isolating specific instances of allegedly false answers, skimming through the full transcript shows just how disorganized the prosecutors seemed to be, and how at least one of them couldn't ask a simple question.  Whether it was nervousness or perhaps being intimidated by Bonds, the questions come across almost like a stream of consciousness approach to the examination.  Here's just one example of the kind of questions Bonds faced: "Let me ask the same question about Greg at this point, we'll go into this in a bit more detail, but did you ever get anything else from Greg besides advice or tips on your weight lifting and also the vitamins and the proteins that you already referenced?" (Pg. 23)  Huh?  Understanding that a transcript does not necessarily convey the full flavor of the actual interchanges, in reading through the questioning I'm struck by how convoluted the questions are, punctuated throughout with "I mean," "you know," and similar distracting phrases.

What makes perjury so difficult to prove is that the allegedly false answer is not necessarily the most important thing.  As the Supreme Court noted in Bronston v. United States, 409 U.S. 352 (1973), "Precise questioning is imperative as a predicate for the offense of perjury."  Among the questions recited in the original indictment was this model of obfuscatory inquiry: "So, I guess I got to ask the question again, I mean, did you take steroids?  And specifically this test the [sic] is in November 2000.  So I'm going to ask you in the weeks and months leading up to November 2000  were you taking steroids . . . or anything like that?" 

Prosecutors will no doubt come back with a new indictment of Bonds in the next couple weeks, one which is honed down and focused on just single questions and answers to avoid the duplicity problem that led to the dismissal.  But they can only work with the transcript they have, and finding a clear question -- and answer -- may be quite a challenge.  The questioning of Bonds was not a model of how to set a perjury trap, if that was the goal in having him testify. (ph)

Download us_v_bonds_grand_jury_transcript_bonds.pdf

March 5, 2008 in Congress, Grand Jury, Perjury | Permalink | Comments (1) | TrackBack (0)

Tuesday, March 4, 2008

Cert Denied for John and Timothy Rigas

In a mere line, the U.S. Supreme Court rejected the appeal of John and Timothy Rigas - denying certiorari for the two (see here).  This is not surprising as the U.S. Supreme Court takes so few cases. The Petition, filed on behalf of Timothy and John Rigas former CFO and CEO of Adelphia, challenged their convictions.. The elder Rigas, now 82 years old, is serving a 15-year sentence, and Timothy is serving 20 years. 

(esp)

March 4, 2008 in Judicial Opinions | Permalink | Comments (0) | TrackBack (0)

White Collar Crime in the International News

Olis Loses A Round, But the Game Isn't Over

In a 21 page opinion, the district court denied Olis' pending motions - but the government now has to respond to the 2255 motion.

  • The court was not persuaded that Olis had a substantial constitutional claim with a "high probability of success" or that '"extraordinary or exceptional circumstances exist which make the grant of bail necessary to make the habeas remedy effective."  Thus, his release on bail was denied.
  • The court also denied his motion for discovery.
  • Finally the court denied the filing of an amicus brief by Professor Robert Weisberg. The court states that "because the court is not persuaded that the amici curiae brief that Weisberg seeks to file would be useful or otherwise necessary to the administration of justice, the motion for leave to file amici curiae brief will be denied."

The court sets the timetable for the filing of the government's answer to the 2255 motion and for Olis' response to the government answer.  This round clearly goes to the government.

Opinion - Download march32008.pdf

(esp)

March 4, 2008 in Judicial Opinions | Permalink | Comments (0) | TrackBack (0)

Monday, March 3, 2008

Can Information From Hacking Be The Basis Of A Securities Violation?

The second circuit has a fascinating securities case that has old laws meeting new technology. And the question will be whether the text of the statute ought to be stretched beyond its language to reach new forms of criminality -although in this particular case the criminality is merely alleged. (See Floyd Norris NYTimes story here)  Or is the legislature the more appropriate place to reform the law?

Basically, a Ukrainian trader allegedly hacked into a financial database and finding a forthcoming negative report, it is argued that he traded on the inside information.  The problem is that no fiduciary relationship exists to find that this conduct constitutes a section 10(b) violation. The district court judge in the Southern District of New York found no violation and the case proceeded to the Second Circuit with the government arguing otherwise.  Hon. Naomi Reice Buchwald, writing the thoughtful district court opinion, states in part:

"...the barrier to issuing a preliminary injunction at this stage in the proceedings is that the alleged 'hacking and trading' -- while illegal under any number of federal and/or state criminal statutes -- does not amount to a violation of section 10(b) of the Exchange Act under existing case law.   For as the SEC even acknowledges, in the 74 years since Congress passed the Exchange Act, no federal court has ever held that that the theft of material non-public information by a corporate outsider and subsequent trading on that information violates section 10(b)."

In the meantime, the SEC is trying to have the Second Circuit continue to freeze the trading account proceeds while the appeal is pending.  Representing the accused here is Charles A. Ross. The decision and arguments can be found accompanying the NYTimes story here.

(esp)

March 3, 2008 in News, Prosecutions, SEC, Securities | Permalink | Comments (2) | TrackBack (0)

Supremes Reverse Ninth Circuit Tax Case

The U.S. Supreme Court, with Justice Souter writing the unanimous opinion in Boulware v. United States, resolved the question of "whether a distributee accused of criminal tax evasion may claim return-of-capital treatment without producing evidence that either he or the corporation intended a capital return when the distribution occurred."  The Court held that:

"Sections 301 and 316(a) govern the tax consequences of constructive distributions made by a corporation to a shareholder with respect to its stock.  A defendant in a criminal tax case does not need to show a contemporaneous intent to treat diversions as returns of capital before relying on those sections to demonstrate no taxes are owed."

See also Paul Caron's Tax Prof Blog here.

(esp)

March 3, 2008 in Tax | Permalink | Comments (0) | TrackBack (0)

What Conrad Black Says As He Enters Prison

Conrad Black reported to the Coleman, Florida prison today after being denied bail pending appeal. (see here).  But he did manage to express his side of the case prior to reporting to the prison facility.  In what is titled an Opinion piece in the New York Sun,  Conrad Black presents an in-depth account of the wrongfulness of his conviction. The piece is titled, My Faith in American Justice.  And it is a powerful piece that reaffirms his faith in our judicial system despite what he has suffered.  One paragraph was perhaps the most troubling, and it related to his inability to hire a particular legal counsel to represent him.  It states:

"When we pointed out its deficiencies in our legal motion, the prosecutors laid the charges in this case, stayed other proceedings, and froze almost $10 million owed to me. The action achieved its objective: Brendan V. Sullivan of Williams & Connolly, one of America's most respected trial lawyers, who was my chief counsel, was unable to take this case, because I was unable to provide him, for a time, after the New York seizure, with the retainer he required. In the climate created by these charges and press accounts of them, I was unable to raise any substantial amount of cash for a retainer, which prominent lawyers require, without some time-consuming liquidation of assets."

The government interference with choice of defense counsel (as noted above), with payment to secure proper representation (e.g. Stein Case), and intimidation of those who do defend individuals such as drug traffickers (Kuehne case), is becoming a trend that merits increased judicial oversight.  The right to counsel is crucial and needs to be protected to have a system that affords due process to those charged with crimes.

(esp)

   

March 3, 2008 in Sentencing | Permalink | Comments (1) | TrackBack (0)

Sunday, March 2, 2008

Defense Wins Bankruptcy Fraud Case

A lawyer who was charged with 11 counts of bankruptcy fraud had the last two remaining counts dismissed this past week by a District Court Judge in D.C.  Initially 5 counts were dismissed pre-trial. The jury heard the remaining 6 counts against the attorney who is licensed to practice in DC and California, and acquitted the lawyer on 4 counts.  This left 2 counts, counts that were hung when the jury failed to reach a verdict.  The court, in a 15 page opinion, dismissed these remaining two counts finding that the only evidence presented at trial "can hardly be the basis for a criminal conviction."

The remaining two counts had charged a violation under 18 U.S.C. s 152 for allegedly making false material statements.   The statements related to whether a contingency fee needed to be reported on a bankruptcy schedule.

The attorneys representing the accused included John Rogovin (Wilmer Hale) and Jonathan Jeffress (FPD).

(esp)

March 2, 2008 in Fraud, Verdict | Permalink | Comments (0) | TrackBack (0)

Deferred Prosecution Talk in the News

FoxNews - Ashcroft to Testify on Monitors

Houston Chronicle (Mary Flood) - Justice's Deals Draw Scrutiny -Research by Houston Lawyers Takes Issue With Corporate Penalties

Northrup Talks Blog - (Item removed as a reader notified me that the link had been compromised)

The Record- NewJersey.com - Editorial: Christie's Cross

(esp)

March 2, 2008 in Deferred Prosecution Agreements | Permalink | Comments (0) | TrackBack (0)