White Collar Crime Prof Blog

Southern District Jumps Into Options Pricing Investigation

The U.S. Attorney's Office for the Southern District of New York has issued grand jury subpoenas to Unitedhealth Group and Vitesse Semiconductor concerning the timing of options grants to senior executives and allegations that documents were backdated to allow the options to be issued at a lower price to enhance their value.  Unitedhealth announced the subpoena in a press release (here), and a Wall Street Journal story (here) discusses the subpoenas.  A grand jury in the Eastern District of New York has already subpoenaed Comverse Technology related to options timing issues at that company (see earlier post here), and it's not clear at this point whether the U.S. Attorney's Offices will be conducting a coordinated investigation. The SEC has already begun an informal investigation of a number of companies related to their options grants, and that investigation is likely to become a formal one, if it hasn't already happened, followed by the issuance of subpoenas.  Companies will be facing parallel investigations, along with the usual host of shareholder lawsuits.

Vitesse Semiconductor also announced that it had terminated its CEO, CFO, and executive vice president, who had earlier been placed on leave, and the company faces a delisting of its stock by NASDAQ because it has not been able to file its quarterly report.  More ominously for the former executives and the company is the disclosure that the internal investigation has raised questions about revenue recognition, and that its financial statements should not be relied on.  This raises an interesting question whether the options grants were linked to possible accounting violations designed to make the company look better and thereby enhance the value of the options, something that the grand jury will likely review.  An AP story (here) discusses the termination of the Vitesse Semiconductor officers. The various investigations are likely to expand rather quickly over the next few weeks. (ph)

Adieu, Milberg Weiss?

The investigation of alleged kickbacks to representative plaintiffs in class actions looks like it will ensnare two name partners at Milberg Weiss and perhaps even the firm itself.  While there has been media speculation that the firm might be able to work out a deferred prosecution agreement with the Department of Justice -- the preferred method these days for dealing with organizational misconduct -- the New York Times reports (here) that talks for an agreement may be foundering over issues such as "the waiver of client-attorney privileges; new compliance and monitoring systems and personnel the firm would be required to put in place; and the size of any potential payments . . . ."  Milberg Weiss announced that name partners Steven Schulman and David Bershad have taken leaves of absence from the firm (see Law.Com story here), and a press release issued by the firm (here) states that the leave "will allow Mr. Bershad to focus fully on other matters."  Those other matters include a federal grand jury in Los Angeles that meets on Thursdays, and an indictment of the two partners could come as early as May 18, assuming neither is negotiating a plea agreement.  Whether the firm is also named is a key decision that may not be decided until the last minute.

Indicting Milberg Weiss would not necessarily put it out of business because, unlike accounting firms such as Arthur Andersen, law firms are not licensed by the state, only the individual lawyers, and the professional responsibility rules only indirectly govern law firms.  That said, lawyers know that reputation is an attorney's most valuable asset, so a criminal indictment would likely cause such serious harm to the law firm and its laywers that it would break up in all likelihood.  If that happens, I expect that at least one new firm, with different named partners, will emerge to take on some of the same client matters while unencumbered by the taint of criminal charges against Milberg Weiss.

Is a deferred prosecution agreement practical for a law firm?  The hurdles to crafting such an agreement may be too great, at least if the Department of Justice insists on provisions similar to those in other such agreements.  For example, many agreements contain an attorney-client/work product waiver, which Milberg Weiss could not do without permission from its clients.  Obtaining that type of waiver would be even more difficult given the types of cases the firm takes because class actions involve multiple clients (and law firms).  Another standard provision is the appointment of an outside monitor, which raises a different set of attorney-client privilege issues that might make it impossible to have a third-party being privy to all the law firm's operations.  A limitation on the types of cases the firm could accept might cripple its ability to retain lawyers, the firm's most valuable asset, so an agreement that makes it more difficult to maintain the firm's profitability could end up killing it. 

Unlike Time Warner or Bristol-Myers Squibb, companies that entered into deferred prosecution agreements and have extensive ongoing businesses with significant fixed assets, law firms have few tangible assets and a work force that is highly mobile, so there would be little incentive to stay if an agreement imposed terms viewed as too onerous.  A deferred prosecution agreement for Milberg Weiss may result in a situation where there is no party on the other side shortly after the ink dries because lawyers can reconstitute their practices with relative ease while clients can switch to new counsel on a moments notice.  Unlike corporations or even non-profits (such as hospitals) with continuing businesses in fixed locations, law firms may not be amenable to deferred prosecution agreements, which raises the question whether a criminal prosecution of the firm is even worth the effort. (ph)

Another Strange Turn in Insider Trading Saga

The story of the insider trading ring organized by David Pajcin and Eugene Plotkin, who met while working at Goldman Sachs, took another turn with the arrest of Pajcin's high school friend, Jason Smith, on insider trading and criminal contempt charges.  Pajcin and Plotkin showed a voracious appetite for inside information, as discussed in an earlier post (here), that involved obtaining deal information from an analyst at Merrill Lynch and hiring two men to work at a printing plant in Wisconsin to get a sneak peak at advance copies of Business Week.  Pajcin first came to the government's attention in August 2005 when large-scale call option purchases in Reebok right before the announcement of its acquisition by Adidas, including trades through an account in the name of his aunt in Croatia, first surfaced and caused the SEC to look at a variety of trading accounts for suspicious transactions.

The latest twist involves a letter carrier who was a member of a federal grand jury in New Jersey.  Smith is accused of leaking information to Pajcin and Plotkin about the pending investigation of Bristol-Myers Squibb and its executives for accounting fraud related to channel stuffing that was before the grand jury.  That investigation ultimately resulted in a deferred prosecution agreement for the company and indictments of two of its former financial officers on June 14, 2005.  According to a press release issued by the U.S. Attorney's Office for the District of New Jersey:

Smith allegedly kept Pajcin abreast of progress and developments in the grand jury and what he believed was the anticipated indictment of one particular BMS officer who appeared multiple times before the grand jury. The two allegedly discussed trading in BMS stock and also met in Manhattan with another of Pajcin’s co-conspirators, Eugene Plotkin, then an associate at Goldman Sachs’ fixed-income research unit . . . According to Pajcin, as related in the criminal Complaint from the District of New Jersey, Pajcin told Smith of the insider trading scheme with which he, Plotkin and others were engaged. Pajcin said he opened a brokerage account in the fall of 2004 with about $6,000 or $7,000 provided by Smith, as well as with money from a $20,000 bank loan taken by Plotkin.  Pajcin said Smith told him to use Smith’s money in the insider trading scheme. Subsequently Smith began passing along information on the progress and status of the BMS grand jury investigation. Smith and Pajcin allegedly agreed to share in any profits made as a result of Smith’s information.

Pajcin has been cooperating with the government's investigation since late 2005, and it appears that he assisted in an undercover contact with Smith in April 2006.  According to the press release, "During a recorded telephone conversation on April 12, 2006, according to the Complaint, Pajcin told Smith he was considering cooperating with authorities. If he did, Pajcin told Smith, he might have to tell the government about 'the jury thing.' In response, Smith expressed, among other things, serious concerns for himself and discussed possibly fleeing, according to the Complaint."

It is not clear whether Pajcin and Plotkin made any money on their short sales of BMS, although the U.S. Attorney's Office for the Southern District of New York and the SEC are pursuing insider trading charges against them (and Smith) for that trading (see SEC Litigation Release here).  While trading based on material nonpublic information usually results in a gain or loss avoided, a Rule 10b-5 violation does not require the defendant to realize a profit from the transaction, and it is not a defense that the trade turned out to be a loser if it was made while the person had inside information that caused the transaction.  Of even greater concern for Smith is the contempt charge for violating Federal Rule of Criminal Procedure 6(e), which strictly prohibits disclosure of grand jury information.  Courts are particularly concerned about leaks of grand jury information, so if the allegations prove to be true, then Smith will probably face a much more severe sentence than would be the case for the insider trading, particularly because the contempt statute does not contain a statutory maximum (18 U.S.C. Sec. 401 here). (ph)

List of Witnesses in the Bonds Grand Jury Investigation Grows

The number of witnesses keeps growing in the San Francisco federal grand jury investigation of whether Giants slugger Barry Bonds committed perjury in 2003 in his testimony before the grand jury investigating steroid distribution through Balco (Bay Area Laboratory Cooperative).  In addition to previously disclosed subpoenas to Bonds' personal physician and the Giants team trainer, media reports are that a former Balco executive, James Valente, and Bonds' personal trainer, Greg Anderson, have been subpoenaed to testify.  Valente and Anderson entered guilty pleas in 2005 to charges related to the distribution of steroids through Balco.  Bonds admitted in his testimony that Anderson gave him substances that turned out to contain steroids, but he denied knowing that at the time he used them. 

Anderson can be a key witness regarding  Bonds' knowledge of what those substances included, and whether he provided Bonds any other of the so-called "designer" steroids developed at Balco to avoid drug testing measures.  The problem with Anderson, of course, is that as a convicted felon he may not be a credible witness.  Nevertheless, he was likely at the "scene" of any steroid use that may have occurred, so unlike most white collar crime cases, he may be an important eyewitness, regardless of the credibility issues.  An AP story (here) discusses the latest grand jury subpoenas.  (ph)

How NOT to Respond to a Subpoena

A Third Circuit opinion discusses the application of the crime-fraud exception to the attorney-client privilege in an investigation that shows how a subpoena recipient should not respond unless the person wants to move into the "target" category in a hurry.  In In re: Grand Jury Investigation (here), the court reviewed a challenge to the district court's order to an attorney to testify about his communication with his client -- Jane Doe -- about the content of a grand jury subpoena for e-mail records.  Doe was the executive director of an Organization that was affiliated with the primary target of the investigation involving possible corruption of a public official, and her attorney forwarded to her a grand jury subpoena seeking e-mail records of the Organization.  The government apparently was unsatisfied with the response, setting in motion a chain of events that led to the attorney being called to testify before the grand jury:

On February 10, 2005, pursuant to an agreement among the parties, an FBI computer technician went to the Organization’s place of business and "imaged" the hard drive on Jane Doe’s computer. The Government thus made an exact copy of the contents of the hard drive, including deleted email files. It uncovered numerous stored messages which could be construed to show a conscious effort by the Organization’s staff to destroy emails.

Concerned about the potential obstruction of justice by Jane Doe and others at the Organization, the Government issued a subpoena duces tecum to Attorney on March 1, 2005. It sought to compel grand jury testimony regarding his discussions with Jane Doe as to her compliance (or apparent non-compliance) with the prior subpoenas for production of the Organization's e-mails.

The Third Circuit held that there was sufficient evidence of a pending or future crime by Doe, namely obstruction of justice, for not preventing the deletion of the e-mails.  The court upheld the district court's order directing the attorney to testify.

Interestingly, the court cited to the Second Circuit's recent decision in United States v. Quattrone as support for the proposition that failing to stop the destruction of e-mails after learning of a subpoena for those records can constitute obstruction.  The court stated: "The Government’s position in this case is that the communication between Attorney and Jane Doe provided her with knowledge of the type of material the Government sought, comparable to the documents relating to the IPO allocation process sought in Quattrone."  While the conviction in Quattrone was overturned due to faulty jury instructions, the Second and Third Circuit decisions do show that the handling of e-mail can rise to the level of obstruction of justice, showing once again how important this type of evidence is in white collar crime investigations and prosecutions. (ph)

Giants Trainer Subpoenaed in Bonds Perjury Investigation

The federal grand jury investigating possible perjury by San Francisco Giants slugger Barry Bonds has subpoenaed the team's head trainer to testify on April 27, in addition of Bonds' personal physician.  Bonds testified before a grand jury in 2003 about whether he used steroids from Balco (Bay Area Laboratory Co-operative), where his personal trainer worked.  Bonds denied knowingly taking steroids, and recent publications cast doubt on whether his testimony was truthful.  By seeking testimony from the personal physician and team trainer, the government likely is focusing on learning if health care professionals observed if Bonds exhibited any of the outward signs of steroid use, which can cause substantial physical changes.  The witnesses may also have spoken with Bonds about whether he was using steroids or human growth hormones.  While his physician may be able to raise a privilege claim to conversations, the team's trainer is unlikely to be able to throw up a similar roadblock to testifying. 

Whether either witness can provide the type of circumstantial evidence needed to establish that Bonds' testimony was false -- which will be necessary to meet the high standard for a perjury conviction -- is certainly an open question.  Both may well by sympathetic to Bonds, and so could provide only equivocal statements regarding his physical condition.  To this point, the government's evidence appears to be coming from those convicted in connection with the Balco operation, a jilted former girlfriend, and claims made by anonymous sources as reported in a book and in the media.  The government likely needs objective evidence of steroid use and not anecdotal claims if it wants to make a case against Bonds.  A San Francisco Chronicle story (here) discusses the grand jury investigation. (ph)

Bonds Is the Target of a Grand Jury Investigation

It should not come as a great shock that a federal grand jury in San Francisco is investigating star slugger Barry Bonds for perjury related to his testimony in December 2003 in the Balco (Bay Area Laboratory Co-operative) steroid investigation.  CNN.com reports (here) that the grand jury began hearing testimony about one month ago, around the time reports emerged about the book "Game of Shadows" that asserts Bonds began using steroids in 1998, after Mark McGwire broke Babe Ruth's single-season home run record.  The San Francisco Chronicle reported in 2004 that Bonds told the grand jury that he used two items that he did not know contained steroids, but that he never knowingly used steroids. 

The grand jury has subpoenaed, among others, Bonds' personal physician, according to an AP story (here).  The doctor accompanied Bonds to Balco's offices and drew his blood there, according to "Game of Shadows."  In March 2005, a reputed former girlfriend of Bonds testified before the Balco grand jury that he took steroids (see earlier post here).  The testimony of the physician may corroborate assertions by others about Bonds' use of steroids at the time he testified before the grand jury, contradicting his testimony.  As an earlier post (here) noted, however, a perjury prosecution will depend on the specificity of the questions and answers from the 2003 testimony.

Mike Rains, Bonds' attorney, may already be setting up the defense to an indictment by arguing that the government set a "perjury trap."  According to the CNN.com story, Raines said, ""Look no further than Martha Stewart. The trap is perjury . . . You offer immunity and you get him in there and then you ask them questions and you get them on lying to federal officers.  That's the trap. That's exactly what they got Martha for."  I think the comparison to Martha Stewart is rather inapt.  Even if one accepts that it was unfair to prosecute Stewart for false statements but not the underlying subject of the investigation, she did not receive immunity and her statements were not under oath.  Bonds received immunity for the purpose of telling the truth, and the government had no desire to obtain false testimony from him.  Indeed, the reason why immunity is granted in most cases is because the person will provide evidence against others and avoids prosecution.  The immunity grant states explicitly that false testimony can be used against the person, and this appears to be the exact type of situation in which a perjury prosecution is most appropriate.  The witness agrees to tell the truth to assist an investigation, and then gives false testimony -- that strikes me as the paradigmatic scenario for a perjury prosecution.  Granting immunity is probably the least likely situation in which a so-called "perjury trap" would be set by prosecutors. (ph)

Round Two of the Scrushy Prosecution

The second criminal prosecution of former HealthSouth CEO Richard Scrushy is getting ready to launch, unless he can succeed in having the indictment thrown out because the pool of potential grand jurors did not include a sufficient number of African-Americans.  Scrushy was indicted in 2005 along with former Alabama Governor Don Siegelman and two former Siegelman aides on corruption charges.  The case is set to go to trial in Montgomery, the state capital which is in the Middle District of Alabama, at the end of April.  Scrushy and the other defendants have filed a motion to dismiss the indictment because the District has a 30% African-American population but the jury pool is less than that figure, although a government witness testified that African-Americans made up 21% of the pool, which meets the requirements of federal law.  Even if Scrushy does not win this motion -- and it is very difficult to establish such a violation for grand jury selection -- he can still challenge the pool of jurors available for selection to the petit jury, although a Sixth Amendment claim would also be very difficult to win because Supreme Court precedent does not require that the actual jury reflect the racial or ethnic composition of the District.  An AP story (here) discusses the hearing on Scrushy's challenge to the indictment.

On an related topic, Scrushy recently began running his television program Viewpoint in Montgomery.  The program features a number of local ministers, and began running in Birmingham in 2004 around the time he was indicted there on fraud charges related to HealthSouth.  Scrushy denies that there is any connection between the location of the next prosecution, assuming it survives the motion to dismiss, and the decision to run the show in  Montgomery.  Instead, it is part of a plan to roll out the program on a national basis, as noted in a Birmingham News story (here).  Surely it is just a coincidence, although I doubt American Idol is particularly worried about its ratings. (ph)

Six Aides to Rep. Jefferson Subpoenaed in Corruption Probe

Six aides to Louisiana Rep. William Jefferson have been subpoenaed to testify before a grand jury in the Eastern District of Virginia investigating corruption charges.  A former aide to the Congressman, Brett Pfeffer, entered a guilty plea to conspiracy and corruption charges in January in which he detailed kickback demands by Rep. Jefferson related to two transactions involving companies seeking contracts in African countries.  Five of the aides work in Jefferson's New Orleans district offices and the sixth is a legislative assistant in his Capitol Hill office.  The subpoenas were not issued recently, but came to light because, as required by House rules, the recipients contacted the House Office of the General Counsel, which disclosed them and found that the aides can testify.  A New Orleans Times-Picayune story (here) notes that Jefferson's spokeswoman stated that the subpoenas were not "new news," but that certainly does not make them into good news. (ph)

Now It's a Criminal Investigation of GM

As noted in an earlier post (here), GM had to delay the filing of its annual 10-K due to accounting problems that cropped up at its ResCap residential mortgage division.  The company filed the report on March 28, and it includes the disclosure that an investigation of its accounting for certain supplier credits and rebates involves a federal grand jury, which issued a subpoena to GM.  The 10-K (here) describes the many and varied government investigations of the company:

The SEC has issued subpoenas to us in connection with various matters that it is investigating. These matters for which we have received subpoenas include our financial reporting concerning pension and OPEB [Other Postretirement Employee Benefits], certain transactions between us and Delphi, supplier price reductions or credits, and any obligation we may have to fund pension and OPEB costs in connection with Delphi’s Chapter 11 proceedings. In addition, the SEC recently issued a subpoena in connection with an investigation of our transactions in precious metal raw materials used in our automotive manufacturing operations, and a federal grand jury recently issued a subpoena in connection with supplier credits. Separately, SEC and federal grand jury subpoenas have been served on GMAC entities in connection with industry-wide investigations into practices in the insurance industry relating to loss mitigation insurance products such as finite risk insurance. We are cooperating with the government in connection with all these investigations. A negative outcome of one or more of these investigations could require us to restate prior financial results (in addition to our recent restatements) and could result in fines, penalties, or other remedies being imposed on GM, which under certain circumstances could have a material adverse effect on our business.

By my count, that's at least four accounting investigations -- pensions, raw material trading/income reporting, supplier rebates/credits, and finite risk insurance -- and two of them involve criminal inquiries.  In the jargon of disclosure documents, "a material adverse effect on our business" means GM could get whacked hard, at a time that it is struggling with declining market share and significant labor cost issues.  An interesting question will be whether any of the investigations will result in charges against individuals, and if so, how high up the corporate ladder the investigation could stretch. (ph)

Grand Jury Secrecy - Libby Case

The Washington Post reports here on the DC Circuit Court of Appeal's Order releasing previously undisclosed grand jury material related to the Libby case. The actual court Order releasing the information is here. The court states that the release of part of this previously undisclosed document came about because:

"Now that the grand jury has returned an indictment against I. Lewis Libby for perjury, obstruction of justice, and making false statements to federal investigators, amicus curiae Dow Jones & Company moves to unseal the eight pages—or, failing that, portions thereof relating to matters that are now public."

The rationale for the release of some of this information now is explained as follows by the court:

"to prevent the unauthorized disclosure of a matter occurring before a grand jury.' Fed. R. Crim. P. 6(e)(6) (emphasis added); cf. Dow Jones, 142 F.3d at 502 (explaining that identical language in Rule 6(e)(5) requires courts to open judicial hearings ancillary to grand jury affairs to the public whenever consistent with grand jury secrecy). Our case law, moreover, reflects the common-sense proposition that secrecy is no longer 'necessary' when the contents of grand jury matters have become public."Grand jury secrecy is not unyielding, however. Judicial materials describing grand jury information must remain secret only 'to the extent and as long as necessary

But not everything will be released.  As stated by the court:

"That the special counsel’s investigation is ongoing only heightens the need for maintaining grand jury secrecy, for the special counsel is entitled to conduct his investigation out of the public eye and with the full cooperation of witnesses who have no fear their role in the investigation will lightly be disclosed."

The previously redacted Order that now has portions disclosed can be found on the Wall Street Journal website here.  But the more interesting question is what is on pages 34-37 of Judge Tatel's concurring opinion. It starts by saying "Regarding Cooper" and is then redacted.  It sounds like Special Prosecutor Fitzgerald is still working on this case.

(esp)

Three Jenkens & Gilchrist Lawyers in the Cross-Hairs for Tax Shelter Sales

While prosecutors in New York are dealing with the first skirmishes in the 19-defendant KPMG tax shelter prosecution, they are also looking at the enablers of the shelter sales by investigating three tax lawyers from Jenkens & Gilchrist.  The lawyers, Paul Daugerdas, Erwin Mayer, and Donna Guerin, provided opinion letters used to support the tax shelters sold by KMPG to a number of wealthy individuals.  A New York Times article (here) states that a grand jury in the Southern District of New York is investigating the opinion letters provided by the firm that most likely will focus on whether they were simply cookie-cutter documents that were not adequately supported while designed to mislead the IRS on the appropriateness of the tax treatment of income and capital gains.  The Times article notes that Daugerdas earned $93 million in fees in from 1999 to 2003 from the issuance of the letters, while Mayer earned $28 million and Guerin $4 million over the same period.  Jenkens & Gilchrist received $267 million in fees from the tax shelter business, although not all of that was generated by the issuance of the opinion letters.  The firm has already agreed to an $81 million settlement with individuals who purchased tax shelters from KPMG supported by the firm's opinion letters (see earlier post here).  In addition, Daugerdas and Meyer are no longer with the firm and Guerin is no long an equity partner.  It will be interesting to see if any of the lawyers will agree to cooperate with the government and agree to testify in the pending KPMG tax shelter prosecution. (ph)

Grand Jury Abuse by Prosecutors

Grand Jury Abuse has been the subject of much concern. (See Commission Report to Reform the Grand Jury Process here).  So it is not surprising to see this issue arising in the white collar case against Lynchburg Mayor Carl Hutcherson, who faces charges of "mail fraud, Social Security fraud, lying to federal officials and obstruction of justice."  Conor Reilly of the News Advance has a wonderful article here detailing the allegations of grand jury abuse being alleged in this particular case. The article quotes Professor Darryl Brown at Washington & Lee on the incredible prosecutorial discretion provided to prosecutors in presenting items in a grand jury. Every time I teach the case of  United States v. Williams, 504 U.S. 36 (1992) I am reminded of the incredible unchecked power that prosecutors have in the grand jury process. It is important to stress to students that even though abuses in the grand jury may be overlooked on review, it does not mean that they should be tolerated. One would hope that the Office of Professional Responsibility of the Attorney General would monitor the abuses that occur.

(esp) (hat tip to Jack King at NACDL)

It's A New Beginning for Patrick Fitzgerald

Prosecutor Patrick Fitzgerald began with a new grand today, according to the NYTimes here. Having a new grand jury in a white collar investigation is not unusual as the investigations can be long and very document intensive. And the newspapers are following every step they possibly can, considering that the grand jury is secret.  The Washington Post has a lengthy story on Karl Rove's attorney, Robert Luskin here.  One wonders in reading the story if the reporter was the superb writer or the person being written about was just feeding him everything to make it come out so fascinating. 

(esp)

Congressional Corruption Investigation Expands

The recent plea agreement of Michael Scanlon, a former partner of lobbyist Jack Abramoff, appears to be one part of a broader investigation of potentially corrupt campaign contributions and gifts to a number of elected officials and congressional staff.  A Wall Street Journal article (here) notes that in addition to Reps. Tom DeLay and Bob Ney -- who was identified in the Scanlon plea documents as "Representative #1" -- Rep. James Doolittle of California and Montana Senator Conrad Burns are also involved in the investigation.  In addition, upwards of 17 current and former staffers, including a number form Rep. DeLay's office, are also involved in the spreading probe. 

An AP story (here) discusses a number of campaign contributions from Indian tribes who retained Abramoff as their lobbyist to Representatives and Senators near the time of congressional action that benefited the tribes.  While none of the contributions appear to be illegal in themselves, their connection to legislative acts and contacts by the Congressmen with federal agencies related to tribal business raise questions about whether there was a quid pro quo arrangement.  Based on the Scanlon plea, the investigation is being conducted by the Public Integrity and Fraud Sections of the Department of Justice, and the number of potential subjects (and targets) likely means the initial phase of the inquiry will take months.  Given the number of potential witnesses and targets, the investigation will contribute to the already-booming employment of the District of Columbia's white collar crime bar. (ph)

Targets Identified in Milberg Weiss Probe

A Los Angeles Times story (here) about the government's ongoing investigation of possible kickbacks paid by plaintiff securities class action firm Milberg Weiss to lead plaintiffs in class action cases notes that leading partners Melvyn Weiss and David Bershad, along with now-former partner William Lerach, are targets of the investigation.  The Times story discusses a 1995 class action, filed right before the PSLRA became effective, that may involve kickbacks to the lead plaintiffs, and that some participants in the case have been granted immunity, reportedly including Alan Schulman, a former Milberg Weiss partner who was lead counsel on the case. 

It is not a great surprise that Lerach and Weiss are targets of the investigation because of their leading positions at the firm and heavy involvement in the plaintiffs class action bar.  The statute of limitations issue remains a potential roadblock to a successful prosecution, however, because the adoption of the PSLRA in 1995 changed the rules for securities fraud class actions dramatically.  The class action case being investigated settled in 1998, and any payments before the end of 2000 would fall outside the limitations period, although a conspiracy charge might be possible if there were overt acts in 2001 or later.  The Legal Ethics Forum has an interesting post (here) on the investigation.  (ph)

Ohio Congressman Subpoenaed in Abramoff Investigation

Ohio Representative Bob Ney has been subpoenaed to provide documents to a grand jury in Washington, D.C., investigating lobbyist Jack Abramoff, who has already been indicted in Florida on fraud charges.  Abramoff has been the subject of an investigation by the Senate Indian Affairs Committee for his work on behalf of tribes on gambling issues, and his tribal clients paid for a golfing trip to Scotland for then House Majority Leader Tom DeLay and Rep. Ney in 2002 that may be involved in the grand jury investigation.  Rep. Ney has pledged to cooperate fully in the investigation, although the issue will come to a head if prosecutors seek his testimony.  Unlike a document subpoena, which can only be resisted on narrow Fifth Amendment grounds, testimony presents a much greater risk of incrimination that can trigger a Fifth Amendment privilege claim.  Any inquiry into Rep. Ney's conduct on behalf of Abramoff will have to steer clear of the Speech or Debate Clause, a very delicate issue when a Congressman's actions that relate to the legislative process are the subject of an investigation. A story from The Hill (here) discusses the subpoena to Rep. Ney. (ph)

Will Former Expert Witness Cooperate in the Investigation of Milberg Weiss?

John Torkelsen worked extensively as an expert witness in class action suits brought by the Milberg Weiss firm, and his recent guilty plea to fraud charges has raised questions whether he will cooperate in the government's investigation of the firm's lawyers for making secret payments to named plaintiffs and perhaps others.  Torkelsen pled guilty to making a false statement to the Small Business Administration in connection with a loan application, and prosecutors agreed to recommend a 70-month sentence.  An article in The Recorder (available on Law.Com here) indicates that there is no specific reference to Torkelsen cooperating in any federal investigations, but that does not necessarily exclude the possibility that he will cooperate in the probe by a Los Angeles grand jury into the conduct of Milberg Weiss and one of its former partners, William Lerach, who split off from the firm in 2004.   Torkelsen's plea hearing before U.S. District Judge Reggie Walton took place right before the arraignment of I. Lewis Libby in the same courtroom.

One indictment has already been returned in the case, naming a former named plaintiff in a number of Milberg Weiss cases who allegedly received undisclosed payments.  None of the cases were filed after the mid-1990s, however, when Congress changed the procedures for appointment of the lead plaintiff and primary counsel in federal securities law class actions in the Private Securities Litigation Reform Act.  If Torkelsen is cooperating, his contribution will have to come quickly because the statute of limitations is ticking away, unless the government has already obtained an indictment and it has been sealed for some reason. (ph)

Subpoena for E-Mails of DeLay Associates

A Travis County grand jury issued a subpoena to three associates of Rep. Tom DeLay, who were also charged in the conspiracy and money laundering indictments, seeking copies of e-mails sent in 2002.  This is sure to draw a strongly-worded response from the defense side.  It's interesting that the grand jury continues to investigate the same conduct that is the subject of the indictments, an investigation that is going into its third year. A CNN.Com story (here) discusses the subpoena. (ph)

Twisting in the Wind

The latest AP report (here) has Special Counsel Patrick Fitzgerald meeting with Chief U.S. District Judge Thomas Hogan, who is responsible for (among other things) overseeing the grand jury and dealing with the administrative details for the courthouse, after a three hour grand jury session.  Was Fitzgerald seeking an extension of the grand jury, or clearing procedures for returning a sealed indictment (and the resultant media circus that will attend an arraignment), or perhaps reviewing the Redskins smashing victory over the 49ers?  FBI agents were out conducting interviews with neighbors of Valerie Plame and Joseph Wilson while the grand jury met with Fitzgerald and assistants from his office.  As the legal adviser to the grand jurors, Fitzgerald most likely is explaining the law and discussing the evidence presented, and could even be working through a draft indictment (or two).  We will know when we know -- no truer tautology than that. (ph)