January 20, 2011
Siegelman & Scrushy - Post Skilling - Is 1346 Really Necessary?
The Skilling case proved consequential in the discussion before the the Eleventh Circuit in the Siegelman and Scrushy cases. Check out this story on the oral argument -
John Schwartz, NYTimes, Judges Take Another Look at Ex-Alabama Governor’s Conviction
Some may claim that it is cases like this that should influence Congress to re-examine section 1346. Perhaps - but only to void the entire statute as recommended by Justice Scalia. One lesson that should be learned from both the McNally case, and now Skilling is that if the government is criminalizing conduct, it is necessary to require strict legal lines and those lines should not cross into legitimate conduct. 1346 should be voided because it is unnecessary. The basic mail fraud statute, 1341, and wire fraud, 1343, as well as the other fraud statutes, criminalize deprivations of "money or property." The Supreme Court has clearly held that "money or property" includes intangible property (Cleveland). To include "intangible rights" is therefore unnecessary for the prosecution of criminal misconduct. If the self-dealing does not involve money or property, should we really waste government resources on the prosecution?
September 08, 2009
Beam on HealthSouth
Video Highlights of Aaron Beam, co-founder of HealthSouth, speaking at the Association of Certified Fraud Examiners here. As noted on the webpage written by Dick Carozza (editor of Fraud Magazine), "Beam pleaded guilty to bank fraud." He served "three months in federal prison in return for his testimony against former HealthSouth Chief Executive Officer Richard Scrushy."
(esp) (w/ a hat tip to Gary Zuene)
March 06, 2009
Siegelman-Scrushy Opinion & Commentary
As noted here, the 11th Circuit issued its decision in the appellate case involving former Governor Don Siegelman and former CEO of HealthSouth Richard Scrushy. Some of the key points in the decision -
- the court found sufficient evidence "that a reasonable juror could have concluded that Siegelman and Scrushy explicitly agreed to a corrupt quid pro quo"
- the government did not prove that "Siegelman knew that Scrushy intended to defraud Alabama of his honest services while on the Board and that Siegelman personally intended to participate in this fraud."
- although the jury was exposed to extrinsic evidence, it was harmless and the court "did not abuse its discretion in holding that there was no reasonable possibility of prejudice to the defendants arising out of the exposure of the jury to this extrinsic evidence and denying the motion for a new trial"
The court affirmed Scrushy's convictions and reversed two counts of Seigelman's convictions. Seigelman gets a resentencing because of the reversal of Counts 8 and 9.
What happens now? Scrushy and Seigelman have the next step to go - asking for an en banc hearing and perhaps a petition for certiorari to the Supreme Court. But the political arena may be the avenue that we hear the most noise from in the immediate future, as Karl Rove is scheduled to appear before the House Judiciary Committee. See Huffington Post, Karl Rove Agrees to Testify
June 26, 2008
Scrushy - Prove You Won't Flee
The 11th Circuit Court of Appeals denied Richard Scrushy's motion for bail pending appeal. His co-defendant former Alabama Governor Don Siegelman had been granted bail. Scrushy argued that Siegelman's release warranted review of his claim for bond pending appeal. The court, however, ruled that Scrushy had failed to prove the preliminary step to obtain bail in that he failed to demonstrate "by clear and convincing evidence that he is unlikely to flee if he is released pending resolution of this appeal."
Order -Download scrushyorder.pdf
June 04, 2008
Government Has Second Thoughts in Siegelman/Scrushy Appeal
The government filed a Motion for Voluntary Dismissal of Government's Cross Appeals in the case involving former Alabama Governor Don Siegelman and former CEO of HealthSouth Richard Scrushy. The cross-appeal had been premised on the sentences given to the pair - the government wanted higher.
So why would the government drop this appeal. Some possibilities, although whether any of these ideas have merit will only be seen down the road:
- The government realized that the sentences were appropriate and didn't want to hurt their chances on appeal with a frivolous issue?
- Higher-ups said no dice on going forward with this cross-appeal?
- DOJ's internal investigation is not going particularly well for the DOJ?
- Asking for draconian sentences will add pressure for Congress to look closer at why this case was originally brought?
Although the government is dropping the cross-appeal, they still want the same amount space/words allowed in their brief as if this issue were before the court. The Eleventh Circuit Court of Appeals has yet to rule on whether this dismissal warrants a modification of the brief length.
(esp) (blogging from Atlanta, Georgia)
Addendum - Scott Horton, Harper's Magazine - Siegelman Prosecution Continues to Unravel
June 02, 2008
Scrushy Files Appellate Brief
Richard Scrushy, former CEO of HealthSouth, filed his appellate brief in the 11th Circuit Court of Appeals (for background see here) The 118 page brief is detailed, with key arguments focused on the following areas:
- No quid pro quo on the campaign contribution that is alleged to be related to an appointment & refusal by the court to give an instruction on the McCormick quid pro quo requirement
- Juror misconduct including juror use of the Internet
- Judicial conflict and failure to disclose the alleged conflict
- Jury composition challenge
- Admission of hearsay testimony
- Statute of limitations problem with one count
Scrushy also joins in the arguments raised by former Alabama Governor Seligman in his brief (see here). As with Seligman's brief, the fascinating issue is the lack of a showing or a quid pro quo when a campaign contribution formed the essence of the alleged criminality. It seems likely that the government will respond that the McCormick case should not extend beyond Hobbs Act cases, and therefore should not apply to the Scrushy/Seligman cases. But without seeing the government's brief, the defense argument seems like a strong one - since without a quid pro quo requirement we might find all campaign contributions being considered criminal activity.
January 25, 2008
HealthSouth was often in the news during the trials of former company CEO Richard Scrushy. One trial ended with not-guilty verdicts, while the other found Scrushy guilty of charges of mail fraud, conspiracy, and bribery. (see here). But whenever a CEO of a company like HealthSouth is facing charges, there are likely to be repercussions felt by many outside the sphere of the individual. It is therefore interesting to now see that HealthSouth is selling some Birmingham, Alabama property to a developer. The Birmingham News speaks about this sale. (see here). Whether this is a collateral consequence of this investigation, however, is unknown.
(esp) (w/ a thank you to the person who called, and an apology for not being able to talk)
December 17, 2007
Settlement in HealthSouth and MD Case
A press release of DOJ states, "HealthSouth Corporation and two physicians have agreed to pay the United States a total of $14.9 million to settle allegations that the Birmingham, Ala.-based company submitted false claims to the government and paid illegal kickbacks to physicians who referred patients for care in some of its hospitals, outpatient rehabilitation clinics, and ambulatory surgery centers."
November 02, 2007
The Decline in Corporate Fraud Prosecutions
The American Lawyer has a detailed article (here) What's Behind the Drop in Corporate Fraud Indictments describing what it calls the decline in prosecutions of corporations and senior officers for fraud since the heyday of the President's Corporate Fraud Task Force. The article and a supporting spreadsheet (here) provides a detailed look at corporate prosecutions since 2002, when the Task Force came into existence shortly before Congress passed the Sarbanes-Oxley Act, the symbol of the government's response to the collapse of Enron, WorldCom, and Adelphia Communications amidst allegations of accounting fraud. The analysis provides the most comprehensive listing of prosecutions of companies and their executives that I have seen, including information about sentencing and appellate dispositions of cases.
One of the core findings is the drop in corporate fraud prosecutions, particularly since 2004:
Perhaps the most curious of our findings -- and one not highlighted by the Department of Justice -- is the precipitous decline in the number of major corporate fraud indictments in the two years since the re-election of President Bush. After issuing detailed reports in 2003 and 2004, the task force stopped reporting on its efforts in 2005, just as corporate fraud indictments slowed to a trickle. Our analysis shows 357 indictments in major corporate fraud cases between 2002 and 2005. But only 14 indictments were identified by the Justice Department as significant corporate fraud cases in 2006. There have been only 12 major corporate fraud cases indicted so far in 2007.
There are any number of reasons for the decline, and I doubt there is one single "cause" for the slowdown in these types of cases. One explanation offered by the former U.S. Attorney for the Central District of California takes the "when life gives you lemons make lemonade" approach: the Task Force was so successful that there is no more corporate fraud, at least not on the scale seen a few years earlier. A more plausible explanation is the almost natural ebb-and-flow to cases in a particular area, be it corporate fraud or drug prosecutions. Companies change in response to the marketplace, be it products or prosecutors, and so are acting differently. That doesn't mean they will stay out of trouble forever.
Perhaps more imporant is the decline in the number of federal prosecutors devoted to corporate crime investigations, which place significant demands on the resources of U.S. Attorney's offices. With budget resources devoted to the war in Iraq and Afghanistan crimping other departments, and the focus on new prosecutorial initiatives, such as child pornography and terrorism, something has to give and corporate crime is an easy place to cut back when there are no spectacular bankruptcies grabbing the media's attention. Without the manpower, cases can languish, which is especially difficult in this area because corporate fraud cases are not known for their timeliness. Filing a case about transactions involving technical accounting issues that occurred in a few years earlier just doesn't leap off the page and demand attention.
When there are fewer resources committed to the area, the pressure to bring cases may actually decrease because it is not as stylish or important to an assessment of an office's effectiveness. Moreover, the cases remaining from a few years ago are no longer the "low-hanging fruit" and may be just too difficult to prove without a commitment of significant resources. Recent media reports indicate that a criminal investigation of accounting fraud at bankrupt auto parts maker Delphi ended with no criminal charges, a result that might not have occurred a few years ago when there was much more pressure to bring cases.
While the American Lawyer focuses on the decline in corporate fraud prosecutions, that does not mean there is a decrease in cases in other areas that fall within the "big tent" of white collar crime -- we are a welcoming niche. Prosecutions under the Foreign Corrupt Practices Act are increasing, not declining, and the globalization trend probably means this will be a growth area. [NB: For those interested in the FCPA, please be sure to check out the FCPA Blog (here), which provides outstanding coverage in this area.] Antitrust prosecutions, especially for international price fixing, have not slowed over the past couple years, and the Antitrust Division's corporate amnesty policy -- first company in the door gets immunity -- seems to work in this area. The FBI has announced that public corruptioin is a top priority, and the number of Congressmen and Senators under investigation, indictment, or imprisoned recently is staggering. I doubt anyone is predicting a decline in healthcare fraud investigations, as the recent search at WellCare shows, and the Milberg Weiss prosecution may portend further scrutiny of class action law firms.
Finally, CEOs remain the target of government investigations, and I think that will continue in the future, even if prosecutions of corporations declines. Former Collins & Aikman CEO David Stockman, former ESS Inc. CEO Michael Shanahan, and former Comverse CEO Kobi Alexander are among the corporate chiefs facing charges -- maybe not Alexander if he can avoid extradition from Namibia. Regardless of priorities, a case involving the CEO of a public company will be a focus for the Department of Justice, and the resources necessary will be committed to these cases, in all likelihood.
Having seen the aftermath of the collapse of the banking industry up close in the early 1990s, and watching the corporate accounting and backdating cases develop over the past few years, I believe we will see another round of corporate scandals and prosecutions in the next few years. I wish I knew where it would come from, and the continuing collapse of housing prices may give us a hint. (ph)
July 09, 2007
No Restitution for Siegelman
According to Al.com (AP) former Alabama Governor Don Siegelman will be spared from having to pay restitution. There were clearly problems related to the original request for restitution (see here) in that Siegelman had been found not guilty on the count upon which the restitution order was premised. But in being $181,325 richer by the court telling him that he need not pay the restitution, Siegelman may have moved closer to a possible appeal by the government. The government still has time to decide whether to proceed on an appeal arguing that the sentence given to the former governor was too light. But if the government decides to challenge the sentence, it seems likely that a Libby Motion will be forthcoming. With allegations raised that the indictment may have been politically influenced (see here), a Libby Motion might present some interesting commentary.
July 01, 2007
Scrushy & Siegelman - How Long Will They Be in Prison?
Former HealthSouth CEO Richard Scrushy and former Alabama Governor Siegelman remain in jail after the court had them taken immediately from the courtroom into custody. Unlike many white collar offenders, these gentlemen were not afforded the opportunity to report to prison. Additionally they were not given the chance to remain free pending their appeal. (see here and here)
It may seem difficult to discern when an individual is allowed to remain free pending their appeal, and whether they will be permitted to report to prison as opposed to being hopscotched through the prison system to their eventual assignment. Some examples - Jamie Olis of Dynergy went directly to prison; Bernie Ebbers remained free pending his appeal; Jeff Skilling went to prison immediately but was allowed to report to his assigned facility; Bill Campbell - former Mayor of Atlanta - went to prison immediately but was allowed to report to the facility.
One thing is clear - if you cooperate with the government, you will likely be given the courtesy of being allowed to report to prison. Today, if you avail yourself of your constitutional right to trial by jury, and are unsuccessful at that trial, there is a chance of one of three things happening: 1) you will remain free pending the appeal; 2) you will get to report directly the facility after the Bureau of Prisons has made the assignment; or 3) you will go directly to jail.
A key factor in remaining free pending the appeal is whether there is a "substantial question of law or fact" that might result in an eventual reversal of the conviction. This is an issue that "Scooter" Libby's counsel will likely be addressing in the appellate court.
In the Scrushy/Siegleman appeal, we are likely to see some fascinating issues considered. For example, is this a bribery case where neither the briber or the bribee received any personal benefit? And if so, how do you ascertain the loss is this scenario? For other appeallate issues see here. But whether the 11th Circuit will consider these issues sufficient to offer an appeal bond, remains to be seen.
June 07, 2007
Scrushy Tries to Get the Judge Bounced
Former HealthSouth CEO Richard Scrushy filed for a writ of mandamus in the Eleventh Circuit to get Chief U.S. District Judge Mark Fuller removed from the corruption case in which he was convicted along with former Alabama Governor Don Siegelman. The Judge set the sentencing for June 26, and earlier denied a recusal motion related to his ownership interest in an Alabama corporation that has contracts with the military. According to Scrushy's memo in support of the writ of mandamus (available below):
[The company] provides fuel distribution services at Langley Air Force Base, in addition to other military installations. Assistant United States Attorney Feaga, the lead prosecutor assigned to this case, is a colonel in the United States Air Force reserve. Assigned to Langley Air Force Base, Attorney Feaga is an assistant to Staff Judge Advocate Brigadier General Richard C. Harding, who is the principle legal adviser to the Air Combat Command and staff on all legal issues at Langley, which by definition would include contracts such as those granted to [the company]. At no time did Chief Judge Fuller disclose to Scrushy he is the largest shareholder of several businesses which have substantial contracts and do business with branches of the United States government nor did he request a waiver from Scrushy after full and complete disclosure.
Appellate courts are generally loath to grant a writ of mandamus, and the connection identified between Judge Fuller and the prosecutor is a bit tenuous. But this case has been so contentious, it would not be a surprise to see the Eleventh Circuit at least consider the petition to ensure that the sentencing is done properly. An AP story (here) discusses Scrushy's filing. (ph)
May 30, 2007
Scrushy and Siegelman Ask for No Prison Time
Motions have now been filed by former CEO of HealthSouth Richard Scrushy and former Alabama Governor Don Siegelman asking that the court give no prison time to the pair.(see Al.com here) This is in sharp contrast to the government's request of 30 years for Siegelman and 25 years for Scrushy. (see here) Perhaps what is the most fascinating part of the difference in sentences requested by the government and defense is that even if one were to follow the Sentencing Guidelines there is no agreement on what sentence should be issued. One of the purposes behind the guidelines was to provide uniformity in sentencing. But as reflected by this case, interpretations of how to read guidelines makes uniformity very difficult.
May 28, 2007
The Forthcoming Scrushy & Siegelman Sentencing
The upcoming sentencing of former Alabama Governor Don Siegelman and former HealthSouth CEO Richard Scrushy is definitely a sentencing hearing to follow. Siegelman found guilty of significantly fewer counts than charged with, but still facing sentencing on verdicts for bribery, conspiracy, mail fraud, and obstruction of justice, and Scrushy found guilty of all of the bribery, conspiracy and mail fraud counts brought against him, are set to the sentenced at the end of June. Prosecutors are seeking a sentence of 30 years for Siegelman and 25 for Scrushy (see Al.Com AP). WSFA12 provides explicit details of the government rationale for these requested sentences. But also seen here is the other side - that is, the defense position. The defense response to the government Memorandum is likely to be seen soon. One issue likely to be encountered at the sentencing hearing is whether the government can use uncharged conduct and acquitted conduct in determining the sentence.
April 23, 2007
Scrushy Settles SEC Matter for 81M
The Securities Exchange Commission issued a release today stating that an order had been entered that "permanently bars Scrushy from serving as an officer or director of a public company, permanently enjoins Scrushy from committing future violations of the antifraud and other provisions of the federal securities laws, and requires Scrushy to pay $81 million in disgorgement and civil penalties." The Wall Street Jrl provides some details here.
But Scrushy, former CEO of HealthSouth, was also in the news about his recent travels and possible future ones. Alabama.com reports that Scrushy has to wear a electronic monitor on his ankle. The article also discusses some disputes over his travel restrictions.
January 20, 2007
More on Scrushy/Siegelman
With sentencing yet to happen in the Scrushy/Siegelman case, things are heating up. First there was the talk about emails, but the court initially rejected the new trial motion premised upon this. (see here). The question involves whether there was juror misconduct related to emails. But the court did order the government to respond to the defense motion regarding a new trial. Now a WSFA TV-12 report (here) discusses the latest developments in the case.
The government is calling the emails - "inherently discreditable." And the defense is requesting the court to reconsider its order. Interestingly, the government appears to be arguing that the emails are "too good to be true." But the defense is clearly at a disadvantage at trying to prove their cause here in that they do not have the resources of the government and Siegelman may be feeling the pressures of the high cost of attorney fees. (see Al.com here - noting "his legal bills are nearing $1 million in connection with his 2006 corruption conviction.")
It is important to remember that the government is not an advocate, but rather serves as a "minister of justice." Whether there is merit or not to these emails remains to be seen. But what is clear is that the government should want the truth to prevail and not want to proceed to sentencing if an injustice occurred at trial.
December 02, 2006
The Scrushy-Siegelman Jury Tussle Continues While Scrushy and HealthSouth Settle a Claim
The argument about the conduct of the jury in the corruption prosecution of former HealthSouth CEO Richard Scrushy and former Alabama Governor Don Siegelman continues to play out in the federal courthouse in Montgomery, Alabama. Scrushy and Siegelman are seeking a new trial because two jurors admitted during an evidentiary hearing that they reviewed information on the internet about the case, including downloading a copy of the indictment that was available on the District Court's website but was different from the one sent to the jury during its deliberations. A brief filed by Siegelman argues,
This Court cannot reach any conclusion other than that absent Juror 7 and 40's improper downloading of the wrong Indictments and their use of these Indictments during jury deliberations, this jury would have either acquitted Governor Siegelman or at least hung on the few Counts on which Governor Siegelman was convicted.
* * * * *
The overwhelming evidence is that Jurors 7 and 40 - the only two jurors to grant public interviews following the trial, the only two jurors to repeatedly and deliberately violate this Court's Orders, and the only two jurors to conduct Internet research throughout this trial - were the two jurors that led jury deliberations and orchestrated this verdict. By their actions, Governor Siegelman was deeply prejudiced by the jury's consideration of extrinsic evidence that was not subject to the Court's "full judicial protection of [Governor Siegelman's constitutional] right of confrontation, of cross-examination, and of counsel." Farese v. United States, 428 F.2d 178, 180 (5th Cir. 1970); United States v. Perkins, 748 F.2d 1519, 1533 (11th Cir. 1984). The Government cannot prove that Jurors 7 and 40's misconduct was harmless, and Governor Siegelman is entitled to a new trial.
Needless to say, the government takes quite a different view of what effect, if any, the jurors' conduct had on the outcome of the case. If the District Court denies the motion for a new trial, the issue of juror misconduct will be a featured issue on an appeal to the Eleventh Circuit. A blog on WFSA Channel 12 in Montgomery has an extensive report on the brief (here).
On the HealthSouth front, Scrushy and the company agreed to settle their issues over competing claims by each side. The company obtained an order directing him to return $52 million in bonus payments (plus interest) he received while HealthSouth's earnings and income were inflated through the accounting fraud, while Scrushy won an arbitration award requiring the company to pay $21 million of his attorney's fees in the fraud prosecution in which he was acquitted. The agreement provides that Scrushy will pay HealthSouth $31 million. In addition to the criminal case in Montgomery, Scrushy still faces an SEC securities fraud civil case and shareholder suits. Don't look for any of these fights to end soon. An AP story (here) discusses the settlement between HealthSouth and Scrushy. (ph -- thanks to a blog reader for passing along the jury information)
September 25, 2006
Technology & The Scrushy Jury
Jury deliberations are supposed to be secret. And in most cases what happens in the jury room will stay in that room during the deliberations. But with new technologies, it is not surprising to see new issues developing. According to the Wall Street Jrl here and Guardian Unlimited (AP) here, the court in the Scrushy/Siegelman case is now faced with the issue of whether some jurors may have communicated via email.
Scrushy, the former CEO of HealthSouth was found guilty after a second trial by jury (he was found not guilty in a prior trial related to HealthSouth). His defense counsel is seeking a new trial premised on allegations that there were improper communications. (Id.)
With Treos, Blackberries, and other handheld devices that permit access to the Internet, and with so many people now having computers easily accessible, it will not be surprising to see more instances of jurors communicating during deliberations. And I am not talking about emailing to see if someone needs a ride to the courthouse. Judges need to be especially cognizant of the new technologies when instructing a jury. They need to remind jurors that they cannot communicate on the case outside the actual deliberation in the room. They also need to remind jurors that it is not appropriate to google for answers to questions that might be related to the case.
September 14, 2006
Former HealthSouth CFO Receives 3-Year Prison Term
The third time was the charm for federal prosecutors, who finally had a substantial prison term imposed on former HealthSouth CFO Michael Martin. Twice before, Martin, who cooperated in the case after pleading guilty, was sentenced for his role in the $2.7 billion fraud, receiving probation and then a seven-day term in prison. Martin was one of the five former HealthSouth CFOs who pleaded guilty, and he testified against former CEO Richard Scrushy when his comparatively light sentence was fodder for the cross-examination.
The government appealed each of the first two sentences, arguing that they departed too much from the Federal Sentencing Guidelines and were unreasonable. After the second reversal, the Eleventh Circuit reassigned the case to a different district court judge, and now Martin has been sentenced to three years in a federal correctional institution; he will serve about 30 months in prison and then be eligible for release to a half-way house. The case is a good example of how disparate sentences can be in white collar cases, especially when a defendant has cooperated to receive a lower sentence. An AP story (here) indicates that, while perhaps not satisfied with the new sentence, Martin has accepted it, quoting him as stating, "Finally you can put a period on it . . . I'm just glad it's over." (ph)
September 13, 2006
Scrushy Gets Some of His Attorney's Fees Covered
An arbitrator has decided that HealthSouth must pay former CEO Richard Scrushy's attorney's fees from the criminal trial in which he was acquitted of all counts related to the massive accounting fraud at the company. Scrushy claimed that his employment contract required the company to pay the fees, and under Delaware corporate law -- HealthSouth is incorporated there -- he had a statutory right to have the attorney's fees paid because he was successful on the merits. The arbitrator's decision is not a surprise, although Scrushy did not get all that he claimed, however, only being awarded $17 million of the $32 million claimed. Nevertheless, that is a significant amount to spend on a criminal defense, and shows the costs of defending a large-scale criminal prosecution..
Scrushy victory may not result in him receiving any money to pass along to his attorneys. HealthSouth earlier obtained a judgment, upheld by the Alabama Supreme Court, that he must repay over $47 million in bonuses, plus interest, that he received when the accounting fraud took place that were awarded based on the company meeting certain performance targets. HealthSouth has requested that the $17 million for attorney's fees be offset against the large judgment, so look for yet another fight over the attorney's fees. An AP story (here) discusses the arbitrator's decision. (ph)