Friday, November 6, 2009
Martha Neil, ABA Jrl Law News Now, 2 Lawyers Charged in Claimed $1.1M Client Embezzlement Scheme
Vesselin Mitev, Law.com, New York Law Journal, Disbarred Attorney Pleads Guilty to Guardian Account Thefts
Linda Sandler & Carlyn Kolker, Bloomberg, Ropes & Gray Lawyer Cutillo ‘Fueled’ $20 Million Insider Scheme ; DOJ Press Release, Manhattan U.S. Attorney Charges 14 Defendants With More than $20 Million in Insider Trading- Charged Defendants Include Hedge Fund Managers, Trading Firm Executives, Lawyers, and Corporate Insiders; Five Already Have Pleaded Guilty To Insider Trading Charges
Jordana Mishory, Daily Business Review, law.com, Fla. Firm's Attorneys Rally Their Defenses as Partner Faces Fraud Allegations - FBI and IRS agents raided the law firm Wednesday, seizing 44 boxes of evidence, hard drives and trash
(esp)(blogging from Portland, Oregon)
Friday, October 2, 2009
NACDL's 5th Annual Defending the White Collar Case Seminar - "Getting Paid, Not Charged--Avoiding Indictment by Collecting Fees Ethically," Friday, October 2, 2009
Guest Blogger: Jon May, Chair, White Collar Crime Section, National Association of Criminal Defense Lawyers
Over the last ten years, and particularly as a result of the indictment of prominent Miami Attorney Ben Kuehne, criminal defense counsel have had cause to be concerned that they could be the subject of prosecution solely for taking a legitimate legal fee. In this morning’s presentation by Jane Moscowitz and Martine Pinales, lawyers found reasons to be hopeful that such fears may be overblown, at least as to potential prosecution. Forfeiture of fees, on the other hand, remain a significant concern.
The Kuehne prosecution is an instance of ideology trumping common sense. Benedict P. Kuehne is the most unlikely of government targets. As Jane Moscowitz, who is one of his attorneys observed, Ben is the best of all of us. He is not just a leader of the bar—having been the President of the Miami-Dade County Bar Association and a member of the Board of Governors of the Florida Bar—he has devoted countless hours to pro bono activities on behalf of organizations representing the interests of African-Americans, Hispanics, Gays and others. He was also one of Al Gore’s principal attorneys during the Florida recount. Not surprisingly, he was Roy Black’s choice for counsel when Roy Black needed an attorney to vet the legal fees he was to be paid to represent notorious Colombian cartel leader Fabio Ochoa.
Roy Black was ultimately paid $5 million for his representation of Ochoa. Ben Kuehne earned approximately $175,000 for vetting this fee. Ben was indicted for conspiracy to launder, what the government recognized, and the indictment stated, was a bona fide legal fee. This is despite the fact that the money laundering statute 18 U.S.C. Sec. 1957 contains a specific exemption for the receipt of funds necessary to preserve the Sixth Amendment. It was the government’s position before the District Court and just recently before the Eleventh Circuit in their appeal from the dismissal of this count, that the decision of the Supreme Court in Caplin and Drysdale nullified this exemption. The district court, however, was persuaded that it was the intent of Congress to protect counsel from prosecution, even if attorney’s fees could be forfeited. It appears from the tenor of the oral argument, which I was present to see, that the government’s theory is being met with the same level of skepticism that it received by Judge Cooke.
Martin Pinales discussed his experience dealing with government efforts to seize legal fees. Even in instances where the AUSA states that she has no intent to seize fees, counsel can be faced with a post trial effort by the government’s money laundering/forfeiture counsel to claw back those fees. Strategies were discussed for dealing with that problem. One way is to be paid by a third party from monies totally unconnected to any alleged criminal activity. Where money is obtained from the defendant, it is important to insure that the money did not come from any source named in a forfeiture count. And counsel should do due diligence even as to assets that could be later characterized as a substitute asset. It was also important to have your retainer agreement tie fees received to services provided. Where the funds are clearly substitute assets, counsel who takes these steps will have a better chance of demonstrating that they are bona fide purchasers for value in later forfeiture proceedings.
During the seminar, other important issues were raised. In many districts, counsel do not have to worry about their fees if their clients cooperate. Doesn’t that create a conflict of interest? You can charge a flat fee so long as you can demonstrate that it was earned. But don’t call it non-refundable (unless you practice in Florida, but it still has to be reasonable). The final irony, and outrage, discussed was the fact that the indictment against Ben also includes forfeiture count. The government is seeking to forfeit from Ben, the $5 million that Roy Black received.
Thursday, October 1, 2009
NACDL's 5th Annual Defending the White Collar Case Seminar - "Choppy Waters - The Ethics of Privilege and Disclosure," Thursday, October 1, 2009
Guest Blogger: Peter D. Hardy, Post & Schell, P.C. (Philadelphia, PA)
Moderator: Gerald B. Lefcourt
Gerald Lefcourt noted that it has been over 46 years since the Brady decision was issued, yet we still have no firm definition of Brady that most federal prosecutors can follow. There are varying and conflicting practices amongst prosecutors in regards to definitions and the proper time frame for disclosures. Moreover, incidents of Brady violations or potential violations are not uncommon.
Robert Cary represented Senator Ted Stevens. The heart of the defense was a note that Senator Stevens had sent to Bill Allen, the key government witness and the builder making improvements on the Senator’s chalet, which stated in part that the Senator wanted to make sure that Allen got fully paid, and that “friendship is one thing, but compliance with these ethics rules is another[.]” The government responded to this note by eliciting testimony from Allen that the note was just the Senator trying to concoct a cover story. After the guilty verdict, the second FBI agent on the case filed a self-described whistleblower complaint regarding conduct by the prosecution team. The Court ordered the government to provide discovery regarding the complaint, and a new prosecution team was put in place. New discovery contradicted directly the government’s theory and evidence at trial that Allen regarded the note as a mere cover story. Carey described the Attorney General as a hero for moving to dismiss the case. All of this happened only after a long trial and post-trial process (as well as Senator Stevens losing his re-election bid). Judge Sullivan, who oversaw the case, is to be commended for being careful and not simply taking the government’s word.
So, what should be done? Judge Gertner explained that the solution needs to involve the rules (ethical, court, and criminal procedure). The case law has slid into an outcome-determinative approach, which makes it very hard for the prosecutor to predict. The materiality standard is colliding with the harmless error doctrine. Brady had more to do with a failure to turn over evidence impugning the system, rather than predictions regarding potential outcomes. The definition of Brady should be re-assessed, and there also should be deadlines set for when information should be turned over: for example, 28 days before.
Professor Green described how the ABA code of ethics set forth in the 1970s a discovery rule for prosecutors: you must turn over information that would tend to negate the guilt of the accused. Everyone had assumed that this rule overlapped with Brady. But, the rule is not co-extensive with Brady – for example, it does not have a materiality standard. Rather, it categorically requires the disclosure of favorable information, or information which might lead to favorable evidence. A materiality test is really directed at post-conviction review, and is not well suited to govern the conduct of prosecutors at the time they are making their discovery decisions. Defense attorneys also need to know about exculpatory information in order to assess a case and decide whether or not to proceed to trial.
Paul Shechtman described federal plea agreements in New York which require waivers by the defendant of either impeachment and/or all exculpatory information. These plea waivers apparently run afoul of the rules just described by Professor Green. Current cases strongly suggest that prosecutors need more education regarding their obligations under Brady, in order to be better able to appreciate the exculpatory value of evidence. We need to reassess Brady, which has been hijacked by the materiality doctrine. The burden now is on the defendant to show materiality. In Brady, Justice Marshall wrote in dissent that the test instead should be harmless error, in which the government has the burden to show that the conviction should not be reversed. The materiality requirement invites courts to preserve convictions, despite poor decisions and poor decision-making processes by prosecutors.
Larry Thompson described a case in Detroit in which the prosecutor made false statements to the Court, and actually was prosecuted himself. Judge Gertner noted that part of the problem here is lack of meaningful remedies. There is professional discipline, but discipline is unlikely.
NACDL's 5th Annual Defending the White Collar Case Seminar - "Cyberspace - The Black Hole Where Ethics, Strategy, and Technology Collide," Thursday, October 1, 2009
Guest Blogger: Cynthia Hujar Orr, President, National Association of Criminal Defense Lawyers
Panel Moderator: Gerald GoldsteinPanelists: AUSA Joey Blanch, Blair Brown, Marcia Hofmann, Alexander Southwell
Gerald Goldstein grabbed the attention of the NACDL White Collar seminar telling us that each time we hit the send button on the internet a new government exhibit is created.
Blair Brown spoke about the Balco Investigation, Comprehensive Drug Testing, case and its ground breaking opinions. They answered many previously unanswered questions regarding the operation of the plain view doctrine and appropriate limits and procedures for the execution for computer search warrants. The Baseball Players Association conducted anonymous testing in order to determine whether comprehensive drug testing should be imposed on the sport. However, a search warrant issued for drug test results for specific athletes and promised to screen and limit the search of the computers to records of specific athletes through off site screening procedures. The government rejected assistance on site to produce just the records that the government sought. In fact, the case agent viewed all of the records under the theory that they were in "plain view." Three separate district judges found the government acted in an outrageous fashion, executing general warrants. Blair explained the appropriate limits and procedures that the Court held should have been followed instead.
Alexander Southwell explained the government's application of the Computer Fraud Abuse Act to the public's use of social networks in the context of the Laurie Drew case. Drew had created a fake "my space" account culminating in the suicide of a young woman distressed by the postings from the fake site. The government pressed charges for formation of a fake account, criminalizing the violation of the terms and conditions of a social network. Drew was convicted and the court entered a judgment of acquittal from which the government has taken an appeal. Therefore, the story has not been written on the sweep of the Computer Fraud Abuse Act (CFAA), 18 U.S.C. Section 1030. He explained the difficulty of the criminal law to keep up with technology and the importance for criminal defense lawyers to push back when the government attempts to apply the criminal law to current social practices.
Marcia Hofmann working for the Electronic Frontier Foundation, a techie ACLU. She encouraged defense lawyers to reach out to EFF when confronting technical issues in your criminal cases. She discussed the evolution of the CFAA covering the cases that were the vehicles that expanded its use. Her discussion opened eyes about conduct that was not traditionally addressed by the criminal law.
AUSA Joey Blanch discussed child pornography in the age of the internet. Cases are exploding and proliferating. Every section of society in every walk of life ends up with people committing these crimes because people think they are anonymous on line. Blanch told the white collar lawyers that they will have a client with a child pornography case and explained how it could arise. Importantly, she discussed the new child pornography offenses effective in October of 2009. She also discussed the circuit split on the Mona Lisa defense. One of the new crimes is the Child Pornography Enterprise offense which creates a 20 year mandatory minimum for participation in child pornography internet groups. That was just the tip of the iceberg.
Using a hypothetical containing common real life circumstances the group guided the audience through what counsel should do in tough circumstances.
Friday, April 10, 2009
A "not guilty" verdict was returned on a drug case in Miami, but what happened during the investigation and prosecution of this case has now resulted in an award of $601,795.88 under the Hyde Amendment. The Hyde Amendment allows for attorney fees when a "prevailing criminal defendant" can demonstrate "that the position the government took in prosecuting him was vexatious, frivolous, or in bad faith." (see Order, infra, citing U.S. v. Gilbert).
Hon. Alan S. Gold, in the Southern District of Florida, issued an Order awarding these attorney fees and enjoined the US Attorneys who practice in that court from "engaging in future witness tampering investigation of defense lawyers and team members in any ongoing prosecution before [this judge] without first bringing such matters to [the judge's] attention in an ex parte proceeding." The judge also issued a public reprimand against the US Attorneys office and specifically 2 AUSAs. And it does not end there, as the judge also makes it clear that a disciplinary body needs to review this matter. (Court's Order - Download 08-20112 (Shaygan) Prosecutorial Misconduct FINAL )
The judge presents a thoughtful Order that gives credit to the USA's office for taking "immediate efforts to investigate" this matter when it came to light. After all, the taping of defense counsel and a defense investigator, by government informants, does present serious concerns. The failure to disclose this material is more problematic. The judge tells of Brady, Giglio, and Jencks issues in this case.
Hon. Alan S. Gold could not have said it better when he stated,
"It is the responsibility of the United States Attorney and his senior staff to create a culture where 'win-at-any-cost' prosecution is not permitted, Indeed, such a culture must be mandated from the highest levels of the United States Department of Justice and the United States Attorney General. It is equally important that the courts of the United States must let it be known that, when substantial abuses occur, sanctions will be imposed to make the risk of non-compliance too costly."
DOJ, the enforcer against corporate misconduct and the one who requests the appointment of monitors in deferred prosecution agreements, may seem to be having its own issues. One has to give the department credit for recognizing their lack of compliance in the Stevens case and agreeing to dismiss it. Likewise one has to give the government credit in this recent Miami case, in that the DOJ stated that they "made serious mistakes in a collateral investigation that was an offshoot of this case and stands ready to pay the additional attorneys' fees and costs incurred by the defendant as a result." Clearly the new AG Holder is taking a strong position against prosecutorial misconduct and sending that clear message to those in his office, something that is wonderful to see happening. But if this were a corporation that had committed misconduct, would these acknowledgments and payment be sufficient? The deferred prosecution agreement would require monitoring, and there would be a need to assure that there was now compliance. Mind you, I am not suggesting that a monitor in another deferred prosecution agreement case, John Ashcroft, be appointed here. But the concern is that both of the cases mentioned here had attorneys who could present these claims. My concern rests with the many cases that might have similar claims of misconduct but no attorney to bring the issues to light.
Thursday, August 28, 2008
On the same day as the Second Circuit issued the Stein (KPMG related) decision (see here), the DOJ issued new guidelines pertaining to principles of federal prosecution of business organizations. The government uses new language with regard to the attorney-client privilege. The guidelines provide that "[e]ligibility for cooperation credit is not predicated upon the waiver of attorney-client privilege or work product protection." Although it is wonderful to see the DOJ finally issuing a statement that will provide guidance to new lawyers in their office to reinforce the importance of the attorney-client privilege, this is not enough.
Guidelines are nothing more than guidelines that serve as internal guidance in the office. Guidelines are not always adhered to, and non-compliance is often left to the department to enforce. (see here) What this new language by DOJ does show is that they support the importance of making sure that the attorney-client privilege remains strong. Legislation, as is proposed, will make this happen.
The Guidelines - Download DOJPrinciples1.pdf
DOJ Press Release - here
Statement by NACDL here.
(esp)(w/ a hat tip to Jack King)
Thursday, March 20, 2008
Thursday, March 13, 2008
The law firm of Greenberg Traurig seems to be recipient of charges filed by the Attorney General's Office in Guam. The case clearly emanates from the days of Jack Abramoff, as he too is included as a defendant and the times of the alleged activity dates back a good number of years. There are 10 charges, some of which are felonies and some are misdemeanors. They include: unlawful influence, official misconduct, and theft. See ABA Jrl Law News Now here; WSJ here; Miami Herald here.
Indictment can be found here.
Monday, February 11, 2008
William Lerach became the first partner from law firm Milberg Weiss to be sentenced for his role in paying kickbacks to representative plaintiffs in class actions in which the firm served as lead counsel. U.S. District Judge John Walter sentenced Lerach to two years in prison -- he will serve about eighteen months of that in a federal correctional institution or work camp -- along with 1,000 hours of community service, two years supervised release, and a $250,000 fine. The Judge stated that "[t]his whole conspiracy corrupted the law firm and it corrupted it in the most evil way" in giving Lerach the maximum sentence under the plea agreement. Lerach's lawyers argued for a much reduced punishment of six months in prison and six months home confinement, while the government sought the full two years permissible.
With Lerach sentenced, the other two major cooperators in the case, former name partners Steven Schulman and David Bershad, will have to ponder what this means for them. Each has provided information to prosecutors, and Bershad was especially important because he handled Milberg Weiss' finances. Perhaps the greatest anxiety is being felt by Melvyn Weiss, who with Lerach served as the public face of Milberg Weiss and faces a multi-count indictment that includes RICO and money laundering charges. While those who plead guilty get the benefit of cooperation through a substantially reduced sentence, Weiss has vowed to go to trial to clear his name. Lerach got a particularly favorable deal in light of the potential Sentencing Guidelines range of 27 to 33 months for even the reduced charge to which he pleaded guilty. RICO or money laundering convictions would likely put Weiss in at least a four to five year prison sentence range, and he could easily be bumped up to ten years with various enhancements. Other charges in the indictment include obstruction of justice and false statement counts, and if Weiss is convicted of those that will only exacerbate the sentence. The trial penalty that could be assessed if Weiss is convicted on all counts will be substantial, and he would likely receive a far longer sentence than his erstwhile partner Lerach, who will probably be out of prison not all that long after Weiss' trial is concluded, if it takes place.
The other major remaining defendant in the case is the law firm itself, which still has not entered into a plea agreement. The admissions of Lerach, Schulman, and Bershad that they engaged in criminal conduct while at Milberg Weiss will make any defense nearly impossible under the principle of vicarious liability applied to organizations. Predictions of the demise of Milberg Weiss and its plea agreement have all been proven wrong to this point, however, so I'm not going to hazard another guess about what the firm might do. Judge Walter showed that he is not a softie on this case, so anyone going to trial will do so with some trepidation. An AP story (here) discusses the Lerach sentencing. (ph)
Friday, February 1, 2008
[Moved up from January 28 with a brief update at the end]
The prosecution of Dickie Scruggs has been fascinating, to say the least, including the view it has provided on the web of connections between the various lawyers in and around the case. The latest filing by Scruggs' defense counsel raises an interesting issue of legal ethics that could present problems down the road. Earlier, Scruggs sought to hire a well-regarded local Mississippi attorney, Kenneth Coghlan, to be part of his defense team in the bribery case. Unfortunately, Coghlan had earlier represented a co-defendant, Steve Patterson, for a brief period before withdrawing, and Patterson has now entered a plea agreement and will testify against Scruggs. Needless to say, this presents a clear conflict of interest problem, despite the waivers by both Scruggs and Patterson because of the possibility that privileged information will be made available to Scruggs' defense team or Coghlan cannot provide effective representation because of his confidentiality obligations to Patterson -- the privilege lasts forever, of course. Not surprisingly, Senior U.S. District Judge Neal Biggers denied Scruggs' motion to have Coghlan appear as his counsel on January 16.
Scruggs' defense team has filed a motion to reconsider, arguing that the waivers by Scruggs and Coghlan dissipate any problems from the potential conflict created by the confidential information received from Patterson. No great surprise there, and it's doubtful Judge Biggers will grant the motion because allowing conflicted counsel to appear would be playing with fire. The interesting issue, especially from a legal ethics point of view, is the following statement in the defense filing (available below):
In the event that the Court does not permit Mr. Coghlan to enter an appearance on behalf of Mr. Scruggs, the undersigned counsel wishes to notify the Court that counsel intends to consult with Mr. Coghlan on issues related to local custom and practice, jurisdiction, jury selection and other strictly legal and procedural (i.e., non-evidentiary issues) that may be pertinent to the defense of the case but which do not implicate any attorney-client privileged communications or information. Mr. Coghlan will have no role in the trial of this matter and will not render any legal advice or consultation to Mr. Scruggs. Furthermore, Mr. Coghlan will not be consulted regarding the specifics of either Mr. Scruggs’s or Mr. Patterson’s alleged involvement in the conduct at issue in the Indictment.
Can it be that a lawyer prohibited from representing a defendant because of a potential conflict of interest can continue to work on the case? That strikes me as a bit odd. While Coghlan was not disqualified by Judge Biggers, because he had not yet entered an appearance to represent Scruggs in the case, the district court's denial of the appearance motion seems to me to be the functional equivalent of disqualification under Wheat v. United States. In that case, the Supreme Court gave trial judges broad discretion to disqualify lawyers because of potential conflicts of interest, especially based on concurrent or prior representation of co-defendants. If a lawyer is disqualified due to a potential (or even actual) conflict, I take that to mean the lawyer may not continue any form of representation under the professional responsibility rules. Therefore, can Coghlan consult on Scruggs' case without representing him in court?
It is not clear whether Coghlan would have an attorney-client relationship with Scruggs, or only be a "consultant" to the lead defense lawyer, John Keker. An argument can be made that Mississippi Rule of Professional Conduct 1.9(a) would allow Coghlan to continue to represent Scruggs, only not in court. The Rule states: "A lawyer who has formerly represented a client in a matter shall not thereafter: (a) represent another in the same or a substantially related matter in which that person’s interests are materially adverse to the interests of the former client unless the former client consents after consultation . . . ." Because Patterson agreed to waive any conflict of interest claims against Coghlan, it could be that the continuing representation does not violate the rule. But if Coghlan continues to represent Scruggs, only not appear in court, that seems to go against the spirit of Judge Biggers order, which looked to be based on the district court's authority under Wheat to disqualify an attorney due to the potential conflict. Judge Bigger's decision may have been to remove Coghlan from representing of Scruggs to protect against any possibility of an ineffective assistance claim by Scruggs if there was a conviction.
If Judge Biggers understood his decision to be a disqualification under Wheat, then hiring Coghlan as a "consultant" looks more like a subterfuge to get around the effect of the court's order. If a lawyer has a conflict of interest due to possessing privileged information, then that attorney must be completely removed from the case. The whole idea behind screening lawyers with conflicts is that they can have no contact with the attorneys representing a client, so the lawyer cannot be consulted for general knowledge and background with a promise that no confidential information will be passed. Moreover, if Coghlan is not representing Scruggs, then discussions with him would not necessarily be privileged, although they could qualify for protection under the attorney work product doctrine.
When a judge decides to disqualify an attorney from a case, I always assumed that it meant the lawyer was completely removed from any aspect of the client's legal representation. The Scruggs prosecution once again presents a new and interesting twist. It remains to be seen whether the U.S. Attorney's Office will seek a complete disqualification if Coghlan continues to do some work on the case, but it would not surprise me to see the prosecutors challenge this type of consultation on behalf of Scruggs. (ph)
UPDATE: Judge Biggers denied the motion for reconsideration in a short opinion (available below), stating that Scruggs could hardly complain about a lack of defense help with "five eminent attorneys" already on his team. Interestingly, the Judge passed on making any decision about whether Coghlan could continue to help out with Scruggs' defense, stating in a brief footnote at the end of the opinion, "As to the extra-judicial matters for which the defendant states he intends to employ Mr. Coghlan, the court has no opinion at this time." I suspect that if Coghlan starts showing up in the courthouse for hearings the judge may express an opinion. (ph)
Preparing your client for a hearing is a must for every attorney. But offering to have your client's memory fade in exchange for favors is a major problem, as illustrated in a recent SEC case. The SEC filed an administrative action (here) to bar an attorney licensed in New York from appearing before the Commission because of what he told the attorney for a brokerage firm and its president who were being investigated. The attorney's client came to the SEC's attention as a potential witness, and so the attorney began dealing with the investigators seeking to arrange her testimony. At the same time, the attorney also had some conversations with the brokerage firm's lawyer that were rather revealing. How did the SEC learn what was said, you might ask? Well, it seems that the brokerage firm's attorney taped the conversations, as summarized in the administrative filing:
During the taped conversations, Respondent requested that Blumer [the brokerage firm's president] arrange for a "severance package" (i.e., removing his client as the co-signer on two car leases with Blumer and paying her salary) for his client. In return for this severance package, Respondent indicated that his client might not cooperate with the Commission and/or that her recollection of the relevant events might "fade." In the last of these conversations, Blumer’s attorney asked Respondent "what package" his client wanted to "not cooperate." Respondent stated, "Get her off those leases and, you know, your salary, and you can even pay it out over a year." Blumer’s attorney then asked, "what will we get if they do that, she won't cooperate or she won't remember?" Respondent stated "probably both."
New York is a one-party consent state for taping telephone calls, so there's no problem on that front. Can't you trust the attorney you're trying to extort in exchange for having your client's memory "fade" a little bit? It seems not, and the New York attorney may find himself in a bit of hot water with the Bar authorities who tend to take a dim view of such conduct. Whether the U.S. Attorney's Office takes an interest in a possible obstruction of justice case remains to be seen. Be careful what you offer in exchange for favorable testimony, it can cost you your career. (ph)
Thursday, January 31, 2008
It isn't every day that federal prosecutors point to the collateral consequences of a white collar defendant's guilty plea as a reason to impose a lighter sentence, but that seems to be what happened in the recommended sentence for leading plaintiffs lawyer William Lerach. The government's sentencing memorandum, available below, tries to walk a fine line between advocating for a higher sentence than the one recommended by the Probation Office while still adhering to the plea agreement that capped Lerach's potential prison term at twenty-four months for his role in making secret payments to representative plaintiffs in cases litigated by his former firm, Milberg Weiss. So in the same filing prosecutors asked for a higher Sentencing Guidelines calculation to trigger the maximum twenty-four month sentence, nine months longer than recommended in the Presentence Report. Then in defending the decision to limit the potential punishment to a maximum of two years, the government states:
Defendant, who will be sixty-two years old upon commencement of his sentence, now stands in disgrace before the profession of which he considered himself a national leader, and the courts before which defendant practiced. Given what is surely an ignominious conclusion to an otherwise successful career, a period of incarceration greater than twenty-four months is not necessary to promote the sentencing goals set forth in Section 3553(a).
While that position is nothing new in argument by defense lawyers on behalf of their clients, I don't recall seeing prosecutors point to the reputational effects of a guilty plea as a justification for a sentence lower than the one called for in the Guidelines.
In Lerach's case, it is an odd argument because his reputation was built at least in part on the very conduct involved in the prosecution. In a different section of the brief seeking a higher sentence, albeit still within the twenty-four month limit, the government asserts that "[t]he conduct at issue amounted to a systematic effort to obstruct and undermine the lawful functioning of the judicial system in hundreds of lawsuits brought in federal and state courts throughout the United States." So Lerach attacked the heart of the legal system, while the "ignominious conclusion" of his career argues in favor of some measure of leniency. Part of his prominence in the profession likely contributed to his ability to pursue class action lawsuits while making the secret payments, so the loss of prestige is not just a tangential result of his crime. I almost get the feeling that portraying Lerach's fall from grace as a justification for a lighter sentence is a bit like the person convicted of setting fire to his home for the insurance money begging for mercy because he's now homeless -- this isn't so much a "collateral consequence" as a direct result of one's choice to commit a crime.
So, have prosecutors gone soft? The language arguing for a more limited sentence is sure to be used in other white collar cases in which a defendant suffers from collateral personal and career consequences as a result of a guilty plea or conviction. It may be that prosecutors have to take this almost schizophrenic approach because the plea agreement ended up being potentially too favorable to the second most powerful lawyer at Milberg Weiss, which itself is under indictment. You learn to live with your deals, but the rhetoric used in defending this one could come back to haunt prosecutors later on. (ph)
Sunday, October 21, 2007
One of the original defendants in the Milberg Weiss kickback case pleaded guilty, leaving only two individuals remaining along with the firm. Seymour Lazar entered a guilty plea to obstruction of justice, filing a false tax return, and making a false declaration in federal court. Lazar had served as the representative plaintiff in a number of Milberg Weiss class actions, and admitted to accepting $2.6 million from the firm for his compliant service as the named plaintiff in the actions. According to an AP story (here), prosecutors will recommend the eighty-year old Lazar be sentenced to home detention due to his declining health. Lazar is unlikely to be a witness in the prosecution of Melvyn Weiss, the only attorney from the firm who is fighting the charges after three of his former partners -- Steven Schulman, David Bershad, and William Lerach -- pleaded guilty and admitted to making the payments to class representatives. Lazar proclaimed his innocence rather loudly after being indicted, and would not be a particularly strong witness for the government if he is only sentenced to home detention.
The plea deal with Lazar lets the government puts its focus on Weiss, who has indicated that he has no intention of making a deal -- although this case has shown that hardline statements about seeking vindication at trial do not necessarily mean the case will play out in court. The strength of the government's case will be the testimony of Schulman and Bershad, who dealt with Weiss directly on the payments. Lerach is not required to cooperate as part of his plea deal, and his contentious relationship with Weiss, which led to the break-up of the original version of Milberg Weiss in 2004, would not make him an effective witness. (ph)
Thursday, October 18, 2007
Justin Scheck has an interesting and thorough article in The Recorder (here) discussing the recent superseding indictment of Melvyn Weiss and his firm, Milberg Weiss, and how the firm appears to have made a series of missteps that jeopardizes its continued existence. While former Milberg Weiss partner William Lerach's plea deal gets extricates his new firm -- formerly Lerach Coughlin, now Coughlin Stoia with Lerach's retirement -- from the criminal investigation, Weiss' indictment keeps his firm in the cross-hairs, with no resolution of the charges in sight yet. With the plea agreements of two former Milberg Weiss name partners, Steven Schulman and David Bershad, it will be just this side of impossible for the firm to defend itself from the charges because of the acts of its agents can be attributed to the entity. The article describes the firm's leadership as being in turn "indecisive, myopic, stubborn and simply unlucky." Milberg Weiss has been under indictment for almost a year and a half now, and it continues to survive, although perhaps not thrive with the indictment hanging over its head. Getting out of the case will cost it millions, so it won't be easy to resolve the case. (ph)
Friday, September 21, 2007
As expected, Milberg Weiss founder Melvyn Weiss and the firm were charged in a second superseding indictment (available below) with conspiracy, RICO conspiracy, mail fraud, and obstruction of justice, and Weiss was accused of making a false statement (Sec. 1001) to agents investigating the firm. While the basic allegation of paying representative plaintiffs in class actions in which the firm served as lead counsel remains the same, the obstruction and false statement charges add a new wrinkle to the case. Weiss, and through him the firm, are accused of hiding a 1990 fax from one of the plaintiffs to David Bershad, a named partner in the firm, that discusses checks from the firm. The government subpoenaed the document in January 2002, and the indictment states that from 2003 until August 2007 Weiss obstructed justice by "causing [the fax] to be withheld from production in response to the Grand Jury Subpoena." Apparently, his refusal to comply with the subpoena was a continuing obstruction of justice. For the Sec. 1001) charge, Weiss alone is accused of lying to agents in August 2003 about his discovery of the document, and subsequent assertion of the self-incrimination privilege to withhold it. According to the indictment, the fax was a business record of Milberg Weiss and not subject to a Fifth Amendment claim.
The false statement count shows the benefit of Bershad's cooperation, because the government alleges that he gave the fax to Weiss, information that clearly comes from Bershad. This is the first time that I have seen an assertion of the self-incrimination privilege as the basis for a false statement charge, with the government claiming that Weiss knew the document was not a personal record and therefore he could not resist production on that ground. The obstruction and false statement counts likely are designed to help show Weiss' intent to hide the payments to the plaintiffs, an attempt to undermine any claim that he was unaware of what was going on or blaming others for the conduct.
The forfeiture count seeks $251 million from Milberg Weiss and Weiss, which is the government's estimate of the fees earned from the cases with the improper payments, what the indictment terms the "tainted attorneys' fees." (ph)
Thursday, September 20, 2007
With the impending superseding indictment of Melvyn Weiss and his firm, Milberg Weiss, the prosecution of the firm and its members for paying secret kickbacks to plaintiffs is nearing its denouement. The plea agreement (available below) of William Lerach, the symbol -- for good or evil, depending on your point of view -- of aggressive class action attorneys has drawn considerable attention and criticism for the sentence and lack of a cooperation requirement. The deal puts his sentencing range at one to two years along with an $8 million fine, and if the district court does not accept its terms then the agreement can be scuttled by either side. An additional aspect of the sentence is that no more than half can be served in community confinement, i.e. a halfway house, or home detention, i.e. in the living room. That means Lerach could serve as little as six months in jail, and it will likely be in a prison camp or similar minimum security federal facility.
Some have criticized the sentence as too light compared to those received by other well-known white collar defendants, such as the 25 years received by Bernie Ebbers or Jeffrey Skilling's 24+ year term, which he is serving even while his appeal is before the Fifth Circuit. Even Andrew Fastow's comparatively mild sentence for his role in the Enron debacle was six years, far more than Lerach will serve. The Wall Street Journal, which has never particularly cared for Lerach and his ilk, criticized the $8 million fine he will pay in an editorial (here), asserting that "It's hard to put a number on the money Mr. Lerach took off shareholders over the past three decades or so, but it's safe to say that $8 million isn't close. Even after his fine and minimal jail sentence, he will presumably remain a rich man."
In any discussion of a criminal sentence, it is important to remember that it has to be based on the crime of conviction, in this case conspiracy to obstruct justice and make false statements to the court. The Milberg Weiss case has never been a fraud prosecution, at least in the sense of depriving victims of money or property. While the convictions of Ebbers and Skilling/Fastow involved significant accounting fraud, it is not entirely clear whether the Milberg Weiss kickbacks paid to the representative plaintiffs necessarily provided a direct monetary benefit to the firm in excess of what it recovered in the cases. The plea agreement states that the payments allowed the firm to file its cases earlier, and the degree of oversight exercised by the named plaintiffs was non-existent, in all likelihood, so Milberg Weiss was free to pursue its legal strategy unfettered by any client demands. An earlier defense filing in the case assailed the government's theory as trying to stretch a violation of the professional responsibility rules into a crime. While making false statements to the court is certainly criminal, and the kickbacks were not only unethical but likely crimes given the representations the class counsel must make about its representation, what Lerach and others who have entered guilty pleas did was not necessarily a scheme to defraud. While the WSJ may bemoan Lerach's tactics, due process limits the sentence to conduct related to the criminal offense, and it's hard to see how claims of ripped-off shareholders relates to a conspiracy to mislead judges.
The absence of a cooperation provision in the plea agreement has aroused suspicion because the government usually requires it as part of a deal. The Ideoblog (here) notes that "it's still possible that the government made an implicit, non-disclosed deal with Lerach." While there is good reason to be suspicious, I suspect the government does not have much interest in using Lerach in the prosecution of Weiss and the firm, so prosecutors may well have been willing to drop any cooperation demand in the bargaining to get Lerach to plead guilty. It gives him a small point to argue in the future -- "I'm not a rat" -- at little cost to the government. Lerach as a witness against Weiss would bring significant baggage, mainly the negative relationship he has with Weiss that led to the breakup of Milberg Weiss in 2004. Moreover, I doubt prosecutors would trust having Lerach on the stand because he does not strike me as a witness who can be controlled or trusted to maintain his temper on cross-examination. The key to the case against Weiss is his former partner David Bershad, who was in charge of the firm's finances and paying the representative plaintiffs. Lerach would be more of a distraction at a trial, so garnering his cooperation would not be worth much while it could be foregone for other benefits during the negotiations.
Whether the sentence (and fine) is "light" or "harsh," the prosecution is a watershed because the government pursued a case against attorneys who sought to take advantage of the system through a long-term pattern of abuse. That said, not every case in which Milberg Weiss was counsel was tainted, and the firm remains in business. Lerach certainly should lose his law license, and I doubt many judges will ever welcome him into their courtrooms as a lawyer again. There's always a danger in asking how a symbol should be punished, and comparing one case with another risks overlooking important differences between them. (ph)
Wednesday, September 19, 2007
Fortune is reporting (here) that Melvyn Weiss, a name partner at Milberg Weiss, will be indicted shortly on charges related to secret payments to representative plaintiffs in class actions filed by the firm. Former partner William Lerach just entered a guilty plea to a conspiracy charge that will call for a one- to two-year sentence, while another former name partner, David Bershad, entered a guilty plea earlier that appears to have been the key breakthrough in the investigation. In addition, Steven Schulman, whose name was put on the firm more recently, reportedly will also enter a guilty plea after fighting the charges for over a year. The firm itself was also indicted in 2006, and it too is likely to plead guilty at some point. In its heyday, the firm was called Milberg Weiss Bershad Hynes & Lerach before the 2004 break-up, which means that three of the five "names" in the firm -- Schulman's was added after Lerach left -- will be involved in federal charges related to its conduct. Lawrence Milberg died in 1989, well before the practices at issue in the case occurred. (ph)
UPDATE: The Wall Street Journal Law Blog (here) quotes a press release issued by Milberg Weiss confirming that Melvyn Weiss and the firm will be the subject of charges issued in a superseding indictment by a Los Angeles grand jury:
Milberg Weiss understands that a second superseding indictment will be issued tomorrow that will include new charges against the Firm and also Melvyn Weiss. Mr. Weiss has decided to discontinue his participation in Firm management in order to focus on the defense of the charges against him. The Firm’s other partners, none of whom is alleged to have been involved in any wrongdoing, will be responsible for its management and litigation activities. Mr. Weiss will remain available to counsel clients and Firm attorneys. The Firm remains proud of Mr. Weiss’s and the Firm’s accomplishments over the years and will continue to fight for its clients and class members and to produce the excellent results for which it is known. We do not anticipate any interruption in our work and we look forward to putting this difficult period behind us.
With Weiss no longer taking an active management role at the firm, it may be that Milberg Weiss will seek to resolve the charges rather than continue to fight them. (ph)
Tuesday, September 18, 2007
Famed class action attorney William Lerach is set to plead guilty in Los Angeles to one count of conspiracy related to payments to representative plaintiffs in cases filed by his former firm, Milberg Weiss. The long-running investigation of the firm has picked up steam in the past few months as former name partner David Bershad entered a guilty plea that outlined how he maintained a cash fund drawn from contributions from other Milberg Weiss partners that was used to make secret payments to the plaintiffs. In late August, Lerach announced his retirement from his new firm, Lerach Coughlin, in which he acknowledged "my mistakes" and said that the investigation would end soon, which apparently it will for him (see earlier post here). According to a Bloomberg article (here), the plea agreement does not include a cooperation provision, which likely means Lerach will not be called on to testify against the firm or another former named partner who remain under indictment. The agreement calls for a prison sentence of one to two years and an $8 million fine. A key question now is whether prosecutors will bring a case against Melvyn Weiss, who along with Lerach has been the recent focus of the federal investigation. (ph)
Wednesday, August 29, 2007
Famed class action attorney William Lerach is stepping down from his firm as of August 31 in the midst of a drawn-out federal investigation of kickbacks paid to plaintiffs through his former firm, Milberg Weiss. Lerach broke away from Milberg Weiss in 2004 and moved to a new firm in which his name came first, at least until Labor Day when it will be become Coughlin Stoia Geller Rudman & Robbins. An e-mail to firm members, reprinted on the Wall Street Journal Law Blog (here), states in part:
As you know, I will be retiring in short order to resolve the investigation about alleged events at my former firm more than a decade ago – long before this firm was even a twinkle in the eye. Because the events in question do not involve this 3-year-old firm or any of you, my decision to step aside will ensure continuity and stability for the hundreds of clients who benefit from your stellar work. This will end the investigation. Despite my mistakes, I am immensely proud that together we built a firm without peer and never shied away from taking on the world’s most powerful and corrupt corporations. [Italics added]
That certainly sounds like someone who may be close to resolving the case by way of a plea bargain, which was offered by prosecutors a few months ago but turned down. References to moving on "to resolve the investigation," "end the investigation," and "my mistakes" convey a feeling of resignation that a conclusion to the criminal case is near. Lerach's purported rejection of the earlier plea offer came before another former Milberg Weiss partner, David Bershad, agreed to plead guilty and is cooperating in the government's investigation. That may impel Lerach to cut his own deal given the statement of facts in which Bershad admitted that Milberg Weiss partners contributed money and made secret cash payments to plaintiffs.
Lerach has not lost his edge, of course, beginning his e-mail by noting that "[n]ow that I have outlasted Karl Rove, John Ashcroft and Alberto Gonzalez, it is time for me to retire." I suspect this may be the first time we have seen Lerach's name linked to these three stalwarts of the Bush Administration. (ph)
Sunday, July 15, 2007
The cooperation of former Milberg Weiss partner David Bershad most likely will lead the firm to negotiate a quick resolution of the criminal charges, so the issue becomes whether any other current defendants will cooperate and if the case will be extended to others who worked at the firm, such as Melvyn Weiss and William Lerach. In filing a response to a motion to dismiss the honest services counts of the indictment filed by, among others, former name partner Steven Schulman, federal prosecutors included as an exhibit a short portion of the grand jury transcript of an unnamed broker. The broker testified that Schulman gave him cash payments to provide the names of clients who owned shares of companies Milberg Weiss was considering suing so they could act as lead plaintiffs. The payments, which consisted of packs of hundred dollar bills, were made in restaurants at a Howard Johnson or Holiday Inn in Newburgh, New York, by passing the money underneath the table -- I'd hate to think what else might be found under there.
It's not entirely clear what law Schulman might have broken in making the payments, although paying cash to a broker to obtain clients is questionable. It would not be a scheme to defraud the brokerage firm, nor would it be a fraud on the class of plaintiffs because the case had not been filed. It is certainly unethical to pay a person, particularly a non-lawyer, for clients. As with many other charges in the case, however, representations were made to the court about the representative plaintiff and the lawyer's role in the matter, so the payments could be part of a broader fraudulent scheme. Regardless of whether the payment is illegal in itself, it does not put Schulman in a very good light and is consistent with Bershad's plea agreement about the use of copious amounts of cash in connection with the class actions.
A post on the CAL LAW Legal Pad blog (here) speculates that prosecutors are looking into payments to an expert witness used by Milberg Weiss to establish damages from the alleged misconduct as a possible avenue for charging Lerach. The expert is in prison on an unrelated fraud charge, so he won't be an effective witness. But if the payments can be traced through others, or if Lerach made or authorized false statements to the court that the expert did not receive a contingency fee, which is prohibited, then a perjury or criminal contempt charge could be brought. (ph)