Sunday, June 26, 2005
The Milberg Weiss firm, in its various incarnations, is one of the leading plaintiff securities class action and shareholder derivative firms in the country. The firm and William Lerach, once a name partner and now the lead partner at Lerach Coughlin Stoia Geller Rudman & Robbins, may be the unindicted coconspirators in the prosecution of Seymour Lazar for accepting kickbacks in connection with his service as a representative plaintiff in various civil cases (see earlier post here). The indictment refers to "a New York law firm with principal offices in New York and California," which certainly is a description of Milberg Weiss before it broke up in May 2004. Milberg Weiss had represented Lazar as one of the representative plaintiffs in class actions, including Churchill Village LLC v. GE, In re MCA Shareholder Derivative Litigation, In re Xerox Corp. Securities Litigation, and In re Biogen Securities Litigation; the firm also represented the plaintiffs in a class action against Hertz in California in which one Adam Lazar was the named plaintiff (Lazar v. Hertz Corp.). An article in The Recorder (here) states that the government is trying to pressure Lazar, who is accused of using family members in addition to himself as the representative plaintiff, to cooperate against Milberg Weiss and Lerach. In a statement, Milberg Weiss asserted that "[w]e are outraged that these allegations have been made against the firm and reject them as baseless." (See AP story here) This case could get a whole lot more interesting, and have a major impact on the securities bar, if some of the leaders of that bar -- who are also large political contributors in the fight against restrictions on class actions -- are linked to improper payments. (ph)
The American Bar Association formed a Task Force on the Attorney-Client Privilege in response to the recent push by the Department of Justice and federal regulatory agencies, primarily the SEC, in demanding that corporations which are the subject of criminal and civil investigations waive their attorney-client privilege and the protections afforded by the work product doctrine and turn over the results of their internal investigations. Of particular concern has been the DoJ's Thompson Memorandum on the principles regarding whether to charge a corporation with a crime, which views waiver of the confidentiality protections as an important sign of the corporation's cooperation in the investigation. The ABA has expressed concern that this will lead to an erosion of the confidentiality protections afforded to the attorney-client relationship. The Task Force Report (here) notes one effect of this perceived erosion:
The Task Force heard consistently the concern that from the perspective of a corporation faced with a legal problem, the willingness to retain counsel and confide candidly and truthfully in counsel will be reduced because of the risk that government agencies, subject to scant internal standards, safeguards and guidelines, may later demand and obtain access to confidential communications with counsel, thereby in turn making those communications accessible to private litigants. Some submit that the perception that corporate lawyers have been, in effect, "deputized" by government agencies to develop evidence for those agencies’ use will not only discourage disclosures but will undermine the trust and confidence in counsel that have historically been recognized as fundamental to an effective attorney-client relationship.
I wonder whether this perception by corporate counsel (in-house and law firms) is in fact what is going on in corporations. If corporate officers are avoiding making disclosures to counsel, then there's no way to know about that because there has been no communication on which to base the perception. The criticism may also miss the mark because corporations are not individuals who can always control the flow of information to an attorney. Corporations communicate with counsel through a number of different officers, and it is unlikely that all would decide to withhold important information at once, unless there were a broad conspiracy of silence to keep counsel in the dark about particular transactions. If that were the case, then it would likely mean the corporation is going down the road to a potentially criminal course of conduct. Whether counsel can stop a concerted effort to violate the law is a difficult question.
The Task Force's Recommendations (here) are so vague that they communicate little to the government beyond a broad admonition to tread lightly. Here's the second recommendation:
FURTHER RESOLVED, That the American Bar Association believes that, although the protections arising from the attorney-client privilege and work-product doctrine may be voluntarily waived in particular instances by the holders of the protections, waiver should occur only under circumstances that do not erode those protections . . .
In other words, waiver should occur only when it is not bad, and waiver should not occur when it is bad. This is hardly an effective position to advocate to the DoJ, which would probably happily accede to such a resolution and state that prosecutors will be scrupulous in avoiding any erosion of the privilege. But that's the whole point, that the Thompson Memo's policy is undermining the privilege and work product doctrine, not just particular instances of waiver. (ph)
The indefatigable Ellen Podgor published an article in the McGeorge Law Review entitled "A New Dimension to the Prosecution of White Collar Crime: Enforcing Extraterritorial Social Harms." The article considers recent prosecutions in which the victim of the criminal conduct was a foreign government:
David McNab and David Pasquantino
wentwere sentenced to prison for very different crimes, but in both cases the laws of another country served as a basis for the United States prosecutions. This Article examines and analyzes the McNab and Pasquantino cases, and in this process considers the issues faced when a prosecution is premised on another country's laws. For example, a key issue in the McNab case was whether the United States correctly interpreted Honduran law. In Pasquantino, the Court struggled with the use of a generic federal statute, wire fraud, to prosecute conduct that violates the revenue laws of another country.
A question explored in this Article is whether a United States prosecution should be allowed when the supposed harm caused by the criminal conduct is predominantly a harm to another country. This Article recommends that extraterritorial prosecutions, including those in the United States that use foreign law, need to give more recognition to the location of the social harm.
The article is available on SSRN here. (ph)
Addendum - Article is being udated on SSRN continually and still is in draft form, Comments and corrections are welcomed. (esp)
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Saturday, June 25, 2005
Joseph Nocera has an interesting column in the New York Times (here) asking whether KPMG will be spared an indictment because the destruction of the firm that a criminal conviction would likely cause would have too great an effect on the public accounting industry. In a twist on the old "too big to fail" theory about whether the government would allow a large bank to fail because of the negative impact on the economy, Nocera asks whether there are too few large accounting firms that can provide the services necessary for publicly-traded companies to allow one to fail. The answer in the banking sector in the early 1990s was that some very large banks failed, such as Bank of New England and First City Bancorp, although the government bailout of Continental Illinois in 1984 certainly gave the appearance of a "too big to fail" decision. Nocera describes KPMG's conduct in peddling tax shelters as "truly reprehensible," but the recent reforms under the Sarbanes-Oxley Act rely on the accounting firms to provide a backstop to ensure companies have adequate internal controls to report their financials properly. Since cutting loose from the tax shelters, and recently hanging a few former partners out to dry by trying to shift blame to them, KPMG has taken a definite turn toward the conservative side in an effort to show it does not deserve the fate of Arthur Andersen. The recent stories about a possible criminal indictment have probably only made the firm more hesitant in dealing with its clients. I wonder whether a gun-shy accounting firm among the Big 4 is what the government really wants. (ph)
The U.S. Attorney's Office for the Central District of California announced the indictment of Seymour Lazar, a 78 year-old lawyer in Palm Springs, for allegedly taking approximately $2.4 million in secret kickbacks from lawyers for plaintiffs in class actions in exchange for serving and causing his family members to serve as named plaintiffs in more than fifty class action and shareholder derivative action law suits over the last twenty years. According to a press release (here):
[T]o conceal the illegal kickback scheme from the courts presiding over such lawsuits, the other parties to such lawsuits, and the absent class members and shareholders whose interests Lazar and his family members purported to represent, Lazar made false and misleading statements in under-oath depositions and in documents Lazar signed under penalty of perjury. The indictment further alleges that the illegal kickbacks were secretly paid to Lazar through various intermediary law firms and lawyers selected by Lazar, who used and applied the kickback payments at Lazar's direction and for his benefit.
Also indicted was Paul Selzer, a lawyer who is accused of being an intermediary for Lazar by funneling payments to him.
A quick check of Westlaw shows that Lazar was one of the named plaintiffs in Churchill Village v. General Electric, 361 F.3d 566 (9th Cir. 2004), a class action by dishwasher owners against manufacturers, In re MCA Shareholder Litigation, 785 A.2d 625 (Del. 2001), a shareholder derivative suit in the Delaware courts alleging a breach of fiduciary duty by the board related to a merger agreement, and Bell Atlantic Corp. v. Bolger, 2 F.3d 1304 (3rd Cir. 1993), another shareholder derivative suit. He was also a plaintiff in In re Concord Holding Securities Litigation, a securities fraud class action for which there is a settlement notice here. It is not clear whether Lazar received any of the alleged payments in connection with these cases, but he is clearly one of the group of "usual suspects" who serves regularly as a named plaintiff in class actions.
Interestingly, one of the issues in the Bell Atlantic case was an alleged conflict of interest for a law firm that represented the defendant corporation and individual defendant-directors and officers. A named or representative plaintiff in class actions and derivative litigation has a fiduciary duty to the other members of the class, or other shareholders in derivative litigation, to ensure that the action is conducted fairly, and there is a strict prohibition on these plaintiffs from accepting anything other than what other class members receive, unless specifically approved by the court. To receive payments from attorneys for the class while serving as representative would be a conflict that automatically eliminates the person from any involvement as the representative plaintiff, and as seen here can result in criminal charges. One of the changes adopted in the Private Securities Litigation Reform Act in 1995 was to alter the method of selecting the representative plaintiff in federal securities fraud actions, requiring that the court choose as the lead plaintiff a party -- often now an institutional investor -- with a large stake the company. This provision was designed to eliminate some of the more unseemly aspects of the "race to the courthouse" among the plaintiff class action firms who kept a roster of potential representative plaintiffs on file. Lazar is charged with taking the process of serving as a representative plaintiff a step further by accepting payments from the attorneys to serve as the named plaintiff, or obtaining a compliant family member, most likely to allow the lawyers to pursue the class action or derivative suit without any interference (or oversight) while getting a cut of the attorney's fees. (ph)
Gene Burd is (or now more likely was) a lawyer who had a personal injury practice in Houston that specialized in cases involving auto accident victims -- do you see where this is going? A press release issued by the U.S. Attorney's Office for the Southern District of Texas (here) provides the following sordid tale of a PI lawyer who matched the caricature of the classic ambulance chaser:
[Burd] pays runners to solicit accident victims and bring the potential clients to his office. He contracts with his clients to make a claim against the other driver's insurance company on their behalf and he agrees to accept 33 percent of the settlement as his fee. Burd's office then refers the client to particular chiropractic clinics for therapy. Some clinic patients are referred to Burd's law office by the clinics.
After the therapy at the clinics is completed, Burd or his office will send a demand to the insurance company. After some negotiation, Burd settles the case and a check is mailed to him from the insurance company. When the case is settled, Burd takes the insurance company's settlement check and deposits it into his attorney-client trust account. He withdraws the money by writing three checks. One check goes to the chiropractic clinic to pay for the treatment. The second check goes to the client. The third check goes to Burd as his legal fee and is deposited into his operating account.
When the chiropractic clinic receives their check from Burd they often deposit that check into a third party account instead of into their clinic's operating account. After the check is cashed in a case in which the patient was referred to the clinic by Burd, the clinic owner meets privately with Burd and returns 40-50 percent of the check to Burd in the form of a cash kickback. Burd keeps the cash and does not deposit it into his operating account. This income received by Burd is never reported on his federal income tax return. The income reported by Burd on his income tax return is only that money that he received from the trust account by check and the salary checks received by Burd from his law firm. The cash kickbacks are not reported.
Burd and the chiropractor each entered a guilty plea to making a false statement on their tax returns related to the income from this little scheme, which netted Burd approximately $686,000 in 1996 and 1997, the years at issue for the tax charge. One wonders why a mail or wire fraud charge was not filed in the case. (ph)
Former IRS Criminal Investigation Division Agent Joseph Banister was found not guilty of assisting taxpayers in filing false tax returns. Banister is well-known in the tax protester movement for his statements that the tax laws are unenforceable. The charges relate to so-called "protest returns" filed by Banister's clients, which dispute whether any tax is owed. Banister himself was not charged with failure to file taxes, and the government failed to prove that his conduct knowingly assisted his clients in filing false tax returns. Although Banister was acquitted, one of his clients, Walter Thompson, was convicted of tax violations in an earlier trial and is serving a six-year term of imprisonment. With the tax protester movement, acquittals or convictions are not always the benchmark. A New York Times story (here) discusses the Banister case. (ph)
UPDATE (6/25): Check Paul Caron's post on the Tax Prof blog (here) for additional information and links to information on Banister's place in the tax protester movement. (ph)
Friday, June 24, 2005
The fraud statutes, particularly the mail and wire fraud statutes, have an elasticity that allows them to be used irrespective of the specific form of fraud. It is, therefore, always interesting to see how different parts of the country use the statutes. In a post of the US Attorney's Office of the Southern District of Florida here we see an individual being "charged by Information in federal court in West Palm Beach, Florida with one (1) count of wire fraud." The alleged activity involved is what I would call - the type of fraud one might find in Florida, as opposed to a state in a colder climate (at least most of it). The alleged fraud is described in the press release as:
"defrauded certain investors by telling them that the money they invested with her would be used to purchase the contents of estate sales, which contents could be quickly resold for a substantial profit. In fact, however, [this individual] did not use the investors’ money to purchase estate sales items. Instead, [she] used money that had been paid to her by the investors for her own personal use and to operate her own company, the [company] which was in the business of promoting women’s surfing, skateboarding and snowboarding competitions."
Well the estate sale, and the surfing at least sounds like Florida.
It is common knowledge that many prosecutors and investigators use a strategy of working up the ladder in pursuing criminal conduct. Start with low level figures and work up to the bigger player. Thus, in Scrushy's trial we saw a parade of managers testifying against the top man in the company. The success for the government in this particular case remains to be seen.
But sometimes a prosecutor will go after the lower level individual. The NYTimes has an article here titled, For Some, Just Following Orders is a Good Defense, that presents some interesting commentary on white collar strategy through an examination of the NY AG's unsuccessful prosecution of Sihpol.
The bottom line, though, is that each investigation and prosecution can have its own idiosyncrasies and a cookie cutter recipe may not apply to all cases.
Thursday, June 23, 2005
It is hard to imagine that Dennis Kozlowski would have thought that the letter he wrote against someone facing sentencing, would one day be used to evaluate his sentence. The letter, according to CNN here, was written 10 years ago and recommended that a former assistant controller at Tyco, who was being sentenced at that time, receive the maximum. In the letter, Kozlowski said that "stealing from a company is 'a particularly egregious crime.'"
There is no doubt that this is a pretty damaging statement for Kozlowski, who now faces sentencing for crimes that might be characterized as "stealing from a company." Two things come to mind here:
1. Did the jury see this letter, and would the letter have demonstrated a lack of intent to commit the crimes which Kozlowski was charged with?
2. What is the individual who had this letter to contend with at his sentencing (CNN says he was "sentenced to 20 years in prison but was released four year later in 1999") thinking right now?
The Dallas Morning News here reports on how an FBI investigation into possible corruption at city hall is affecting the city council. This is understandable as investigations into city or state corruption can be very disruptive. For one, investigations of this nature usually include search warrants and/or requests for documents. Individual employees may need to refocus their everyday duties into securing material for the federal investigation. It also brings into play certain fears when individuals are uncertain who may be talking with agents and who may be wearing a wire and taping a conversation. And perhaps the biggest concern among people who may have worked side-by-side for years is -- who will be indicted and who will go to jail.
"Business as usual" may come to a halt. But of course a key question is - what was that "business as usual" and was it legal?
From a federal-state perspective, one always has to question whether there was a need for the federal government to intervene in state activity. This often happens because the state is unable or unwilling to prosecute the local activity, sometimes for political reasons and sometimes because they do not have the expertise or funding to pursue the alleged criminality. But it is also necessary to examine if it is appropriate for a federal agency to monitor the particular conduct that might be in question, and whether a federal violation has in fact occurred in order that the appropriate balance between federal and state governments be maintained. Courts can serve as a good check here.
But whether it is a corporation or a political body, it is certain that when the feds come in, it is disruptive to "business as usual."
Doug Berman's Sentencing Blog has some wonderful posts here, here, and here on AG Gonzales' recent "prepared remarks" on the need to reactivate mandatory guidelines with a "minimum guideline" system. (see here).
The one ( see addedum below) A reference to white collar cases is found in the AG's statement that:
"In a case involving white collar crime, a Kansas rancher got 1.8 million dollars in cattle loans, falsely claiming that he was using the money to buy live cattle. He even took bank officials to livestock pens and claimed that the cows he was showing them were purchased with loan proceeds, when, in fact he lost all the money speculating on the cattle futures market. He pled guilty to defrauding the bank and faced a sentencing range of 37 to 46 months under the guidelines. But the judge gave him probation only, reasoning, in part, that the defendant had suffered enough when the bank foreclosed on his house. "
Like Professor Berman, I am troubled by the AG's desire to place restrictions of this nature on the judiciary. But what is perhaps most fascinating is having the AG being upset with a white collar case, a case in which a court was thoughtful enough to consider the collateral consequences that often occur in white collar cases, on the very day following a court handing down 15 and 20 year sentences in a white collar case, one sentence of which went to an 80 year old man. (Rigas' sentences here).
And oddly enough these "prepared remarks" of the AG come on the very same day that sentences of two HealthSouth execs were vacated, on the government's appeal, because a rationale for the reduced sentences was not provided. (see here).
It seems obvious here that we have a DOJ leader that is not happy that he does not have control over all the cards in the deck. He states in these "Prepared Remarks" that:
"Under the sentencing guidelines, defendants were only eligible to receive reductions in sentences in exchange for cooperation when the government petitioned the court. Under the advisory guidelines system, judges are free to reduce sentences when they believe the defendant has sufficiently cooperated."(emphasis added).
What does this mean? It means the AG is now forced to share some of the exclusive power his office held in sentencing, with members of the judiciary. DOJ when they don't like a sentence are now placed in the same position as defendants have always been in, appealing that decision to a higher court. And in some cases they will be successful on appeal as indicated in the HealthSouth exec case, and in other instances they may fail.
Giving all the POWER to one branch, however, and specifically one office here (DOJ), is not the answer. The answer is for there to be a proper balance of power between all three branches. It is important for Congress to remember the words of James Madison of Feb. 1, 1788:
"The accumulation of all powers, legislative, executive, and judiciary, in the same hands, whether of one, a few, or many, and whether hereditary, self appointed, or elective, may justly be pronounced the very definition of tyranny. Were the federal Constitution, therefore, really chargeable with the accumulation of power, or with a mixture of powers, having a dangerous tendency to such an accumulation, no further arguments would be necessary to inspire a universal reprobation of the system. "
Addendum - Doug Berman appropriately points out that the AG also mentions a white collar tax case where the defendant's sentence was modified post Booker due to "the defendant's age and the need to take care of his wife – not normally relevant sentencing factors pre-Booker – now justif[ying] a lesser sentence." Again my response is - if you don't like it appeal -- just like defense attorneys have to do all the time. Just maybe, factors like age and family responsibilities are important to society and punishment theory. After all, are we punishing the individual or his or her family?
Now that the jury, in the trial of Richard Scrushy, has to resume deliberations "anew" because of the replacement of a juror with an alternate - - what happens next? The NY Times here, Wall Street Jrl here, and Birmingham, Alabama News here, all talk of the long process that has accompanied the deliberations. The NYTimes even includes a detailed hourly summary of the deliberation process (see here) But the effect of a new process and new individual as a part of the process is truly an unknown.
If the jury was 11-1 for a verdict and the one holdout for a particular view was the dismissed juror, then we may see some quick action. But if the votes are split further than that, this replacement may not be as consequential to a speedy resolution as some might want. (unless the juror is a master at negotiation or advocacy and can convince the others to come around to a position). Because of the secrecy of the jury process, we really will not know the full extent of what has occurred in this deliberation, until perhaps it is over. And it is possible that we may never know.
Some may not agree with the slow process of this trial and the failure to have fuller days of deliberation, but the judge's response to this criticism is important. The judge recognizes the sacrifices being made by jurors. (see here) and in doing so she is considering not merely the accused, but also the costs to everyone when the government proceeds to trial. I guess slow justice isn't super, but I'm still bothered by the lightening speed of the "other southern jury" that worked through Memorial Day and Weekend (see here).
Wednesday, June 22, 2005
U.S. District Judge Karon Bowdre sent the jury in the prosecution of Richard Scrushy back to the beginning by replacing a juror, whose recent health problems had caused the jury to miss three days of deliberations, with one of the alternates alternate. Federal Rule of Criminal Procedure 24(c)(3) (here) provides in part that "[i]f an alternate replaces a juror after deliberations have begun, the court must instruct the jury to begin its deliberations anew." The judge kept alternate jurors available, which is permitted under the same Rule although not required, in case of this very situation in which a juror would need to be replaced, . I suspect that while the deliberations have been painful for the jurors, the wait for the alternates must be excruciating because Rule 24(c)(3) also states that "[t]he court must ensure that a retained alternate does not discuss the case with anyone until that alternate replaces a juror or is discharged." Is being an alternate on this jury cruel and unusual punishment? An AP story (here) discusses the judge's ruling replacing the juror. (ph)
A working paper on the Parmalat case was recently added to SSRN here. It is titled Financial Scandals and the Role of Private Enforcement: The Parmalat Case. Authors Guido Alessandro Ferrarini and Paulo Giudici authored this piece that is described in the abstract as follows:
"Coming shortly after the Enron and WordCom scams, the Parmalat scandal offers a good opportunity to compare failures on both sides of the Atlantic. In this paper, we start by tracing Parmalat's history and describe the frauds and the criminal proceedings and civil actions that followed the company's collapse both in Italy and the US. We then focus on Parmalat's governance and gatekeepers, and argue that gatekeepers are substantially undeterred in Italy because of poor enforcement rather than legislative black holes. In fact, law on books, in particular the civil law concerning auditors, is even more severe than common law. We subsequently analyse the causes of under-enforcement and the reasons why Parmalat generated litigation in the US rather than Italy. Drawing from economic analysis, we explain the role of private enforcement and consider the benefits of class actions. In this respect, we emphasize the importance of discovery and pleading rules. We also find that the interplay between public and private enforcement is missing in Italy and argue, by way of conclusion, that US securities regulation was transplanted into Continental Europe without sufficient modernisation as to civil procedure in the area of mass claims and complex litigation."
Dr. Roger D. Blackwell, a professor of marketing at Ohio State University, was convicted of 14 counts of insider trading, conspiracy, and obstructing an SEC investigation into trading in the securities of Worthington Foods through the use of information he gained while a member of the company's board of directors. Two other defendants convicted were an employee of his consulting firm, Roger Blackwell Associates, Inc., and her husband. A Blackwell Associates website (here) describes Dr. Blackwell:
Roger Blackwell was named "Outstanding Marketing Educator in America" by Sales and Marketing Executives International and "Marketer of the Year" by the American Marketing Association. He also received the "Alumni Distinguished Teaching Award", the highest award given by The Ohio State University. After 30 years at the university and recently receiving two additional teaching awards, his depth of knowledge and enthusiasm for teaching still make him a favorite among students.
A press release issued by the U.S. Attorney's Office for the Southern District of Ohio (here) states that the judge ordered Blackwell to post a $1 million cash bond within 24 hours to remain free until sentencing. An SEC civil insider trading suit against Blackwell and others (complaint here) filed in January 2003 alleges that the defendants made $245,000 from trading in Worthington Foods based on a proposed acquisition of the company.
A check of the Ohio State University marketing department website (here) notes that Dr. Blackwell received "the 16th Annual Mortar Board and Sphinx Faculty and Staff Recognition event held Mar. 8, 2005. Students who are senior honorees nominate university personnel who made a difference in their lives on campus. Douglas Hange, stated that Dr. Blackwell's '. . .ability to give real-world examples relating to business and marketing help to make class concepts come to life.'" An insider trading conviction certainly is a real-world example.
Dale Oesterle on the Business Law Prof blog, who is also on the Ohio State University faculty (in the law school, not the business school), has an interesting post (here) on Blackwell's role on the campus. (ph)
MassMutual fired CEO Robert O'Connell on June 2 after an investigation triggered by a complaint by his wife about an affair he was allegedly having with another executive that came to the attention of the board of directors. The investigation turned up evidence that O'Connell engaged in unauthorized trading in a supplemental compensation account, bought a condominium in Florida at a development financed by MassMutual at a below-market price, and misled the California Insurance Department about the transaction. In response to the termination, the Massachusetts Attorney General and Secretary of State William Galvin initiated investigations, and MassMutual filed a copy of the termination letter given to O'Connell with a state court as part of a filing resisting a subpoena issued by Galvin's office. The letter details what the board concluded was "a systematic and pervasive pattern of willful abuse of authority" that included causing the company to make large severance payments to employees for what the letter called "personally motivated and retaliatory terminations."
In addition to his executive position, O'Connell was also a member of MassMutual's board of directors, and there is meeting of the board on June 22 to determine whether to remove him for cause. O'Connell plans to fight his removal, according to a Boston Globe article (here), which also discusses the termination letter. In a publicly-traded company, the right to remove a director is usually reserved to the shareholders, but as a mutual insurance company, MassMutual's board holds the authority to remove directors. This promises to be an ugly fight for both sides, and with ongoing civil and criminal investigations, the matter is unlikely to be resolved for some time. (ph)
Timothy Van Susteren, a former associate dean at the University of Florida, entered a guilty plea to a wire fraud charge that he diverted $120,000 that was supposed to be paid to the University as support for medical education programs it conduct. Van Susteren had the vendors send the checks to his home and then deposited them into his personal account -- no one said working for a university makes you good at committing a fraud. Van Susteren resigned from the school in October 2004 after an internal audit turned up the discrepancy in the program. An AP story (here) discusses the guilty plea.
Tuesday, June 21, 2005
Former HealthSouth CFO Michael Martin-- one of the Five Guilty CFOs who testified against former CEO Richard Scrushy -- and former senior vice president for tax Richard Botts had their sentences vacated and remanded for resentencing by the Eleventh Circuit in two unpublished opinions that employ the same language and reach identical conclusions (Martin here and Botts here). Martin entered a guilty plea in June 2004 to one count of conspiracy to commit securities fraud and one count of filing false financial statements with the SEC, and under the Sentencing Guidelines his offense level was 31, which called for a sentence of 108-135 months. The government filed a 5K1.1 motion and asked Chief U.S. District Judge U.W. Clemon to sentence Martin to a 60-month term of imprisonment. Instead, the judge sentenced Martin to 60 months probation, with six months home confinement, by granting a 21-level downward departure. Botts entered a guilty plea to conspiracy and mail fraud charges in August 2003, and although the offense level under the Guidelines was 34, which would result in a sentencing range of 151-188 months, the statutory maximum for the crimes (at that time) was five years, so his sentence was capped at 60 months. The government made a 5K1.1 motion and asked for a 40-month term of imprisonment for Botts, but Chief Judge Clemon sentenced Botts to 60 months probation, with six months home confinement, by granting a 26-level downward departure. The government appealed both sentences, and the appellate court remanded them because the judge provided no written or oral statement supporting what the Eleventh Circuit termed "this extraordinary departure" in both cases, rendering the sentences "incapable of meaningful appellate review."
On remand, Chief Judge Clemon can give each the same sentence, and both have served the term of home confinement, a point played upon quite heavily by Scrushy's defense counsel in cross-examining each. The judge will, however, have to give reasons for the departures that relate to permissible factors under the Guidelines, and the sentence will be subject to appellate review for reasonableness under Booker. (ph)