Friday, September 30, 2005

Pleas of Fraud & Conspiracy for founders in Bayou Group Case

Two key players in the Bayou fiasco are pleading guilty, but there are still many questions as to where the money can be found.  In the New York Times here it tells the story of the two founders pleading guilty to fraud and conspiracy counts. Interestingly, the NYTImes reports that they were released until sentencing and given two weeks to come up with bail money.  Parts of the sad story, with a suicide note and continual fraud can be found here. This, like so many cases, has no winners.

The USAttorneys Office notes here that the Informations against the defendants "contained criminal forfeiture allegations seeking the forfeiture of $ 450 million."  Sentencing is set for January 9, 2006. 


September 30, 2005 in Fraud | Permalink | TrackBack (0)

Should DeLay Have the "Perp Walk"

According to CNN here, DeLay has to appear in Texas Court to answer to the charge against him.  The question is will he be escorted using a civilized manner, or will the State of Texas replicate a practice used by the feds of having the white collar accused facing a "perp walk."  The one benefit of giving DeLay the "perp walk" treatment is that he might see what faces individuals accused of crimes.  Perhaps it might provide some basis for change in the system if he is exonerated of this charge. For right now, CNN reports that Tom DeLay's attorneys are trying to "spare him the humiliation of being handcuffed, photographed and fingerprinted."


September 30, 2005 in Prosecutions | Permalink | TrackBack (0)

Judith Miller Released From Jail

According to the NYTimes here, reporter Judith Miller has been released from prison after 12 weeks.  It seems that after 12 weeks, her confidential source is now providing her with a sufficient waiver of the privilege.  Should this have happened earlier? Does it make a difference if the source turns out to be part of the administration?  If the source has a tie to the administration, how could this have happened? Or was a waiver previously given, and if it was - why did she spend 12 weeks is prison?


September 30, 2005 in Media | Permalink | TrackBack (0)

More on Pardons

Margaret Colgate Love, who served as US Pardon Attorney for seven years, comments on the recent Bush pardons and offers a suggestion to obtain change:
"There's not a lot to say about these particular pardon grants - like all but one of Bush's 58 pardons, they appear pretty unremarkable, granted to ordinary people convicted of garden variety crimes, generally quite minor and at least ten years in the past.  Most of the recipients did not even serve a prison sentence, and there are few drug convictions among them.  (The only unusual Bush pardon grant  went about 18 months ago to David McCall, a Texas politician whose deathbed petition was hurried through the application process in three days.)
"Note that these are all post-sentence pardons.  President Bush has granted only two commutations, in May of 2003, to two otherwise unremarkable people who were old and sick, had served at least ten years each, and were both within six months of release in the ordinary course.  (These two grants have always mystified me, though perhaps it is significant that they came a few weeks after Bush was criticized in a news article as having granted no commutations at all.)   
"What I think is more significant about the 14 pardons off September 28 is that they appear to confirm a return to regular and frequent pardoning that had characterized federal practice until the Clinton administration. President Bush has issued five pardon warrants since November 2004, one every two months.  Each warrant grants pardon only to a handful of people, but the very fact that they are being issued in such a regular, low-key and noncontroversial manner gives me hope that as his tenure comes to a close he will pick up the pace, and that a presidential pardon will once again become something that all deserving people can hope to obtain. 
"As it is, however, the pardon power cannot be relied upon as a source of relief from the collateral consequences of conviction in the same way it was under presidents prior to Ronald Reagan.  There are now more than 800 pardon applications awaiting action by the President, some of which were filed as long ago as the Clinton administration, and many of which are just as deserving as those that were granted.  Presumably many have died while standing in line.
"The reason it is important for federal pardons to become a realistically available remedy is that pardon is now the only way that federal offenders can avoid or mitigate collateral penalties and disabilities that are imposed automatically upon conviction, some of which arise under federal law, but most of which are contained in state codes and administrative practice.   Many states that have a similarly ineffective pardon mechanism have  been developing alternative ways to help rehabilitated offenders escape these burdens of conviction, as well as the stigma that prevents many people from reintegrating into society after the court-imposed sentence  has been fully served.  But there is no federal exungement or set-aside procedure, and no administrative certificate of good conduct.  (My study of state and federal pardoning and other relief mechanisms will be published by William Hein later this fall - but a preview is available on the Sentencing Project website. See
"Let us hope that President Bush will make more of his pardoning power in the months ahead, for he has received only encouragement from the press, and no criticism at all from the political opposition.  Perhaps if more people applied for pardon, the importance of making pardon an integral part of the justice system would be underscored.  In addition, perhaps Congress would consider enacting an alternative mechanism for restoration of rights and relief from disabilities for federal offenders. Last year the ABA House of Delegates approved a recommendation of the ABA Justice Kennedy Commission urging federal and state governments to expand the use of clemency, and calling upon bar associations “to establish programs to encourage and train lawyers to assist prisoners in applying for pardon, restoration of legal rights and privileges, relief from other collateral sanctions, and reduction of sentence.” I don't know that any bar associations have done so, but perhaps we will see a response from individual lawyers.  If every lawyer who reads this blog took just one pro bono federal clemency case, we would flood the system and official Washington would have to pay attention!"



September 30, 2005 in Sentencing | Permalink | TrackBack (0)

Thursday, September 29, 2005

New Pardons

If you wanted presidential pardons to go unnoticed, when would you issue them? 

On the same day as the DeLay indictment, President Bush issued 14 pardons.  Oddly enough, these pardons are not the usual ones we have been seeing from the white house (see here). This time you'll find a pardon in a case involving a "conspiracy to distribute cocaine," the "unlawful possession of an unregistered firearm," and "selling quaalude tablets."

Of the 14 cases, only four appear to be white collar type cases.  These include a case of  "conspiracy to commit mail fraud and mail fraud," "making materially false statements to a federally-insured institution," "making counterfeit Federal Reserve notes," and "embezzlement by a bank employee."  Perhaps the most fascinating part is that many of these cases had sentences issued prior to the enactment of federal sentencing guidelines, and prior to the increased sentences we have been seeing lately. Could one conclude that pardons are going to individuals who need them the least?

(esp) (W/ thanks to Peter Goldberger for alerting us to the issuing of these pardons)

September 29, 2005 | Permalink | TrackBack (1)

The Indictment of Tom Delay

By now everyone is aware that House Majority Leader Tom DeLay has been indicted. (see here and here).  The indictment is here. The indictment has led to DeLay having to step down from his position as majority leader. (see here).  This is not a federal indictment, but rather a Texas grand jury that issued the indictment.  It is an indictment from Travis County, Texas. And not surprising, DeLay was immediately critical of the prosecutor who brought this case.  The prosecutor must have anticipated some allegations of political partisanship as the indictment even includes as an exhibit, a check made out to the Texas for A. Republican Majority PAC.  Perhaps the most fascinating aspect of the indictment is that it has DeLay waiving the statute of limitations.  But for this waiver, would this indictment have been able to have been brought now?  DeLay's attorney is Dick DeGuerrin.  (See Washington Post here) If this case goes to trial, it will certainly be one to watch.


September 29, 2005 in Prosecutions | Permalink | TrackBack (0)

First Parmalat Trial Begins

The first Parmalat trial started, and don't expect it to be ending anytime soon. CNN Money reports here of the long list of witnesses and the testimony that can be expected in this trial.


September 29, 2005 in International | Permalink | TrackBack (0)

Wednesday, September 28, 2005

Indictment Can Be A Relief

For some who are accused of a white collar crime, the indictment can be a relief -- it serves as the end of what might have been a long investigation.  Investigations, and the uncertainty of not knowing the future, are often difficult to handle for individuals who may be used to being in control of a situation.  So, as odd as it may seem, some who are accused and indicted welcome the actual formalization of being charged with a crime.  They see this as a step in the direction of clearing their name.

The Washington Post reports here  of a major developer in DC who upon being charged with bribing a city official states that he is "elated that this is moving forward." Douglas Jemal, the Washington developer who was indicted says that his business has not been hurt by this investigation. Others, however, may not be so fortunate.  Often the cloud of an investigation can be detrimental to the business continuing to operate in a smooth fashion.

In this case the developer was indicted, along with two other individuals, with charges that include "conspiracy, bribery, and fraud."  The indictments come after a former deputy director of the D.C. Office of Property Management plead guilty and agreed to cooperate with the government.


September 28, 2005 | Permalink | TrackBack (0)

A $500,000 Fine for a Major Company

According to a press release here of the U.S.Attorneys Office for the Northern District of California, a major international company, "A.P. Moller-Maersk, A/S of Denmark (“Maersk”) pleaded guilty today to providing false documents to the U.S. Coast Guard" resulting in a fine of $500,000 and an agreement to abide by an environmental compliance program.  The fine is the maximum fine allowed by law for this offense, a violation of 18 U.S.C. s 1001. 

The press release states that

"[t]he government’s investigation began on May 25, 2004, when members of the U.S. Coast Guard Marine Safety Office discovered waste oil in the overboard piping of the M/V Jane Maersk during a routine inspection.  Further investigation by the Coast Guard and U.S. Environmental Protection Agency’s Criminal Investigation Division also uncovered evidence of false entries made in the Oil Record Book (ORB), a document required by MARPOL, a treaty ratified and implemented by the United States and other countries."

One individual previously plead guilty and received a sentence of four months community confinement for "destroying records, in violation of 18 U.S.C. § 1519."   

Interestingly, the press release says at the bottom that "[t]he prosecution is the result of a 15 month investigation by the U.S. Coast Guard Investigative Services and the U.S. Environmental Protection Agency Criminal Investigation Division, with assistance from the Coast Guard Pacific JAG Office."


September 28, 2005 in Environment | Permalink | TrackBack (0)

Culpability: French Style

It is not often that one sees an individual charged with a crime like manslaughter for white collar type activity.   But the Wall Street Jrl reports here that the French are looking at this possibility against the "former head of the Concorde program" who has been "placed under investigation."   This does not necessarily mean that charges of manslaughter will be filled against him, but it appears that the investigation is moving in this direction. This investigation is an outgrowth of the "fatal July 2000 crash at Paris's Charles de Gaulle airport."


September 28, 2005 in International | Permalink | TrackBack (0)

Illegal Campaign Contribution Charge

The New York Times reports here that "the first black Democratic Party leader in Brooklyn," who was an assemblyman for 23 years, was convicted in a New York State Supreme Court of  violating campaign laws of New York State and  "falsifying business records" of campaign contributions.


September 28, 2005 in Corruption, News, Prosecutions | Permalink | TrackBack (0)

Tuesday, September 27, 2005

Taser Inc. Faces SEC Investigation

Taser, Inc released a press release here that tells of an expanded probe by the SEC.  "TASER International, Inc. provides advanced electronic control devices for use in the law enforcement, military, private security and personal defense markets."  According to the release it states:

"the previously disclosed ongoing Securities and Exchange Commission inquiry regarding TASER International, Inc. is now a formal investigation giving the SEC subpoena power to obtain documents and testimony from all relevant parties. The Company further understands that the investigation has been expanded to now include examining the possible unauthorized acquisition of material non-public information by individuals outside of the Company in an effort to manipulate the Company's stock price."

The company assures readers that it will cooperate with the investigation and provide requested materials.   See also Wall Street Jrl here.   

September 27, 2005 in Securities | Permalink | TrackBack (0)

"Operation CopyCat" Plea

You may want to leave your camcorder at home if you plan on going to a movie.  And if you do decide to bring it with you, well think about keeping it off.  And even if you do have it turned on, whatever you do - don't record the movie - and worse yet, don't sell it. And if you are employed by the movie theater then clearly you would be expected to know better then to record it and then sell it.

So its not surprising to see a plea agreement when someone is accused of such conduct.

The United States Attorney's Office for the Northern District of California issued a press release here reporting on a plea being entered by a 19 year old for "two charges under the recently enacted Family Entertainment Copyright Act."  As part of "Operation Copycat" an employee of a movie theater who worked in the box office and as a cashier in the concessions decided to hook up a camcorder to obtain two movies being shown in St. Louis, Missouri.  The press release states:

"The count relating to camcording in a movie theater involves one of the provisions of the ‘Family Entertainment and Copyright Act of 2005,’ which President Bush signed into law on April 27, 2005. The camcording activity concerns a violation of the ART Act (‘Artists’ Rights and Theft Prevention Act of 2005') provision, which criminalized the use of recording equipment to make copies of movies in movie theaters. The statute also prohibits making a commercially distributed movie available on a computer network accessible to members of the public, when the individual knew or should have known that the work was intended for commercial distribution. The prosecution represents the first use of these provisions of the ART Act by federal prosecutors."

The press release notes that "Operation Copycat is the local and largest part of the coordinated international law enforcement action known as Operation Site Down, which is targeting online piracy."


September 27, 2005 in Computer Crime, Investigations, Prosecutions | Permalink | TrackBack (0)

How Do You Steal 2 Million from a School District?

It is truly hard to imagine that anyone could steal 2 million dollars from a school district.    One would think that someone might notice. One would also think that the school district would have some oversight mechanism in place to avoid this from happening. Or maybe they did.   

The NYTimes reports here that the "former Roslyn schools superintendent" pleaded guilty for stealing money for over six years.  According to Newsday here, the former superintendent pleaded to grand larceny in an agreement that will require him to pay back the money and also spend from 4 to 12 years in prison. Part of the plea appears to include cooperation in an ongoing investigation. Perhaps the cooperation will unravel how this could possibly have lasted so long and allowed for so much money to be misused.  Prosecutors normally start at the bottom and work their way up in an investigation.


September 27, 2005 in Corruption, Fraud, News, Prosecutions | Permalink | TrackBack (0)

A Different Kind of Steroid Investigation

The investigation of the improper use and selling of steroids has been a recent conversation with respect to sports figures (e.g. here). But the sports arena is not the exclusive place for this conversation.

According to the St. Petersburg Times here five corrections officers in Florida have been charged  related to improprieties with respect to steroids and the investigation has now moved to "state prison officials." 


September 27, 2005 in Investigations | Permalink | TrackBack (0)

Monday, September 26, 2005

Connections - Tyco, Abramoff, & Rove

What do Karl Rove, Jack Abramoff, and Tyco have in common? 

The Washington Post reports here that Abramoff  "bragged" about being in touch with Rove about a company that now turns out to be Tyco. To make matters worse, "Timothy E. Flanigan, general counsel for conglomerate Tyco International Ltd., said in a statement to the Senate Judiciary Committee last week that Abramoff's lobbying firm initially boasted that Abramoff could help Tyco fend off a special liability tax because he 'had good relationships with members of Congress,' including House Majority Leader Tom DeLay (R-Tex.)."   

With Kozlowski convicted and Abramoff awaiting trial, all in unrelated matters, will this new revelation play a factor in where some investigations might lead. 


September 26, 2005 in News | Permalink | TrackBack (0)

Working While Under Indictment

How do you support yourself when the government has charged you with a crime?  That can be a significant issue for defendants in white collar cases who do not have employment agreements with companies that provide for payment of attorney's fees and maybe even permit the executive to be on paid leave while the charges are pending.   The Department of Justice takes a dim view of such arrangements in its Thompson Memo, and for those defendants with no safety net, the need to continue working to pay for the legal defense is paramount.  A short item in the New York Times (here) notes that R.J. Ruble, the only non-KPMG partner indicted for sales of abusive tax shelters by the firm (he is alleged to have provided the legal opinions supporting the sales -- indictment here), has a tax consulting business.  His website,, is a fairly bare-bones affair, with some short tax notes he has written and a little bit of his background.  The "Background" page states that Ruble has 30 years experience in tax matters, and that he is "a federal income tax generalist; if there can be such a thing in this day and age."  No mention is made of any specific law firm experience or types of transactions on which he worked.

It is an interesting question whether Ruble should reveal his current situation on the website, which is a means of attracting clients, although such sites are usually not all that successful in that regard.  Like any advertising material, so long as it is not false and meets the other requirements of the ethical rules, I don't think he would have to disclose that he has been charged with a crime -- that whole presumption of innocence thing.  If a client hires him as an attorney, then I think he would have a fiduciary and professional responsibility to explain his current situation, and perhaps that he was terminated from his law firm (Sidley, Austin) for his involvement in tax shelters.  A client has a right to know that the attorney may lose his license to practice law if a criminal conviction results from the charges, at least for a period of time and perhaps permanently.  That disclosure may have the effect of driving away potential clients, and the publicity from the indictment could have made it impossible for Ruble to serve as a tax adviser because clients fear his name will attract the attention of the IRS, a prospect few wish to court.  Regardless of the outcome of the KPMG-related tax cases, it has likely ended the careers of all the individuals charged as tax practitioners. (ph)

September 26, 2005 in Legal Ethics, Prosecutions, Tax | Permalink | TrackBack (0)

Senator Frist's Blind Trusts

In addition to seeking information from HCA, Inc., federal prosecutors in the U.S. Attorney's Office for the Southern District of New York and attorneys from the Enforcement Division of the SEC have contacted Senate Majority Leader Bill Frist's office for information related to the sales of HCA stock in so-called "blind trusts" that held assets in his name, and for his wife and children.  With the parallel investigations, Senator Frist may be asked to testify under oath before the Commission staff and federal prosecutors, and could even be subpoenaed to testify before a grand jury in Manhattan.  An AP story (here) notes that at one time, Senator Frist stated about the trusts that "I have no control. It is illegal right now for me to know what the composition of those trusts are. So I have no idea." I'm not sure where he got the idea that it is illegal, although the Senator may simply have meant it would be a violation of the trust agreement for him to be involved in investment decisions.  It's hard to think of a crime involved just from his directing the sale of assets (leaving aside possible insider trading), unless he were to have taken trust assets improperly, which certainly does not appear to be the case.  Whether his conduct is proper under the trust instrument is largely irrelevant to the DOJ and SEC investigations, which will focus on any leaks of information from the company.  Given the volume of stock sales by other HCA executives around the same time as Senator Frist's sales, it may be difficult to track down any improper disclosure of information, but investigators from those offices have not shied away from tough cases in the past. (ph)


UPDATE: A New York Times article (here) discusses how blind the trusts are under Senate disclosure rules. (ph)

September 26, 2005 in Grand Jury, Insider Trading, Investigations | Permalink | TrackBack (0)

Corporate Governance at Corinthian Colleges

Corinthian Colleges, Inc., a for-profit, publicly-traded higher education company, has run into a bit of a rough spot in the cutthroat world of attracting an expanding number of students to its programs.  Among other things, in its recently filed 10-K report (here), the company noted a recently concluded Department of Education investigation:

As previously disclosed, the U.S. DOE conducted a program review at our Bryman College in San Jose, California in December 2003. Shortly thereafter, that school was placed on reimbursement status by the DOE. On September 22, 2004, the Company announced that the DOE had returned the campus to the advance system of funding. As required by the DOE, the Company delivered a written response to the program review on December 14, 2004. On May 12, 2005 the Company announced that it had received a Final Determination Letter from the DOE that resolved the program review. The Final Determination Letter required the return of a net amount of approximately $776,000 to the DOE, the Perkins Fund and Federal Family Education Loan program lenders. No fines or penalties were assessed, and the institution’s continued eligibility to receive Title IV student financial aid funds was not affected. The payment did not have a material adverse impact on the Company’s financial condition or results of operations.

Now, a member of the company's board of directors resigned and fired a shot across management's bow regarding the board's lack of control over how the company is run in his resignation letter.  Michael Barry's letter (here) discloses his view of problems besetting the company, including the following:

We are out of control on both the revenue and cost management side of our business, and it is attributable to several factors. Our past success was due to our acquisitive business model. Our present failure is due to the fact that we have not shown the ability to manage those acquired, multiple assets (schools) in our portfolio other than WyoTech. That is due to many factors, not the least of which is a very weak field organization.

I fear we are a company that has lost its focus on its core mission and equally importantly our people – including the students as demonstrated by shrinking enrollment and increasing attrition rates and our employees as demonstrated by the astronomical turnover rates of 80% according to my recollection in the four key positions in the schools. There is no field leadership leading and coaching these new leaders to be successful.

I am further bothered by the fact that despite poor operating results, our compensation policy is approaching a level where total compensation is not consistent with performance. Specifically the annual stock grants given out over the years to management at all levels as a percentage of outstanding shares are unacceptably high. Companies our size should not be giving grants of 50k – 75k shares to so many EVPs and SVPs year after year. This is one of the areas our compensation policy is out of control.

However, to vote against these grants is not possible, as the internal pressure is immense to continue with these grants, as well as with the total compensation proposed by management. These annual grants are just too high combined with the generous base salaries which are now at levels well above the 75% and approaching the 90% for most senior managers as we know from working with Michael Resnick. I have tried to modulate overall compensation, but in truth it will not happen with the board as presently constituted in my opinion. I do give you and Jack strong marks for not taking a bonus, as I think that was the right decision as leaders to both the company and the market.

This type of letter from a board member is rare, although Barry was not renominated to the board for another term, so there may be an element of sour grapes in his missive.  Nevertheless, a claim that the company is "out of control" and that compensation does not match performance, coupled with the board's inability to resist, is a sure indicator of the pressure on employees to produce results to justify the company's valuation and compensation policies . . . or else.  Keep an eye on Corinthian Colleges. (ph)

September 26, 2005 in Civil Enforcement | Permalink | TrackBack (0)

Sunday, September 25, 2005

The "CSI Effect" on White Collar Crime Prosecutions

Reuters has a story (here) about the white collar crime conference at Georgetown University this past week in which U.S. Attorney Alice Martin noted the effect of a lack of forensic evidence on the prosecution by her office of  former HealthSouth CEO Richard Scrushy, which ended with an acquittal.  She lamented the fact that jurors said there was no "fingerprint" evidence linking Scrushy to the documents in the case, nor did he say "fraud" on any of the audiotapes.  The so-called "CSI Effect" to which she referred is based on the television shows that have cases solved through careful scientific analysis of physical evidence that links the perpetrator to the crime (along with more than a few lurid details to keep the viewers' attention).  In white collar crime cases, it is rare that any such forensic analysis will play a role in the prosecution, and in the vast majority the defendants admit to the underlying transactions and argue about their intent or lack of involvement in the decisions.

While I don't dispute that many jurors do not have a good understanding of how the criminal justice system works, I think the focus on the "CSI Effect" is overblown.  Television shows about lawyers have been around for years, and jurors perceptions of the legal system have been shaped by programs stretching back to "Perry Mason." One can argue that legal programs are more pervasive than before, but not all make the system look cut-and-dried or focus exclusively on forensic analysis.  Some episodes of "Law and Order" consider the gray areas of the law, and occasionally a defendant is not convicted, although that has become rarer over the years.  One can also argue that real life prosecutions of defendants as diverse as O.J. Simpson, Bernie Ebbers, and Scott Peterson have as much effect on perceptions about the criminal justice system as any weekly drama. 

The statements made by the Scrushy jurors are as much about their doubts regarding the government's evidence as they are a possible reflection of how a criminal prosecution is perceived.  Perhaps the jurors were not mislead by their view of the system, but instead were demanding  from the prosecution a clearer link between Scrushy and the fraudulent accounting beyond just the word of admitted criminals (i.e., the five guilty CFOs, among others), and they simply noted that some sort of objective evidence would have bolstered the prosecution's case.  It seems a bit disingenuous to blame the jurors -- and the media -- for the outcome of the Scrushy prosecution when juries were able to handle complex accounting issues in the successful prosecutions of Ebbers and former Adelphia Communications officers John and Timothy Rigas, neither of which involved any of the forensic evidence used to solve all those crimes on the many CSI's that populate television. (ph)

September 25, 2005 in Media | Permalink | TrackBack (0)