Thursday, August 31, 2006

Corruption in South Jersey

The president of the Atlantic City council and a Camden (N.J.) city council member each pleaded guilty to corruption charges related to payments for contractors for receiving government work.  Craig Callaway, from Atlantic City, and Ali Sloan El, from Camden, each entered guilty pleas, and a press release issued by the U.S Attorney's Office (here) describes the conduct:

During his guilty plea, Callaway, 47, of Atlantic City, admitted to taking approximately $36,000 in six different payments between 2003 and 2005, in exchange for using his position to assist a contractor, Terry Jacobs of Pleasantville, in obtaining construction work in Atlantic City projects. Those projects include development of the Garwood Mills site, a 6.4-acre waterfront site on the northeast inlet of Atlantic City, named for a department store that once occupied the land.

Sloan El, 52, of Camden admitted during his guilty plea to taking approximately the same amount, $36,000, in six different payments between 2003 and 2005, in exchange for steering Camden redevelopment work to the contractor. The promised projects included concrete, sidewalk and other construction work including regarding Camden’s Cooper’s Ferry project and parking for the New Jersey Aquarium.

An article in The Press of Atlantic City (here) notes that two other member of the Atlantic City council are targets of the three-year federal corruption investigation.  It sure sounds like local elected officials in South Jersey aren't too expensive to buy these days. (ph)

August 31, 2006 in Corruption | Permalink | Comments (0) | TrackBack (2)

Are Lawyers Getting Away Unscathed?

An article in the Washington Post (here) makes the provocative point that lawyers have largely avoided the fallout from the recent rounds of corporate and accounting scandals, asserting that "lawyers serving fraud-ridden companies have emerged relatively unscathed."  The article contrasts lawyers with the two large accounting firms, Arthur Andersen and KPMG, that have been involved in criminal cases, with Andersen forced out of business even though the conviction was later reversed by the Supreme Court.  That may not be the best comparison, however.  Andersen was prosecuted for obstruction of justice for shredding documents, not for its audit of Enron, and KPMG's deferred prosecution agreement involved the firm's direct work selling tax shelters to clients, a product much like any other, and not for its professional advisory role.  The Milberg Weiss case is somewhat analogous to these accounting firm prosecutions, in that the subject of that prosecution is not work on behalf of clients but how the firm went about doing its business.

The recent options-timing cases may well put lawyers squarely in the sights of prosecutors, particularly in-house counsel at the companies involved in the questionable -- although perhaps not necessarily illegal -- transactions.  William Sorin, former general counsel at Comverse Technologies, was charged along with two other executives for his role in the options back-dating, and the charges recite how he used his position to facilitate the awards and make them look legal.  McAfee Inc. fired its general counsel, Kent Roberts, because of his involvement in an instance of options back-dating, and federal prosecutors subpoenaed the company for information related to his termination.  At some companies being investigated, outside law firms drafted the compensation policies while partners at the firms served as directors of the corporations, even being involved in the now-scrutinized option grants.  These lawyers are sure to be questioned by civil and criminal authorities, and are likely targets of those investigations.

Although lawyers were not caught up in the criminal prosecutions generated by some of the spectacular corporate collapses of recent years, the options-timing investigations will put the acts of legal counsel under a microscope.  It will not be surprising to see more than a few lawyers involved as defendants in the various cases in the future. (ph)

August 31, 2006 in Legal Ethics, Prosecutions | Permalink | Comments (3) | TrackBack (0)

Is Kobi Alexander Really in Sri Lanka?

We passed along last week the report that former Comverse Technologies CEO Kobi Alexander, a fugitive from a Brooklyn indictment charging him in connection with stock options backdating at the company, had been located by a private detective, Moshe Buller, hiding out in Sri Lanka.  A report in the Israeli newspaper Ha'aretz (here) raises some interesting questions about the veracity of the private detective's claim to have located Alexander by tracing an Internet telephone call.  The story points out inconsistencies in the private detective's accounts to the media of how he located Alexander, when he saw him, and even how far he traveled after seeing him.  As the story notes, the U.S. has an up-to-date extradition treaty with Sri Lanka (see earlier post here) that most likely would allow for his extradition, so it's unlikely Alexander would pick that place to be a fugitive.  Moreover, since the reported sighting of Alexander last week, no news has emerged from the government of either country regarding an extradition request.  Maybe the earlier question "Where the Heck is Kobi Alexander?" is still quite pertinent. (ph)

August 31, 2006 in Fraud, Prosecutions, Securities | Permalink | Comments (1) | TrackBack (0)

Is the Government Padding Its Stats?

An earlier post (here) discusses the settlement between federal prosecutors and Schering-Plough related to Medicare and Medicaid fraud in the pricing of certain drugs produced by the company and possible kickbacks paid to doctors.  Rather than enter a deferred prosecution agreement, which is more the norm these days, a subsidiary, Schering Sales Corporation, entered a guilty plea to conspiracy to make a false statement to the FDA and will be barred from participating in federal health care programs, a virtual death penalty for a drug provider.  While that sounds like a rather draconian collateral consequence from the conviction, I think looks are a bit deceiving here.  Only the subsidiary entered the guilty plea, not the parent, and so only Schering Sales will "suffer" the debarment from federal programs.  A Wall Street Journal story (here) quotes a spokesman for Schering-Plough stating that the subsidiary "is an entity whose sole purpose is to plead guilty in these matters" -- a good thing to have lying around in case you get in trouble, just throw a subsidiary on to the fire.  If that's the case, and Schering-Plough can forge ahead by creating a new sub -- a remarkably easy process that can be done in a few minutes over the Internet -- to take over Schering Sales' functions, then the guilty plea and program bar are much less than they appear. 

While the government gets to count the guilty plea when it compiles statistics regarding corporate and health care prosecutions, and can tout the bar as proof that it will take drastic action against offenders, Schering-Plough is largely unaffected by settlement, except of course for paying out $435 million, including $180 million as a criminal fine.  The fine doesn't help the bottom line, but then that seems to be the least of the company's worries because its press release noted that it had already set up a reserve for the costs of the settlement.  At the end of basketball games when one team is way ahead, some players will take advantage of "garbage time" to pad their stats.  Is the government doing the same thing here, making the settlement with Schering-Plough look tougher than it really is? (ph)

August 31, 2006 in Fraud, Prosecutions, Prosecutors | Permalink | Comments (0) | TrackBack (0)

Lord Black's Assets Frozen

A judge of the Ontario Superior Court of Justice issued an order freezing the Canadian assets of Lord Conrad Black, former CEO of Hollinger International and a defendant (along with three other former Hollinger executives) in a federal court indictment charging fraud, conspiracy, and RICO related to transactions with the company.  Black is out on a $20 million bond secured by a home in Florida and, more recently, $1 million in cash because of certain disclosure "problems" in his orignial bail application (see earlier post here).  The order in the Ontario court arises from a civil suit in which Hollinger seeks repayment of approximately $700 million that it accuses Black of looting from the company, involving many of the same issues charged in the U.S. prosecution. 

The judge's order, called a "Mareva injunction" in Commonwealth jurisdictions, allows Black and his wife up to $20,000 per month in living expenses, a mere pittance for the jet-set couple.  According to an article in the Globe and Mail (here), while Mareva injunctions are usually granted ex parte with no involvement by the defendant, the court will allow Black's attorney to challenge the freeze order in a hearing, which they will no doubt contest vigorously.  An earlier agreement between Hollinger and Black requires the company to pay 75% of his attorney's fees in the federal prosecution, but it's unlikely the company will have to pay the lawyer's bills in this action, unless perhaps Black prevails. (ph)

August 31, 2006 in Fraud, Prosecutions, RICO | Permalink | Comments (1) | TrackBack (0)

Former CFO Settles SEC Insider Trading Case Over Trading in Takeover Target

Maybe he didn't think he was doing anything wrong, or perhaps just fell asleep at the switch, but one expects more from a CFO, so whatever caused Tom Mitchell to buy a piddling amount of stock in a company has turned out not to be worth the hassle.  Mitchell was CFO of Ferguson Enterprises, a large plumbing distributor, and bought 1,454 shares of Noland Company in 2005 while Ferguson was considering making a tender offer for Noland.  He bought the shares in his account and those of two sons, so if he was trying to cover his tracks he didn't do a very good job.  Interestingly, Ferguson passed on the acquisition, but another company did buy Noland, and the sale of the shares netted Mitchell a profit of $35,214.  He settled the SEC civil fraud case and agreed to disgorge his profits and pay a one-time penalty.

An interesting aspect of the case is that the profits were not derived from the inside information on which Mitchell traded, but on a different transaction about which he does not appear to have had any knowledge, except perhaps that Noland was "in play."  The fraud in insider trading occurs when the fiduciary trades on the material nonpublic information, not when a profit is realized, so the violation of the antifraud provisions of the securities laws occurred regardless of the outcome of the trade.  Mitchell may have been able to make a good argument that his profits were not from the violation, however, but just the luck of having traded on information that never came to fruition and then holding the shares as an investment.  Perhaps good in theory, but probably not worth fighting over in a case that settled for less than $75,000.  Accident or mistake, the trading certainly doesn't make the former CFO look good.  The SEC Litigation Release (here) describes the settlement. (ph)

August 31, 2006 in Civil Enforcement, Insider Trading, Securities | Permalink | Comments (1) | TrackBack (0)

Wednesday, August 30, 2006

What Not to Do at Trial

The  Sixth Circuit affirmed the insider trading, conspiracy, obstruction, and false statement convictions of former Ohio State University business school professor Roger Blackwell (United States v. Blackwell here), and the case contains an important, if rather obvious, lesson in what a defendant should not do during testimony of a crucial witness.  Blackwell was convicted of tipping a number of family members, friends, and colleagues about an impending purchase by Kellogg of Worthington Foods while Blackwell was a member of Worthington's board.  The NASD and then the SEC began an investigation of suspicious trading in Worthington stock, and Blackwell and his wife, Kristina Stephan-Blackwell, denied tipping anyone.  Blackwell, Stephan-Blackwell, and her parents testified in the Commission investigation.  In fact, however, Stephan-Blackwell tipped her parents, and after she and Blackwell split up in 2003, she contacted the government and worked out an immunity deal.  Not much later, another tippee, a friend of Blackwell's, worked out a similar arrangement, at which point the government indicted Blackwell and others.

At trial, Stephan-Blackwell was a key witness for the government, and during her testimony Blackwell allegedly mouthed "I hate you" to her.  As recounted in the Sixth Circuit's opinion, this little tidbit appears to have been observed by three jurors and the judge, along with Stephan-Blackwell, and the government was allowed to cross-examine Blackwell about what he purportedly mouthed because the court viewed it as witness intimidation.  Blackwell denied having done so, but the damage was done to his case.  While Blackwell denied having tipped anyone, and offered a rather dubious "leakage theory" for how the purchasers decided to buy Worthington in advance of the Kellogg deal, the jury convicted him, perhaps in large part because he was not believable.   An article published about the trial noted that the jurors who say they saw what Blackwell mouthed believed that it "destroyed his credibility" -- which is certainly not surprising.  While there is something to be said for looking your accuser in the eye, communicating your feelings about her is not a particularly good idea. 

The Sixth Circuit also affirmed the six-year sentence imposed on Blackwell even though he did not profit directly from the transactions in Worthington stock. (ph)

August 30, 2006 in Insider Trading, Judicial Opinions | Permalink | Comments (0) | TrackBack (0)

Tuesday, August 29, 2006

No Deferred Prosecution Agreement to Schering Sales Corporation

According to a press release of the US Attorney's Office in Boston here,

"Delaware corporation Schering-Plough Corporation, together with its subsidiary, Schering Sales Corporation have agreed to pay a total of $435,000,000 to resolve criminal charges and civil liabilities in connection with illegal sales and marketing programs for its drugs Temodar for use in the treatment of brain tumors and metastases, and Intron A for use in treatment of superficial bladder cancer and hepatitis C. The resolution also pertains to Medicaid fraud involving Schering’s drugs Claritin RediTabs, a nonsedating antihistamine, and K-Dur, used in treating stomach conditions."

Deferred prosecution agreements may start looking better to some companies after seeing the ramifications of the criminal conviction to Schering Sales Corporation.  Schering Sales Corporation, by pleading guilty to a "one count criminal conspiracy to make false statements" will mean that the company is "excluded permanently from participation in all health care programs." Although The Wall Street Journal does note here that the company's "marketing functions have been taken over by other parts of the company, which are permitted to continue doing business with Medicaid and Medicare." (The Wall Street Jrl. article by Sylvia Pagán Westphal, Zachary M. Seward, and John Carreyrou, also provides other background information on this case)

The collateral consequences can sometimes be the strongest effect of a criminal conviction. When there is a possibility of license forfeiture, debarment, or program exclusion -- as seen here -- the effect of the conviction goes well beyond the actual guilty plea.

The DOJ press release does state that "[a]fter the activities were uncovered by the government, Schering-Plough cooperated with the investigation and actively worked on compliance issues through a significantly expanded compliance department."


August 29, 2006 in Settlement | Permalink | Comments (0) | TrackBack (0)

Katrina Fraud

With hurricane season started, it is not surprising to see the government continuing to indict individuals related to Katrina.  According to Alabama News (AP) here, 15 individuals were just indicted on allegations of falsely claiming money from FEMA. A DOJ press release here , reports on the sentencing of another individual for filing a false claim.

The DOJ Hurricane Katrina Task Force web site has a long list of press releases issued for the indictments and convictions of individuals on criminal charges related to Katrina (see here). Alice S. Fisher, Assistant Attorney General of the U.S. Department of Justice's Criminal Division, and Chair of the Task Force, can claim an impressive record of prosecutions (see here).  The timeliness of these prosecutions should be well served as we enter a new hurricane season.


August 29, 2006 in Fraud | Permalink | Comments (0) | TrackBack (0)

Monday, August 28, 2006

Yet Another Deferred Prosecution Agreement - Prudential Equity Group

DOJ issued a transcript today here of Deputy Attorney General Paul J. McNulty's Press Conference regarding  the deferred  prosecution agreement entered into by Prudential Equity Group, a broker-dealer subsidiary of Prudential Financial, Inc.  The agreement calls for Prudential to "pay $600 million in fines, restitution and penalties."  According to McNulty, this settlement is the "largest resolution of a market timing case to date."

When questioned about the agreement including a provision waiving the attorney-client privilege, McNulty answered in part as follows:

"The waiving of attorney-client privileged information is a standard piece of the settlements that the Department of Justice has reached in the past. And as you know, there are many agreements that we've reached in our effort to combat corporate fraud.

"This agreement contains a provision of a similar nature. However, I'd note that in this waiver provision, there are some distinctions made. And it represents the kind of distinctions that the Department of Justice has been prepared and has made and is willing to continue to make as we try to work these out on a case-by-case basis.

"Here we have an agreement that makes a distinction between providing information that the company has that preceded the date on which the discovery and the discontinuance of -- I shouldn't say discovery, necessarily, but the discontinuance of the practices.

"It doesn't include information that the company received after that date from attorneys that might involve strategic planning or other defense-related things, things that to go what might be seen as more of a core of attorney-client communications.

"So this agreement represents an effort to try to make some distinctions in the area of the waiver, not that we have to always make those distinctions, because there may be circumstances where that's not appropriate. But certainly it requires a waiver where that information is a part of the overall cooperation environment.

"And that's the key here. There is every reason for Prudential to be cooperative. This is an agreement involving a different corporate structure really from then until now, which by the way, is why this deferred prosecution agreement is being reached as opposed to a criminal prosecution, because there are some real differences in terms of structure from past to present."

For many, this response will not be satisfactory.  For one, the decision of waiving the attorney-client privilege is being accomplished because a company has basically no bargaining power in making this agreement.  They either fold or face the possible consequences faced by Arthur Andersen, LLP. Yes, he is correct that there is "every reason for Prudential to be cooperative."

Additionally, to say in essence that there are different degrees of the attorney client privilege ignores the strong Supreme Court precedent in this area. Does DOJ not recall the case of Swidler & Berlin v. United States, the case that held that the privilege even extends beyond the death of the client?

Finally, the DOJ has all the cards in the deck. The judiciary is not a part of this deferred prosecution agreement.

In many ways, this deferred prosecution, like so many of these agreements are an excellent way to resolve corporate wrongdoing.  It is especially good to see here that "$270 million will be distributed to harmed mutual funds and their shareholders."  But is it really necessary to go so far in these deferred prosecution agreements to make the company "mini-prosecutors" against individuals within the company?  And is it really valuable to continued trust within the company to have waivers of the attorney-client privilege? Maybe it isn't such a wise move for prosecutors to use shortcuts that circumvent the hard work of investigating the matters themselves.

See Prudential's press release here; Wall Street Jrl here; New York Times here.


August 28, 2006 in Settlement | Permalink | Comments (0) | TrackBack (0)

Anderson Back in Jail for Contempt

Greg Anderson, former personal trainer for San Francisco Giants slugger Barry Bonds, is back in jail for another stint after being held in civil contempt for refusing to answer questions about steroid use by Bonds and other athletes.  Anderson served a little over two weeks in jail in July for refusing to testify before the earlier grand jury investigating Bonds for possible perjury and tax evasion, and was released only because the grand jury's term expired.  Anderson was subpoenaed immediately upon the empanelment of a new grand jury, and while his most recent appearance included answers to a few questions, such as his name, he refused  to respond about whether he ever injected Bonds with steroids and whether he knows New York Yankee outfielder Gary Sheffield.  Bonds and Sheffield testified in 2003 about steroids produced by Balco (Bay Area Laboratory Co-operative), where Anderson obtained designer steroids.  Bonds has denied ever using steroids, an issue in the current grand jury perjury investigation.  With the new panel's term lasting at least sixteen more months, Anderson looks to settle in for the long haul, unless he unlocks the jail cell by answering questions or if prosecutors have sufficient evidence to indict Bonds, which probably would obviate the need for his testimony.  Even in the latter situation, Anderson is unlikely to testify if called to a trial, so there's a chance he could even go to jail a third time for civil contempt.  An AP story (here) discusses the latest civil contempt. (ph)

August 28, 2006 in Grand Jury, Investigations | Permalink | Comments (0) | TrackBack (2)

Sunday, August 27, 2006

Scrushy Has a Tough Week

Although Richard Scrushy was found not guilty in his initial criminal trial, he has not been as fortunate in other matters.  This past week, the Alabama Supreme Court ruled that the former CEO of HealthSouth owes HealthSouth "$51.5 million" "as repayment for bonuses he earned while" at the company. (see Alabama News here) (see also Wall Street Jrl here) This is an example showing that a not guilty finding is not always definitive of the outcome in collateral civil matters.

Scrushy was also asking the federal court this past week to reconsider his conviction on bribery and fraud charges resulting after a jury trial. (see here)  He is arguing insufficient evidence on the bribery charge.(see Alabama News here)


August 27, 2006 in HealthSouth | Permalink | Comments (0) | TrackBack (0)

Computer Hacker Gets Three Years

A computer hacker who launched a "botnet" into the system was given a sentence of three years. (See Seattle Times here; Yahoo News here).   The government asked for six years.  According to Yahoo news, the computer attack "hit tens of thousands of computers" including a hospital. He plead guilty to "one count of conspiracy to intentionally damage a protected computer and one count of intentional computer damage that interferes with medical treatment."  His co-conspirators were juveniles.


August 27, 2006 in Computer Crime | Permalink | Comments (0) | TrackBack (0)

Saturday, August 26, 2006

White Collar Crime Prosecutions Up 8.5 % from Last Month

The latest Syracuse Trac Reporting on DOJ white collar crime statistics shows an increase this month in the number of cases being prosecuted in comparison with last month.  (see here).  And as has been the case for the last five years, bank fraud continues to be the number one charge being used, with mail fraud being the second. Conspiracy under 18 U.S.C. sec. 371, which holds the number three spot in the five year statistics, was number five for the month. But as previously noted on this blog, here, here, and here, the reporting needs to be examined closely as offenses that many would consider to be white collar offenses are omitted from the statistical data.

(esp)(with disclosure that she is a Syracuse grad).

August 26, 2006 in Think Tank Reports | Permalink | Comments (0) | TrackBack (1)

State Dept. Official Charged with Bribery

State Department officer Michael O'Keefe has been for accepting jewelry and trips to Las Vegas and New York for himself and two "exotic dancers" from Sunil Agrawal to facilitate the issuance of visas to workers at Agrawal's business, STS Jewels (website here).  O'Keefe and Agrawal are both charged with violating Sec. 201(b), the bribery provision that covers federal employees, and with conspiracy.  O'Keefe was the Deputy Nonimmigrant Visa Chief in the U.S. Embassy in Toronto, and he authorized the issuance of 21 work visas for employees of STS Jewels.  The indictment (here) lists four pieces of jewelry provided to O'Keefe for which the government seeks forfeiture, and the two trips included accommodations and car service along with expensive meals. 

As if the exotic dancers weren't enough, the indictment recounts a number of e-mails between O'Keefe and Agrawal describing how O'Keefe would short-circuit the visa review process.  Others are more person, so that In one, O'Keefe complains about having to pay Canadian customs -- over $250 -- on a ring that Agrawal sent to him, while another whines that the gift basket Agrawal said was sent to the New York hotel room for O'Keefe and his two "friends" never arrived.  Gee, it's hard to accept bribes and gratuities when you have to pay taxes on them and those wonderful fruit baskets never even arrive for the exotic dancers!  The case shows once again that people will write things in e-mails that they would never repeat if they thought the government were listening.  E-mail lasts forever, unlike water-cooler conversations, and can lead to jail. (ph)

August 26, 2006 in Corruption, Prosecutions | Permalink | Comments (1) | TrackBack (0)

New Jersey Doctor Charged With Using Fake Botox on His Patients

New Jersey physician Albert Poet was charged with 13 counts of mail fraud and one count of selling a misbranded drug for giving his patients a cheaper, unapproved drug for what his patients thought were Botox treatments.  According to a press release (here) issued by the U.S. Attorney's Office:

Poet, a licensed physician, owned and operated Shore Laser Center in Stafford Township and PEAU in Montclair. According to the Indictment, Poet advertised “Botox” treatments in local newspapers and maintained a website to promote his services.  According to the Indictment, Poet used a personal credit card to purchase an unapproved form of Botulinium Toxin Type A (the TRI product) from a company named Toxin Research International (TRI), located in Arizona. The company marketed and sold the TRI product from December 2003 until December 2004. Although TRI marketed its product to physicians, the TRI product was sold in injectable vials which were labeled “For Research Purposes Only/Not for Human Use.” According to the Indictment, high doses of Botulinium Toxin Type A can cause Botulism in humans.  The Indictment alleges that from December 2003 until January 2005, Poet injected patients with the TRI product without informing them that they were not receiving the brand name drug Botox. The defendant further failed to inform patients that the actual drug used was not approved by the FDA and that the product arrived in vials labeled "For Research Purposes Only/Not for Human Use."

Kinda makes you just want to live with those wrinkles, doesn't it? (ph)

August 26, 2006 in Fraud | Permalink | Comments (1) | TrackBack (0)

Friday, August 25, 2006

Kentucky Governor Reaches Settlement to Dismiss Criminal Charges

Kentucky Governor Ernie Fletcher reached an agreement with Attorney General Greg Stumbo to have the misdemeanor charges of violating state personnel laws dismissed.  Governor Fletcher was accused of violating the state's merit hiring policies by making political affiliation a key to retaining one's position with the state, and he earlier pardoned everyone in his administration except himself for any acts they did in relation to hiring.  The agreement is a bit odd because it does not require Governor Fletcher to do anything, and four members of the state's Personnel Board will resign their positions.  Highlighting the political nature of the fight, Attorney General Stumbo, a Democrat, will submit three names for each of the Personnel Board positions to Governor Fletcher, a Republican, who will then appoint the new members from the suggested names.  The Board will hear appeals from former state employees who claim to have been discharged based on their politics.

The agreement (available below) contains a number of carefully worded admissions that will allow Governor Fletcher to deny any direct illegal acts, which will be important in case he faces Attorney General Stumbo in next year's gubernatorial election.  For example, while the Governor "acknowledges that the evidence strongly indicates wrongdoing by his administration" and "that he regrets their occurrence, and accepts responsibility for them as the head of the executive branch," nevertheless "[t]his sincere expression of ultimate responsibility, however, is not an admission in any way of criminal wrongdoing by the Governor nor directly on behalf of the Governor."  In other words, it was wrong, I know it was wrong, but don't blame me for doing anything wrong -- that sounds sincere.  These "admisstions" could be the start of an effective stump speech for Attorney General Stumbo, except that the order concedes that acts by the administration "were without malice," thus making it harder to argue that any crime even occurred.  Attorney General Stumbo had asserted that so long as his office -- he was barred from participating in the case by a state judge due to the potential conflict -- was prosecuting Governor Fletcher he would not run for Governor.  Talk about a win-win situation, at least for the two elected officials: the Governor is off the hook while the Attorney General can pursue his political career.  For the public, the criminal charges are swept under the rug, at least until the campaign takes a nasty turn.  A Lexington Herald-Leader article (here) discusses the case. (ph)

Download fletcher_dismissal_order.pdf

August 25, 2006 in Corruption, Prosecutions | Permalink | Comments (0) | TrackBack (0)

Bookkeeper Embezzles $2.3 Million to Buy Lottery Tickets

Annie Donnelly entered a guilty plea to stealing $2.3 million from her employer, a medical practice, to buy lottery tickets over the past three years.  She was buying upwards of $6,000 worth of tickets a day, and a clerk in a story where she made her purchases is quoted as saying, "I don't think I'll ever see anyone spend that much money again."  No kidding!  It's not clear how much she won, but it's unlikely there much left if she kept embezzling from the business.  If  you can steal $2.3 million without being noticed, isn't that kind of like hitting the lottery?  Donnelly faces a prison term of at least four years, and could serve up to twelve years.  It's been said enough times, but the trusted bookkeeper is usually the soft underbelly of so many businesses hit by embezzlement. A Reuters story (here) discusses the guilty plea. (ph)

August 25, 2006 in Fraud | Permalink | Comments (0) | TrackBack (1)

Fannie Mae Dodges a Criminal Bullet

Mortgage giant Fannie Mae, a federally-chartered corporation, avoided being charged with any crimes related to accounting problems at the company dating back to 1998.  The Department of Justice concluded its criminal investigation of the company and notified it that charges would not be file in the case, and apparently none will be pursued against individuals.  Fannie Mae settled a civil securities fraud action in May 2006 filed by the SEC and the Office of Federal Housing Enterprise Oversight,  and agreed to pay a $400 million civil penalty.  According to the SEC's press release (here) issued at the time of the settlement:

At the end of 1998, senior management manipulated the company's earnings in order to obtain bonuses they otherwise would not have received. Senior management of the company directed employees to record only $240 million of amortization expenses. By not recording the full amount of the calculated expenses, Fannie Mae understated its expenses and overstated its income by a pre-tax amount of $199 million. The company's management made two additional adjustments in the fourth quarter of 1998 that had the effect of offsetting nearly half the $240 million amortization expense adjustment. This resulted in the company not only exceeding Wall Street expectations but also hitting the earnings per share target necessary to trigger maximum bonuses. Fannie Mae has agreed, without admitting or denying these allegations, to a fraud injunction for violations of Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder.

From at least 1998 through 2004, the company's financial results were smoothed as a result of the misapplication of certain Generally Accepted Accounting Principles (GAAP); namely rules relating to the amortization of loan fees, premiums and discounts, known as SFAS 91, and rules relating to hedge accounting, known as SFAS 133. In both instances, while Fannie Mae recognized that the company was departing from GAAP, it failed properly to consider whether the departures were material.

Unlike many criminal investigations of corporations pursued in the past few years, this case ends without a deferred or non-prosecution agreement.  A Reuters story (here) discusses the decision to end the criminal investigation. (ph)

August 25, 2006 in Investigations | Permalink | Comments (0) | TrackBack (1)

Thursday, August 24, 2006

Here's Kobi! Former Comverse CEO Alexander Found in Sri Lanka -- No, Namibia

After asking "Where the heck is Kobi Alexander?" (earlier post here) the answer is: Sri Lanka -- Namibia.  Check an updated blog post here.  The rest is what was written on August 24: Israeli newspaper Ma'ariv reports (Marketwatch story here) that a private investigator tracked Alexander through an internet telephone call he recently placed to his daughter in Israel.  Assuming he has not left the jurisdiction, the United States and Sri Lanka have an extradition treaty so there is a chance that he will be detained and then returned to the United States to face the conspiracy and securities fraud charges filed against him in Brooklyn related to options-timing at the company he founded and served as CEO, Comverse Technologies. 

One issue in an extradition proceeding against Alexander will be whether the crimes charged are covered by the treaty (here), which provides in Article 2: "An offense shall be an extraditable offense if it is punishable under the laws in both Contracting States by deprivation of liberty for a period of more than one year or by a more severe penalty."  The treaty entered into force in 2001, and is fairly flexible on determining whether there is dual criminality, providing in Article 2(3) that it is an extraditable offense

(a) whether or not the laws in the Contracting States place the offense within the same category of offenses or describe the offense by the same terminology; or

(b) whether or not the offense is one for which United States federal law requires the showing of such matters as interstate transportation, or use of the malls or of other facilities affecting interstate or foreign commerce, such matters being merely for the purpose of establishing jurisdiction in a United States federal court.


Addendum -

It is very typical for countries to incorporate a dual criminality provision within a treaty.  The rationale for the dual criminality rule is "to make certain that extraditable crimes are serious offenses.  Having the conduct as criminal in both countries helps to assure that it is a crime that both countries consider sufficiently wrongful."  Podgor, Understanding International Criminal Law 99 (2004) In determining whether the crime is the same in both countries, the name of the crime is not determinative.  Courts also will defer to the surrendering country in its "reasonable determination that the offense in question is extraditable." United States v. Saccoccia, 58 F.3d 754, 766 (1st Cir. 1995).


August 24, 2006 in Fraud, Prosecutions, Securities | Permalink | Comments (0) | TrackBack (0)