Tuesday, October 24, 2006

Pleas in Coke Case

With increased technology, we will probably be seeing more and more cases involving the misuse and criminal conduct related to information. So it is not surprising to see a prosecution related to trade secrets. 

Michael Kanell of the Atlanta Jrl Constitution reports here that two individuals plead guilty to conspiracy in a case involving trade secrets at Coca Cola. And of all places to go with the alleged trade secrets - Pepsi. (Although there is no mention of Former Deputy Attorney General Larry Thompson here, it is interesting to note that he is General Counsel at PepsiCo)  According to the DOJ press release  the investigation started when Pepsi reported receipt of a letter offering the alleged secrets to Coca Cola and Coca Cola contacted the FBI.

Although sentencing remains to be seen on these two, a third individual who is also charged did not enter a plea. One has to wonder whether there will be cooperation with the DOJ to reduce their sentence. Clearly accepting responsibility should serve to mitigate the sentence of the cooperating defendants. The accused were represented by Atlanta attorneys Don Samuel & Anna Blitz.


October 24, 2006 in Computer Crime | Permalink | Comments (1) | TrackBack (8)

Monday, October 23, 2006

All Work, No Pay -Government Tries to Take Away Attorney Fees

The Daily Business Review reports on law.com here that the government is seeking forfeiture of attorney fees on a recent white collar case in Miami. The case, a bank fraud case, has prosecutors claiming that the attorney fees came from tainted money. In this particular case the attorneys tried the case in a 4½-month trial. Obviously they also had pre-trial preparation and the cost of experts. Federal prosecutors in Miami are also going after attorney fees in another case, the Hamilton Bank-related case discussed here.  In that case the defendant received a 30-year sentence.

Taking away attorney fees after representation of a client at a long trial can be devastating to the attorney's business and livelihood.  In some cases it may also place in jeopardy the right to counsel, as attorneys in other white collar cases start weighing whether they should represent a client who might be subject to a forfeiture.

(esp)(w/ a hat tip to Erick Cruz)    

October 23, 2006 in Defense Counsel | Permalink | Comments (0) | TrackBack (0)

Former CFO of Comverse Technology Expected to Plead

According to Peter Lattman's Wall Street Jrl. blog here, David Kreinberg, the former CFO of Comverse Technology is expected to plead guilty today.  It is interesting how the CFOs are pleading with incredible deals, while the CEOs end up facing trial (e.g. Sullivan/Ebbers).  What, if any deal, might have happened here remains unknown. In this particular case, the former CEO Kobi Alexander still needs to be returned to the United States to face the charges against him.  He is presently in Namibia awaiting possible extradition. (see here). For background on this case, see here.


October 23, 2006 in Settlement | Permalink | Comments (0) | TrackBack (0)

How the Statute of Limitations Can Affect an Investigation

Carrie Johnson at the Washington Post has a wonderful article here discussing the effect of the statute of limitations on matters related to the AOL Investigation. Although mid-level executives are on trial this week, the investigation may have been cut short when prosecutors had the clock run out by the statute of limitations.


October 23, 2006 in Investigations | Permalink | Comments (0) | TrackBack (0)

Checking the Blogsphere on the Skilling Sentence

What are others in blogsphere saying about Jeff Skilling's sentence:

Doug Berman - Sentencing Law & Policy here

NormPattis - Crime & Federalism here

Larry Ribstein - Ideoblog here

Tom Kirkendall -Houston's Clear Thinkers here

Howard J. Bashman -How Appealing here


Addendum - Carrie Johnson of the Washington Post reports here that the Enron Task Force was "closing its doors."

October 23, 2006 in Enron, Sentencing | Permalink | Comments (1) | TrackBack (0)

Commentary on Skilling

Commentary on Jeffrey Skilling's sentence of 24 + years (292 months) by Peter & Ellen -

Will we ever see sentences like these again?

Peter - The collapse of Enron, WorldCom, and Adelphia Communications due to large-scale accounting fraud was, in many ways, unprecedented, the "perfect storm" so to speak. Executives have never been sentenced to such substantial terms before, and I doubt we will see these types of sentences again. Not because corporate crime will cease, but because the ability to engage in these types of accounting tricks is now much more difficult. For one thing, the accountants and the lawyers are paying much more attention to the details, in part because of Sarbanes-Oxley but perhaps even more because the job of those professions is more directed toward policing management. Rogue executives can still engage in criminal conduct, but I would be very surprised if we saw the type of brazen accounting fraud perpetrated by WorldCom. There will be another cycle of corporate misconduct, and I don't think anyone can predict where it will strike. But like the S&L crisis of the 1990s, it is unlikely to be spread across industries and involve conduct at major enterprises. I don't think we'll see another Bernie Ebbers or Jeffrey Skilling on trial for destroying a company, in effect, so corporate crime prosecutions will be for more isolated misconduct. Not that corporate executives should forget these sentences, but they are not at risk of suffering them because at least for the foreseeable future the types of crimes that Ebbers and Skilling engaged in are not going to take place.

Ellen -  I also rather doubt we will see sentences like this again, but not because the Enron & Worldcom wave are over or because Sarbanes -Oxley is going to solve the problem.  There have always been corporate fraud scandals and there will likely be scandals down the road.  Just as we saw new frauds developed throughout our past history, most likely we will see new forms of fraud in the future.  What they will be, and how extensive they will be, remains to be seen. And just as Congress reacted to the scandals of today with new legislation (Sarbanes-Oxley) so too will we find reactive legislation passed in the future to handle the new types of criminality that appears on the scene.

But I don't think we will see sentences like this in the future because people will eventually realize the worthlessness of issuing such draconian sentences in non-violent white collar cases.  The bottom line is that these sentences are not likely to deter future criminality, as many who engaged in the conduct just did not see themselves as committing crimes.  Jeff Skilling's claim of innocence, even at his sentencing, is a statement that in order to deter criminality we need to start teaching law in business schools so that those going into the business world are fully apprised of where the line is between acceptable business practices and criminal conduct.   

Do these sentences match the harm in other white collar crime cases?

Peter -While Jeffrey Skilling receives 24 years for presiding over the collapse of Enron, former Congressman Randy (Duke) Cunningham sells his office to a string of defense contractors for a bit over $1 million and receives a sentence of 8 years. Soon-to-be former Congressman Bob Ney will likely be sentenced to less than 3 years in prison for selling out his office to lobbyists led by Jack Abramoff. How can there be such a disparity between the sentences for public corruption and the corporate frauds perpetrated by Ebbers and Skilling? The harm from public officials, especially those elected to office, who abuse their positions for personal gain is, in my opinion, nearly as great as that caused by corporate chieftains who preside over collapsing companies. While one might argue that it is wrong to "criminalize agency costs" by prosecuting corporate officers, we never hear that argument applied to public corruption. The sentences in those cases need to be increased significantly to send an even stronger message to public officials that selling their offices, and the public's trust, is intolerable. Investors don't lose pensions, but the harm is just as great, I believe.

Ellen -  I agree that in recent cases we see lighter sentences in corruption cases than we see in the corporate sphere and that this disparity is not warranted. If anything, having the public's trust should be considered a greater threat to society than criminal activity in the private sphere.  But I do disagree that this warrants increasing the sentences in corruption cases.  More appropriately, this sends the message that recent corporate sentences are not aligned with reality. Sending non-violent offenders to prison for life sentences serves no utilitarian purpose.  Sending a person to prison for 25 years as opposed to 10 years for a corporate crime does not offer increased rehabilitation to the individual. After all this person will never be in this position again to commit a like crime. It also serves no deterrent if the individual has no recognition of what is legal and what is illegal.  Further, a 10 year sentence would send an equally strong message to anyone entering the corporate world that they need to act properly.  The only purpose here is retribution.  And the shame of this conviction, a sentence of 10 years, and the collateral consequences faced by the white collar offender easily send that same message.

If we are so intent on punishing the wrongdoer with heavy prison time, then how can we accept Andrew Fastow being sentenced to 6 years, or Scott Sullivan receiving 1/5 of the sentence received by Bernie Ebbers.  It becomes clear that what we are really doing here is punishing individuals who exercise their right to a jury trial. And permitting the government to continue this practice is not proper.


October 23, 2006 in Enron, Sentencing | Permalink | Comments (3) | TrackBack (0)

Skilling Gets 24 + Years

Not surprisingly, Jeff Skilling received a sentence in excess of 24 years in prison (292 months). (see Wall Street Jrl here)  Surprisingly, he will not be allowed to remain free on bail pending the appeal, although he can remain free until such time as the Bureau Prisons determines his new residence and he has to report there. (see Houston Chronicle here).  If one were expecting remorse to mitigate the sentence, it did not happen as Skilling continued to maintain his innocence. More to come....


October 23, 2006 in Enron, Sentencing | Permalink | Comments (0) | TrackBack (0)

Background on Skilling

Jeff Skilling's Forthcoming Sentence & The Role of Cooperation here

The Skilling Sentence here

Skilling Takes Another Shot at Overturning the Guilty Verdict here

More on Fastow here

What the Lay/Skilling Jury Heard from Fastow here

Fastow Receives a Six Year Sentence here

Fastow to Be Sentenced this Week here

Joint and Several Liability and Jeff Skilling here

Court Rejects Overturning Skilling's Convictions here

Asset Forfeiture- Skilling & Lay here

A Hint About How Causey's Guilty Plea Affected the Skilling Defense here

Skilling and Lay Seek to Delay Sentencing here

On to the Sentencing here

The Parameter for CEO Sentencing here

Lay & Skilling Appellate Issues here

Lay & Skilling Convicted here

The Skilling/Lay Closing Argument here

Commentary on Lay/Skilling Trial and Possible Aftermath here

Skilling/Lay Trial Defense Rests here

Here Comes an Ostrich (Instruction) here

Ken Lay's Testimony Ends here

This Week in Enronville here

Tough Day for Skilling here

Cross-Ex of Skilling here

Was Skilling on the Witness Stand Too Long here

Blame Fastow here

It is All Skilling here

Ae Ken Lay and Jeff Skilling Assisting the President here

Will Lay & Skilling testify?  And Who Else? here

Intent- Key Issue in Skilling/Lay Trial here

Government Rests its Case Against Lay and Skilling, and Asks for 4 Counts to be Dropped here

Enron here

Not a Good Day for Skilling here

They're On to Us here

This Week in Enronville here

Another Day in Enron Country here

Lay/Skilling Trial a New Week here

Opening Statements Lay & Skilling Case here

Skilling & Lay Selecting a Jury here

Enron Playbill here

The Latest Pre-Trial Events in the Lay/Skilling Trial here

Using Skillings SEC Testimony Against Him here

Skillings Motion to Dismiss Insider Trading Charges Against Him here

Where Do Nice Guys Finish here

There are many additional entries on this blog related to Jeff Skilling - see here


October 23, 2006 in Enron | Permalink | Comments (0) | TrackBack (1)

Sunday, October 22, 2006

Jeff Skilling's Forthcoming Sentence & The Role of Cooperation

With the Skilling sentence set for Monday, all eyes are clearly focused on the possibility that this sentence will be in double digits. The real question is whether it should be.  Co-blogger Peter Henning focuses on the issues surrounding this case (here), but lets also look at equity in sentencing and the role of cooperation. Does Skilling's lack of cooperation and desire to avail himself of his constitutional right to jury trial significantly hurt him?

Cooperator Scott Sullivan, former CFO at WorldCom received 6 years as a part of his plea agreement, while  Bernie Ebbers who risked a trial received 25 years. Andrew Fastow's sentence was 6 years, and it would be hard to find someone who might predict Skilling's sentence would be equal to or less than that number. 

What becomes obvious here is that if you play the government's cooperation game, the rewards are incredible.  You can clearly avoid a lengthy sentence by helping the government make its case against others. Is this good and is this proper?

The sentencing guidelines, something the government is quick to advocate for, were enacted in order to have truth in sentencing and to curtail sentencing disparities. Left open within the guidelines was a loophole for government use - the 5K1.1 motion that allows prosecutors to ask for a sentence outside the guideline range.  Thus, despite the aim of equity in sentencing, prosecutors were left with an incredible stick that allowed them, and only them, the ability to ask a court to reduce a sentence outside the guidelines when the accused cooperated with them. 

This prosecutorial power was weakened with the Supreme Court's decision in Booker, that now allowed judges some opportunity to go outside the guidelines, but still requiring them to use the guidelines as their first step in the process of determining the sentence. The bottom line is that even after Booker, prosecutors still retain significant power in lowering a sentence for cooperation.  One need only look at the sentences of cooperators Scott Sullivan, Andrew Fastow, and Jack Abramoff, to confirm this.

Clearly the government needs cooperators to make their cases, and there is no doubt that this provides efficiency to the system in addition to it being less costly. But what happens to the accused's right to a jury trial when there is an enormous disparity between the sentence given to cooperators and that given to those who decide to go to trial? 

The right to trial by jury, as guaranteed by the Sixth Amendment, is clearly diminished when there is so great a reward presented to cooperators. Innocence or guilt may become irrelevant as the risk of going to trial in order to receive a "not guilty" verdict is weighed against a possible outcome that is five times greater than could be received if one cooperates with the government. This seems strange since the right to trial by jury, as guaranteed by the Sixth Amendment, was provided "in order to prevent oppression by the government." Duncan v. Louisiana.


October 22, 2006 in Enron, Sentencing | Permalink | Comments (1) | TrackBack (2)

Saturday, October 21, 2006

The Skilling Sentencing

The conclusion of the District Court phase of the prosecution of Jeffrey Skilling should come with the sentencing scheduled before U.S. District Judge Sim Lake on Monday, October 23.  The original sentencing date was September 11, and the Judge rather grudgingly granted a defense motion for a postponement.  With the end of the highest profile prosecution of Enron defendants nearly upon us, there will be plenty of discussion about the meaning of the case and what comes next, so here are my two cents worth (and that's an overestimation):

  • The Sentence:  The sentencing materials have been filed under seal, but the government is seeking to use the 2001 version of the Federal Sentencing Guidelines, which provides for a higher sentence based on the amount of the loss.  There will be fighting over the loss, which is the main driver of the sentence under the Guidelines.  Unlike the Olis/Dynegy case, also presided over by Judge Lake, there are plenty of ways for him to view the collapse of Enron as being traceable to the securities fraud of Skilling (and the now-deceased Ken Lay) that can easily exceed the $400 million threshold for the greatest enhancement.  After Booker, the Judge has some flexibility in determining the final sentence, but the Olis sentencing (and resentencing) show that he will hew pretty closely to the Guidelines.  As for the final sentence, if the over/under line is twenty years I would bet the over, while a twenty-five sentence strikes me as the likely upper-end.  The sentencing of John and Timothy Rigas of Adelphia (fifteen and twenty years respectively) and Bernie Ebbers of WorldCom (twenty-five years) are probably the parameters for CEO sentencing.  While former Enron CFO Andrew Fastow received a six-year sentence, I doubt that will play much (if any) role in Judge Lake's final determination.
  • Collateral Issues: The Judge is likely to decide the asset forfeiture issue along with the sentence, plus enter a restitution order.  The government is looking for $183 million, which includes the amount owed by Lay but lost as a criminal forfeiture due to his death that triggered application of the abatement doctrine.  While that's probably more than the Judge will order against Skilling, forfeiture and restitution make it unlikely that Skilling's lawyer, Daniel Petrocelli, will get any of the $30 million O'Melveny & Myers claims it is still owed.  Then again, after being paid approximately $40 million so far, not many will shed tears over that unpaid bill (see BusinessWeek article here).  I expect the Judge will grant a motion for bail pending appeal, especially after the Fifth Circuit denied en banc review of its decision in the Enron Nigerian Barge prosecution, U.S. v. Brown (see earlier post here).  That decision overturned the conviction of three defendants on mail fraud charges involving the same honest services theory used in Skilling's case.  I think it's unlikely Skilling will see the inside of an FCI in 2006.
  • The Appeal: Plenty of issues, starting with the mail fraud/honest services instruction that may violate the holding in Brown.  The problem for Skilling on that issue is that the honest services theory was one part of a few counts, and is unlikely to affect the conviction on other charges.  Another issue will be the "ostrich instruction" as a basis for finding knowledge for the securities fraud and conspiracy charges.  A significant sentence may be challenged as unreasonable, although Judge Lake may grant a small downward departure from the range recommended by the Sentencing Guidelines to demonstrate that the sentence was the product of a thorough review of the facts and law.
  • The Punditry:  Every April 15 demands a story about lines at the post office to mail tax returns, and what would the Thanksgiving holiday be without stories of it being the heaviest travel period of the year.  Articles on the sentencing I expect will quote at least one former Enron worker (or retiree) who views any sentence less than death or life imprisonment as inadequate.  There will be complaints from academics and defense lawyers about the severity of the sentence questioning why non-violent first offenders must spend "X years" in jail when they present no threat to society.  The question whether the sentence was "fair" is ultimately unanswerable beyond an assertion of one's opinion, at least when it does not violate the Supreme Court's rather skimpy "cruel and unusual punishment" jurisprudence.  Between the extremes of complete judicial discretion and rigid mandatory Sentencing Guidelines, the judge makes an educated guess.

With my track record of predictions, I am a good negative indicator.  (ph)

October 21, 2006 in Enron, Sentencing | Permalink | Comments (1) | TrackBack (1)

Heads I Win, Tails I Win More

Dr. William McGuire, the retiring CEO of health insurer UnitedHealth Group, Inc., is making quite a name for himself in the field of options back-dating and excessive executive pay.  His stock options, even after a repricing to eliminate the effects of back-dating, will still be worth over a billion dollars, at least as long as he keeps them.  An AP story (here) notes that a sizable slug of those options may have been the result of a award of the same options twice.  In 1999, when a set of UnitedHealth options were "under water" because the exercise price was below the current stock price, Dr. McGuire recommended to the board that the options be reissued at a lower price.  Those options were backdated so they were already worth more, but then later Dr. McGuire recommended that the original options be reactivated after the stock price had risen significantly, meaning he and a number of employees effectively received the options award twice.  Needless to say, that little sleight of hand resulted in improper accounting, but even more problematic will be the attention this will draw from the SEC and criminal investigators.  Dr. McGuire's reactivated options are now worth over $250 million.

For companies enduring options back-dating investigations and the accompanying government scrutiny, a San Francisco Chronicle story (here) notes that the Directors & Officers insurers may object to paying the costs of defending the company and resulting settlements to the government and shareholders when the problem is self-inflicted.  Of course, that was also true in the last round of corporate accounting problems, so look for the insurers to raise their rates even more to insure corporate malfeasance. (ph)

October 21, 2006 in Investigations | Permalink | Comments (0) | TrackBack (0)

More Campaign Tomfoolery

A letter sent to 14,000 Democrat voters in Orange County warned that if they were immigrants and tried to vote they could be jailed and deported.  Viewed as an attempt at voter intimidation, the letter turns out to have come from the campaign office Tan Nguyen, who is challenging incumbent Loretta Sanchez for a House seat.  Nguyen has acknowledged his campaign is the source, but denied personal knowledge of it.  Despite calls from party leaders that he withdraw from the race, Nguyen has vowed to remain in the race, and the U.S. Immigration Reform Political Action Committee even reiterated its endorsement of Nguyen.  Things may get a bit dicier for Nguyen, however, as an AP story (here) notes that ten agents from the California Department of Justice executed a search warrant at Nguyen's campaign office.  Agents later searched Nguyen's home and that of a campaign staffer.  This is probably not the kind of publicity Nguyen was looking for. (ph)

October 21, 2006 in Investigations | Permalink | Comments (0) | TrackBack (0)

Friday, October 20, 2006

When Campaign Tricks Turn Into Crimes

Colorado gubernatorial candidate Congressman Bob Beauprez's campaign may be in a bit of hot water, and a federal employee could be subject to prosecution, because of an improper search of the federal National Crime Information Center (NCIC) database.  Representative Beauprez aired a commercial criticizing his opponent, Bill Ritter, for a crime committed by an illegal immigrant who entered into a plea bargain to a heroin charge when Ritter was District Attorney in Denver.  The ad asserts that the defendant should have been deported, and reflects an effort to show Ritter is "soft on crime" and not tough enough on illegal immigrants, both well-worn campaign themes.  The problem is that the information about the illegal immigrants conduct came from the NCIC database, and according to an AP story (here), a computer search has been traced to a federal employee.  The Privacy Act, 5 U.S.C. Sec. 552a(i), provides as follows:

Any officer or employee of an agency, who by virtue of his employment or official position, has possession of, or access to, agency records which contain individually identifiable information the disclosure of which is prohibited by this section or by rules or regulations established thereunder, and who knowing that disclosure of the specific material is so prohibited, willfully discloses the material in any manner to any person or agency not entitled to receive it, shall be guilty of a misdemeanor and fined not more than $5,000.

Disclosing NCIC information for use in a political campaign definitely is prohibited.  The Beauprez campaign stated that it received the information about the illegal immigrant from an "informant." When juicy political information comes up, however, it might be a good idea to check the propriety of the informant's conduct.  That does not appear to have slowed down Representative Beauprez, however, and he pressed Ritter in a debate to explain why his office entered into the plea bargain.  The negative fall-out from an FBI investigation of the source of the information used in the ad may cost Representative Beauprez far more than any harm it might have caused Ritter. (ph)

October 20, 2006 in Investigations | Permalink | Comments (0) | TrackBack (1)

The SEC Zeros in on Delphi

A number of former Delphi Corp. executives are in line to be sued by the SEC for securities fraud related to accounting problems at the company, according to a Detroit News story (here).  Once the largest auto supplier after its spin-off from General Motors in 1999, Delphi filed for bankruptcy in October 2005, and its accounting for various transactions have been the subject of civil and criminal investigations for over two years.  The investigation focused on round-trip transactions that inflated Delphi's income and the booking of loans from suppliers as "rebates" that allowed them to be recognized as income.  In addition, a $300 million payment to its former parent was accounted for differently by each company, which resulted in GM being dragged into the investigation.  Among those identified as likely to be sued include Delphi's former v-p of treasury, the former director of financial accounting and reporting, and the former chief accounting officer.  At this point it is unclear whether Alan Dawes, the former chief financial officer terminated in 2005, will be sued by the SEC.  An ongoing grand jury investigation may result in charges against one or more of the Delphi executives, and the SEC may be waiting to sue Dawes and others until the criminal investigation is complete to avoid any problems with discovery.  No word either whether the Commission is preparing a case against GM.  Because Delphi is still in bankruptcy and will emerge as a significantly different company, the SEC may forgo filing charges against it. (ph)

October 20, 2006 in Civil Enforcement, Fraud, Securities | Permalink | Comments (0) | TrackBack (1)

Thursday, October 19, 2006

Throwing All the Lawyers Into the Grand Jury

A New York Times article (here) discusses the direction of the government's ongoing investigation of Anthony Pellicano, the so-called "PI to the Stars" who worked with, most prominently, leading Los Angeles attorney Bert Fields.  Pellicano has been under indictment since February 2006 on conspiracy and wiretapping charges that allege he engaged in illegal wiretaps to help out attorneys in various cases, many involving leading Hollywood stars and some of them represented by Fields' Century  City firm, Greenberg, Glusker, Fields, Claman & Machtinger.  According to the Times, approximately ten lawyers from Greenberg Glusker have been called before a federal grand jury to testify about Fields' involvement in Pellicano's activities.

There are a couple of interesting aspects to this phase of the grand jury investigation.  First, the lawyers are being questioned about the firm's representation of clients, so there are probably some sticky attorney-client privilege and work product issues that had to be worked out.  Perhaps the clients waived the privilege and allowed the attorney's to testify, although that would probably involve a number of waivers, and some might not be particularly willing to do that if it turns out Pellicano worked on their cases.  The government could argue the crime-fraud exception as the basis for obtaining the testimony, but that would require proving possible criminal or fraudulent conduct in every representation.  Courts are leery of simply ordering wide-spread disclosure of otherwise privileged or protected information in the name of the crime-fraud exception without proof that a specific representation involved such conduct.

Second, the article states that counsel for the lawyer-witnesses "refused to speak publicly, citing grand jury secrecy rules."  While that excuse for not talking to the press sounds plausible, under Federal Rule of Criminal Procedure 6(e) the secrecy requirement does not apply to witnesses before the grand jury.  While they may not want to discuss what the witnesses said in the grand jury session, the secrecy rules are not a bar to discussing the testimony, even if prudence counsels silence.

Finally, while the investigation is focused on Fields' involvement with Pellicano, it may be that the grand jury sessions will turn up additional evidence that can be used in prosecuting Pellicano.  The grand jury cannot be used as a discovery tool for a pending case, but if a continuing investigation produces admissible evidence in such a case, then courts generally allow its use at trial.  Whether or not prosecutors can build a case against Fields, they may get a benefit out of the grand jury sessions for the Pellicano case.  The Times articles hints at weaknesses in the government's case, so the Fields investigation may be a vehicle to help out on the pending prosecution.  That case has already been postponed to February 2007, and Pellicano has been in jail since the indictment.  At some point, the case has to move forward. (ph)

October 19, 2006 in Grand Jury, Investigations | Permalink | Comments (0) | TrackBack (0)

Hoisted on the Statute of Limitations Petard

The prosecution of Peter Davis in connection with corruption at the Springfield (Mass.) Housing Authority came to a precipitous end when U.S. District Judge Michael Ponsor dismissed the charges as barred by the statute of limitations.  Davis, a retired contractor, was among thirteen defendants charged in 2004 in a 100-count indictment involving Housing Authority executives and outside contractors who allegedly provided benefits in exchange for contracts.  Unfortunately for the government, Davis retired from his business in 1998, and so the indictment only covered his conduct within the past five years, i.e. back to 1999.  The RICO and conspiracy charges could survive if there were acts within the limitations period.  The government alleged that Davis made false statements to agents about the misconduct as late as 2003, relying on the cover-up as an additional overt act in the conspiracy and as part of the RICO enterprise.  While some conspiracies incorporate a cover-up as part of the criminal agreement, courts have been chary about extending this rationale too far because it would effectively mean conspiracies never end. 

Judge Ponsor, who from experience is a very thoughtful jurist, entered the judgment of acquittal right before the jury was to hear closing arguments.  The defense team, led by James Rehnquist, son of the late Chief Justice, argued to the jury that the case fell outside the statute of limitations in addition to a defense that Davis did not pay any bribes.  Because the statute of limitations was an issue before the jury, the Judge's decision on the issue is a factual determination, rather than a legal one, and so double jeopardy attaches and it cannot be appealed.  A Springfield Republican story (here) discusses the decision to end the trial abruptly. (ph)

October 19, 2006 in Corruption, Prosecutions | Permalink | Comments (0) | TrackBack (0)

Schnitzer Steel Settles Criminal and Civil FCPA Cases

Schnitzer Steel Industries, Inc., a Portland, Oregon, based-company that purchases and recycles scrap steel in the U.S. and abroad.  The company settled an SEC action alleging that its employees paid bribes to managers of Korean and Chinese steel mills that are both privately-owned and government enterprises to ensure continued business in violation of the Foreign Corrupt Practices Act.  Schnitzer Steel also entered into a deferred prosecution agreement with the Department of Justice, and its wholly-owned subsidiary, SSI International Far East Ltd., based in Korea, entered a guilty plea to violating the FCPA, conspiracy, and wire fraud charges.  According to a DoJ press release (here):

In the information and plea documents, SSI Korea admitted that it violated the FCPA and the conspiracy and wire fraud statutes in connection with more than $1.8 million in corrupt payments paid over a five-year period to officers and employees of nearly all of Schnitzer Steel’s government-owned customers in China and private customers in China and South Korea to induce them to purchase scrap metal from Schnitzer Steel. Additionally, in the deferred prosecution agreement, Schnitzer Steel agreed to accept responsibility for the conduct of its employees, and the employees of its subsidiary, in making corrupt payments and aiding and abetting the making of false books and records entries; to adopt internal compliance measures; and to cooperate with ongoing criminal and Securities and Exchange Commission (SEC) civil investigations.  The deferred prosecution agreement also provides that an independent compliance consultant will be appointed to review Schnitzer Steel’s compliance program and monitor its implementation of and compliance with new internal policies and procedures related to the FCPA and private bribery.

The case will likely continue, with prosecutors and the SEC looking at the conduct of one or more Schnitzer Steel executives.  In the SEC's Administrative Order (here), it states:

In May 2004, Schnitzer’s compliance department uncovered the improper payments and Schnitzer began to investigate the potential FCPA violations. At that time, a senior executive of Schnitzer prohibited any further payments, but nonetheless authorized Schnitzer employees to pay at least two additional bribes that Schnitzer previously had promised private customers. The same senior executive also authorized Schnitzer employees to increase entertainment expenses in lieu of cash payments to its private and government-owned scrap metal customers. In response, Schnitzer employees gave managers of Schnitzer’s scrap metal customers additional gifts, including gift certificates worth $10,000 and a watch worth $2,400.

Not the kind of response expected when a company uncovers an FCPA violation.  Schnitzer Steel's cooperation earned it a deferred prosecution agreement, and only the subsidiary has to plead guilty to the criminal charge. (ph)

October 19, 2006 in FCPA | Permalink | Comments (0) | TrackBack (0)

Operation Truth or Consequences

The Department of Justice announced a number of indictments for bankruptcy fraud as part of a program called "Operation Truth or Consequences."  The charges are part of a nationwide "sweep" aimed at protecting the integrity of the bankruptcy system, including eighteen cases charged on October 17 and 69 prosecutions in total.  According to the press release (here) issued by Deputy Attorney General Paul McNulty:

Collectively, the Operation Truth or Consequences bankruptcy fraud sweep includes charges filed against nine attorneys, two bankruptcy petition preparers, and one former law enforcement officer; alleged concealment of more than $3 million in assets; use of false Social Security numbers and false identities; submission of forged documents and use of false statements; defrauding of individuals whose homes were in foreclosure; fraudulent receipt of government loans and benefits; and various other unlawful acts.

While certainly an important initiative, I wonder who is in charge with coming up with such hokey names for these prosecutorial efforts. (ph)

October 19, 2006 in Fraud, Prosecutions | Permalink | Comments (0) | TrackBack (0)

Wednesday, October 18, 2006

Former Homestore CEO Sentenced to Fifteen Years

Former Homestore.com, Inc. CEO Stuart Wolff received a fifteen-year prison sentence for his role in the company's accounting fraud through "round-trip" transactions to inflate revenues during the technology bubble.  A jury convicted Wolff on charges of conspiracy, insider trading, filing false reports with the SEC, falsifying corporate records, and lying to company auditors.  The insider trading counts relate to Wolff's exercise of stock options and then sale of the shares while Homestore.com inflated its revenue related to on-line advertising.  A press release issued by the U.S. Attorney's Office for the Central District of California (here) notes that Wolff remains free on bond, and the court will hold a hearing on November 13 to decide whether to grant bail pending appeal. (ph)

October 18, 2006 in Securities, Sentencing | Permalink | Comments (0) | TrackBack (0)

Tuesday, October 17, 2006

Does Congress Need an "Effective Program?"

Does Congress need an effective compliance program? 

The New York Times reports here on a  congressional investigation that reveals that Randy Cunningham had been pressuring individuals to place federal business with certain military contractors.  This comes in the wake of recent allegations of lack of oversight and quick action in the Mark Foley matter. 

So the question is whether congress needs to reexamine its compliance program.  If this were a corporation or business operating under the federal sentencing guidelines, the corporation could face consequences for failing to have an "effective [compliance] program."  Should Congress be held to this same standard?  Does Congress need an effective program to prevent and detect misconduct - see here - as set forth in the organizational guidelines?


October 17, 2006 in Corruption, Government Reports, News | Permalink | Comments (0) | TrackBack (0)