Monday, December 31, 2007

Happy New Year - Meet the Bloggers

We wish everyone a happy, healthy, and peaceful new year. 

We will be at the CALI Bloggers Booth at the AALS Conference on Thursday, January 3rd at 3 P.M.  Stop by and say hello.  (ph & esp)

December 31, 2007 in About This Blog | Permalink | Comments (0) | TrackBack (0)

Sunday, December 30, 2007

What's Coming in 2008

The New Year will deliver a variety of interesting cases and issues in the white collar crime field, and here are a few developments (and predictions) that may be of interest in 2008 (in no particular order):

  • Supreme Court decisions on whether to grant certiorari in the appeals of John and Timothy Rigas (Adelphia Communications) on fraud charges and former Illinois Governor Ryan on RICO/corruption charges.
  • Appellate court rulings on the convictions of former CEOs Jeffrey Skilling (Enron) and Joseph Nacchio (Qwest).  Skilling is likely to have at least some of the counts of conviction reversed due to problems with the honest services fraud theory, while Nacchio could well be looking at a new trial on a variety of grounds.
  • The CEO trials just keep on coming, with former Reagan Administration budget whiz David Stockman facing charges related to his tenure at auto parts manufacturer Collins & Aikman and Phillip Bennett charged for his role in the collapse of futures broker Refco, perhaps the quickest demise of a public company -- only two months after the IPO.
  • More defense procurement cases -- oops, we said that last year.  This time around, the focus will be not only on contractors, especially Blackwater Worldwide, but also government officials charged with investigating corruption, such as former State Department IG Cookie Krongard.
  • Foreign Corrupt Practices Act cases will continue to be the hot trend, with Siemens probably setting the record for largest fine assessed in an FCPA case -- perhaps as much as $500 million -- if it is able to settle wide-ranging criminal and civil probes of overseas payments currently estimated at $2 billion.
  • Whether the Supreme Court's recent decisions in Gall and Kimbrough bring about changes in white collar sentencing, the most likely source of defendants who can make the case for individualized sentences and take advantage of the newly-restored discretion given to federal district court judges.
  • The Barry Bonds perjury/obstruction prosecution will garner significant headlines whenever the home run king appears in court, and his trial will be the hottest ticket since the I. Lewis "Scooter" Libby case, with a different set of political overtones.  It could even be a welcome distraction from the Presidential campaign if it occurs in the fall.
  • The Second Circuit will decide whether to uphold U.S. District Judge Lewis Kaplan's ruling dismissing charges against thirteen former KPMG partners and employees due to interference with the payment of their attorney's fees by prosecutors.  If the appellate court reinstates the indictment, then look for a prediction on when the trial will start in "What's Coming in 2009," unless it's headed to the Supreme Court, of course.
  • The District of Columbia's decision on the search of Representative William Jefferson's office has caused the Department of Justice much consternation, so don't be surprised to see the Supreme Court grant the government's certiorari petition filed on December 19 (available here).
  • The issue of parallel civil and criminal investigations is the subject of an important case before the Ninth Circuit in United States v. Stringer, argued on September 26, 2007.  The opinion should be announced soon, and this is another case that may be headed to the Supreme Court.
  • Mortgage fraud moves front and center as the hot focus of the Department of Justice.  A sure sign that there is pressure to bring cases will be the formation of a Mortgage Fraud Task Force -- when in doubt, form a committee.
  • As options backdating cases wind down, look for the SEC to begin pursuing disclosure investigations involving banks, brokerage firms, and other financial institutions regarding their exposure to subprime mortgages and the valuation of securities, such as CDOs. tied to that collapsing market.  Not that any of it will ease the pain of collapsing house prices.
  • Look for Kobi Alexander to be in Namibia fighting extradition back to Brooklyn to face securities fraud and obstruction of justice charges a year from now.  Indeed, it's an open question whether there will even be a hearing related to the extradition as his attorneys have skillfully thrown up roadblocks to delay even the initial stages of the extradition process.  The 2012 version of this list may well be saying the same thing.
  • Look for more election fraud cases with the political season heating up, and the Attorney General might find this to be a good place to make an impression as a non-partisan leader of the Department of Justice.   

Have a safe and happy New Year!

(esp & ph)

December 30, 2007 in About This Blog | Permalink | Comments (0) | TrackBack (0)

Fifth Circuit Rules on Executing Administrative Warrants

John Wesley Hall, at  tells of a recent OSHA case that held that "[t]here is no constitutional right to a pre-execution contempt hearing and that administrative warrants, like criminal warrants, can be executed by means of reasonable force." Attorney Hall talks about the recent Fifth Circuit decision in Trinity Marine Products v. Chao which held that:

"Over the objection of Trinity Marine Products, Inc. ("Trinity"), but pursuant to an administrative search warrant, compliance officers from the Occupational Safety and Health Administration ("OSHA") inspected a workplace owned by Trinity and issued citations. Trinity claims that the search violated the Fifth Amendment because OSHA threatened to arrest Trinity personnel who interfered with the search, but the constitutionally required method to execute administrative warrants when the targeted party refuses to acquiesce is to commence a civil contempt proceeding, which OSHA did not do.

An administrative law judge ("ALJ") heard and rejected Trinity’s argument. Trinity petitions for review. Because Trinity’s contention finds no support in the Constitution or precedent, we deny the petition."


December 30, 2007 in Contempt, Environment, Judicial Opinions | Permalink | Comments (1) | TrackBack (0)

Saturday, December 29, 2007

Which Crimes Should Be Investigated?

Normally one finds federal prosecutors saying "no comment" on pending investigations.  But the San Francisco Chronicle reported earlier this week a reverse scenario.  It seems prosecutors were calling individuals in the press to obtain information related to State Senate President Pro Tem Don Perata (see here).  It seems this white collar investigation has been ongoing for several years, with no results.

In the interim, the Chronicle reports that Senator Perata was the subject of a carjacking at gunpoint (see here). 

One has to wonder if federal resources are being placed in the correct place. With carjacking as a federal statute, 18 U.S.C. § 2119, would our resources be better spent on stopping this crime?


December 29, 2007 in Investigations | Permalink | Comments (0) | TrackBack (0)

Tough Times for Two Texas DAs

The holidays are always a slow time for news, so when a couple prosecutors find themselves in a little hot water it draws more than the usual amount of media attention.  Harris County DA Chuck Rosenthal's office turned over a slug of e-mails as part of the discovery in a civil rights case against the sheriffs office, and among there were some rather personal ones Rosenthal sent to his executive assistant.  Statements like "I love you" and "I want to kiss you behind your right ear" were in there, according to an AP story (here).  The e-mails were inadvertently released by the federal court, and although they've been resealed, even a short time being available on the internet allowed the media to pounce on them, and that toothpaste won't fit back into the tube now.  DA Rosenthal has apologized for the missives, stating that the disclosure is a "wake-up call to me to get my house in order, both literally and figuratively."  This is our regular reminder that just because you hit the "Send" button doesn't mean the e-mail disappears into the ether, never to be heard from again.  Especially for a chief prosecutor -- send that stuff on your own time.

Meanwhile, in a much less salacious situation up the pike in Dallas County, DA Craig Watkins had his law license suspended on December 14 for failing to pay his state bar dues.  He has since paid them, and it might be an otherwise minor embarrassment except that the DA's name is on all indictments and plea bargains as the county's chief legal officer.  Are the documents valid, or will new indictments be needed for the two weeks he was not licensed?  In the federal system, the United States Attorney's name similarly appears on all filings, but I'm not aware that the person holding the position has to be a member of the district's state bar.  I believe the only requirement is admission to that federal court and the circuit.  While there are internal Department of Justice requiring attorneys to be a member of a state bar, and almost all USAOs that I'm aware of similarly require Assistant U.S. Attorneys to be members in the state bar where the lawyer practices.  I don't think the U.S. Attorney's bar status would affect any filings, and the same may well be the case in Dallas County.  I suspect DA Watkins' will send his check in right away when he receives the first dues notice next year. A Dallas Morning News story (here) discusses the dues flap.  (ph -- with thanks to a Texas reader)

December 29, 2007 in Prosecutors | Permalink | Comments (2) | TrackBack (0)

Friday, December 28, 2007

2007 White Collar Crime Awards

In the finest end-of-the-year tradition of various media outlets, we again honor individuals and organizations for their work this year in the white collar crime arena by bestowing "The Collar" on those who deserve our praise, scorn, acknowledgment, blessing, curse, or whatever else you can think of that would be appropriate. Comments are open if any readers would like to suggest additional categories or winners (or losers?), remembering to keep any offerings reasonably mature and somewhat well-meaning, at least to the extent ours meet those criteria (and do not open us up to a libel suit).

With the appropriate fanfare, and without further ado, we present The Collars for 2007:

The Collar for Best Exposure of the Deficiencies in the Federal Sentencing Guidelines -- To President George Bush for finding I. Lewis "Scooter" Libby's guidelines sentence to be excessive.

The Collar for Best Parent -- For the third year in a row, to Bill Olis for all his work on behalf of his son Jamie.  Last year we said one more year and we retire the award in Bill's name, and so this award now is retired and permanently bears the name of The Bill Olis Best Parent Award.

The Collar for Nice Work If You Can Get It -- to former AG John Ashcroft, appointed by a former subordinate as a monitor under a deferred prosecution agreement that will require the monitored company to pay him between $29,000,000 and $52,000,000.

The Collar for Biggest Bang From a Deferred  Prosecution Agreement-- to U.S. Attorney Christopher Christie (the subordinate mentioned in the preceding Collar) for also getting three former colleagues appointed as monitors in the same case, and this comes after his law school alma mater happened to receive a chaired professorship in 2005 pursuant to a deferred prosecution agreement (surprise!!).  Three guesses who may run for Governor of New Jersey in 2009?

The Collar for the Best Skating Not on an Ice Rink -- to Andy Fastow and Jack Abramoff (no explanations needed).

The Collar for Worst Award  -- To the ABA Journal, which originally selected -- with no apparent irony -- the gone-but-surely-not-forgotten AG Alberto Gonzales as its "Lawyer of the Year," initially defending the selection by claiming that he made the most news, even if almost all of it was bad. 

The Collar for Hottest 30-Year Old . . . Statute -- To the Foreign Corrupt Practices Act, which has come into its own as a "mature" criminal statute, even being noticed by the New York Times.  And get your minds out of the gutter, this is a family-friendly blog!

The Collar for Best Able to Move Past a Conviction -- hands down this one goes to Martha Stewart, who has moved on with her life with hardly a misplaced dinner fork.

The Collar for Least Qualified to Hire an Assistant U.S. Attorney -- To Monica Goodling, former White House Liaison to AG Alberto Gonzales (briefly a "Lawyer of the Year" -- see above), who admitted she allowed political considerations to enter into the hiring of career AUSAs. 

The Collar for What Started With a Bang Sure Ended With a Whimper -- To former investment banking star Frank Quattrone, who went through two trials (first jury hung), a conviction later overturned by the Second Circuit, and then received the only deferred prosecution agreement given to an individual in a white collar crime case to this point, with the condition being that he remain a good boy for twelve months.  He did, and is now free from his prior entanglements.

The Collar for the Law Firm With the Most Named Partners Charged With a Crime -- To what was known as Milberg Weiss Bershad & Schulman, whose three living partners (Milberg died long before the firm's troubles arose) were all charged in federal indictments, with Bershad and Schulman pleading guilty.  As a cherry on top, the firm's predecessor included another name partner who entered a guilty plea, William Lerach.

The Collar for Wildest Bribery Case in Mississippi -- To Dickie Scruggs, made famous in the movie "The Insider" about the tobacco litigation that made him rich, who now faces charges of trying to bribe a state court judge in Mississippi, along with his son and another attorney at the firm.  This one has it all: money, local politics, undercover tapes, wiretaps.  Who's writing the screenplay for this one?

The Collar for the Biggest Perjury Case Since, Well, the Last Biggest One -- Now that I. Lewis "Scooter" Libby dodged prison and dropped his appeal, it's on to the next "biggest" perjury case: the prosecution of one Barry Lamar Bonds for lying to a grand jury investigating the steroids factory Balco.

The Collar for the Next Next Biggest Perjury Case Since . . . -- To Roger Clemens, who has loudly proclaimed his innocence regarding steroid use after being named in the Mitchell Report on the invasion of performance enhancing drugs in baseball, will be pressured to testify under oath before Congress when it holds hearings on the Report.  With a scheduled interview on Sixty Minutes, perhaps Congress will make lying to Mike Wallace a federal offense, because Clemens would be a fool to walk into a perjury trap on Capitol Hill.

The Collar for Hardest "What Do These Two Have In Common" Trivia Question -- To Michael Dwayne Short, formerly of Hyattsville, Maryland, who will be forever linked with I. Lewis "Scooter" Libby.  Care to guess why? [Answer will be posted in the Comments on January 1 in case you care.]

The Collar for the White Collar Defendant Most Needing Relief -- To Chalana McFarland, a first-time offender who received 30 years for a mortgage fraud.

The Collar for the State With the Most High-Profile Federal Corruption Investigations -- A tie this year between Louisiana and Alabama, with Alaska starting early to secure next year's award.

The Collar for Blogs That Should Be Nominated for Some Award -- To The D & O Diary (written by Kevin LaCroix) and The FCPA Blog (written by Dick Cassin), both outstanding for their thorough, balanced posts that are uniformly informative -- they deserve recognition for the service they provide to readers but probably won't in various popularity contests.

(esp & ph)

December 28, 2007 in About This Blog | Permalink | Comments (0) | TrackBack (0)

Thursday, December 27, 2007

How Not to Respond to a Malpractice Verdict

Being accused of legal malpractice is not much fun, so being found liable has to be much worse.  But to then try to avoid the judgment by filing for bankruptcy and using other subterfuges can result in a criminal prosecution for contempt, as one New York lawyer discovered.  In a case that shows some people have an aversion to honesty, the lawyer -- a freshly minted law school graduate from two years earlier -- gave a rather inflated view of his credentials to attract the client, and then proceeded to file the lawsuit after the limitations period for the suit expired.  From there, according to a New York Law Journal article (here), the client filed a malpractice claim and won a judgment of nearly $400,000 in 1999; in the meantime, the lawyer was disciplined by the state bar.  Then came the bankruptcy filing to avoid the judgment, which was rejected, and later an agreement by the lawyer to sell his firm and make arrangements to pay the former client the judgment, which he then violated by not making the required payments.  U.S. District Judge Denise Cote, who had presided over the case since 1997, finally referred the matter to the U.S. Attorney's Office for a contempt prosecution.  She has now sentenced the lawyer to a two-year probation plus spending six nights in community confinement.  Judge Cote did not fine him because she wants all his money going to pay the judgment.  At the sentencing, the lawyer is reported to have said, "I'm not sure exactly what to say except that I am sorry."  I'm not sure exactly what else could have been said, because any attempt at an excuse might have sent the Judge through the roof.  A fair question can be asked whether the attorney should remain a member of the bar.  According to the records of the New York State Unified Court System (search here), he remains a member in good standing of the New York bar.  Talk about giving lawyers a bad name. (ph)

December 27, 2007 in Contempt | Permalink | Comments (1) | TrackBack (0)

Wednesday, December 26, 2007

Avoiding the Whipsaw of Possible Conflicts for Barry Bonds' Attorneys

The first issue raised by the government in the prosecution of Barry Bonds for perjury and obstruction of justice involves the potential -- or perhaps even actual -- conflict of interest his two new attorneys may have because of their prior work representing witnesses in the Balco (Bay Area Laboratory Co-operative) steroids investigation.  The much-heralded lawyers are Alan Ruby and Christine Arguedas, and both were hired right before Bonds' arraignment on December 7.  Ruby earlier represented Dr. Arthur Ting, Bonds' personal physician, for about a month, and Dr. Ting was a witness before the grand jury that investigated Bonds for perjury.  Arguedas represented, among others, former track star Tim Montgomery and three former members of the Oakland Raiders. 

In a filing raising the potential conflicts of interest (available below), prosecutors note that they are unlikely to call Montgomery and the three football players, probably because they had nothing to do with Bonds and could not provide any valuable testimony.  I doubt there is even a colorable claim of a conflict of interest involving Arguedas based on her representation of witnesses with no connection to her current client who are not going to tesify.  Dr. Ting, however, is another matter as the government motion notes that he is likely to be a witness at trial.  Indeed, he could well be a crucial witness in establishing that Bonds use steroids during the periods that he denied their use before the grand jury.  Media reports indicate that Dr. Ting accompanied Bonds to Balco, and participated in a private drug test of Bonds in 2000.  The filing redacts a portion of a paragraph relating to Dr. Ting, most likely because it refers to his grand jury testimony, which remains secret under Federal Rule of Criminal Procedure 6(e).  Any redaction draws attention, of course, and it is intriguing to specualate about what he might say at trial, and whether he will try to defend Bonds.

Ruby only represented Dr. Ting for a short time, so the potential conflict is not clear.  One common basis for claiming that defense counsel cannot represent a current defendant because of prior representation of a government witness is that the lawyer will not be able to fully cross-examine the witness due to the confidentiality rules.  For example, if the prior client made a statement to the lawyer and then makes a different assertion at trial, the lawyer would not be able to use that earlier statement to undermine the former client's credibility because of the protections afforded to attorney-client communications.  The lawyer's obligations to the two clients would come into conflict because of the need to protect one at the expense of the other getting the best possible defense, and so might result in the lawyer providing ineffective assistance to the current client, the defendant.  If Ruby has a conflict of interest because of what he might have learned from Dr. Ting during the earlier representation, then his presence on the case could result in the reversal of any conviction due to a Sixth Amendment violation due from claimed ineffective assistance of counsel.

The government's filing notes that prosecutors will accept a waiver from Bonds of the possible conflicts, which triggered his brief appearance before U.S. District Judge Susan Illston on December 21.  At this point, there has not been a motion to remove either Ruby or Arguedas, and prosecutors are raising the conflict at this point to avoid being whipsawed if there is an actual conflict of interest.  One of the dictionary definitions of "whipsaw" is "to defeat or best in two ways at once."  The issue prosecutors are raising is that they do not want to lose a conviction because of a problem that the defense lawyer has with his/her client.  If the case goes to trial with conflicted counsel and the jury returns a "not guilty" verdict, then there is no harm from the conflict.  If the jury convicts, then a defendant can claim that the result is tainted due to defense counsel's conflict, a difficult argument to win but one that results in overturning the verdict if an actual conflict is found that affected counsel's performance at trial.  Hence the whipsaw, because the defendant can win either way with a conflicted lawyer, at least in the government's eyes, because prosecutors did not do anything wrong.

The waiver is one form of protection for the case, although it does not provide an absolute shield against a defendant raising the issue on appeal.  By requiring Bonds to appear in court to answer questions, Judge Illston is taking steps to avoid having the case affected by the potential conflict.  She has ordered Bonds and his attorneys to make a submission by January 4, 2008, waiving the conflict to establish a record that it is both knowing and voluntary.  Because Dr. Ting is likely to be a witness, he too must agree to waive any confidentiality or conflict of interest claim he might have against Ruby.  While the current client is often happy to waive the conflict, the former client has an interest that must be protected. 

If Dr. Ting were to refuse to waive, then the issue becomes much more complicated and I would expect Judge Illston to seriously consider removing Ruby as a member of Bonds' legal defense team.  Of course, that is a decision also fraught with danger, because the recent Supreme Court decision in United States v. Gonzalez-Lopez held that improper denial of a defendant's right to counsel of choice results in an automatic reversal of a conviction.  While I expect the court to accept Bonds' waiver, assuming Dr. Ting also waives the protections of the confidentiality rule, this is an issue that can rear its ugly head at any point in time.  (ph)

Download us_v_bonds_government_conflict_of_interest_motion_dec_20.pdf

December 26, 2007 in Defense Counsel, Privileges, Prosecutions | Permalink | Comments (0) | TrackBack (0)

Tuesday, December 25, 2007

Yet Another FCPA Matter - This Time It's Lucent

Cases involving the Foreign Corrupt Practices Act (FCPA) are clearly on the rise.  This time it involves a settlement with Lucent Technologies, Inc. The company will be paying a fine of one million dollars to resolve FCPA allegations. What is happening with these settlements is that the contours of what is permitted expenses and what will not be tolerated are coming to light.  Companies are finding out the hard way, that it is better to err on the side of not paying sums that might in any way be considered bribery to a foreign official.  In the Lucent matter, the DOJ press release states:

"Lucent acknowledged that it provided Chinese government officials with pre-sale trips to the United States to attend seminars and visit Lucent facilities, as well as to engage in sightseeing, entertainment and leisure activities. In 2002 and 2003 alone, there were 24 Lucent-sponsored pre-sale trips for Chinese government customers. Of these, at least 12 trips were mostly for the purpose of sightseeing. Lucent spent over $1.3 million on at least 65 pre-sale visits between 2000 and 2003. The individuals participating in these trips were senior level government officials, including the heads of state-owned telecommunications companies in Beijing and the leaders of provincial telecommunications subsidiaries.

Between 2000 and 2003, Lucent also provided Chinese government officials with post-sale trips that were typically characterized as “factory inspections” or “training” in contracts with its Chinese government customers. By 2001, however, Lucent had outsourced most of its manufacturing and no longer had any Lucent factories for its customers to tour. Nevertheless, Lucent provided individuals with trips for “factory inspections” to the United States, Europe, Australia, Canada, Japan and other countries that involved little or no business content. These trips consisted primarily or entirely of sightseeing to locations such as Disneyland, Universal Studios, the Grand Canyon, and in cities such as Los Angeles, San Francisco, Las Vegas, Washington, D.C., and New York City, and typically lasted 14 days each and cost between $25,000 and $55,000 per trip.

In the agreement, Lucent admits to all of this conduct, as well as other instances of providing travel and educational opportunities to Chinese government officials and to the improper recording of those expenses in its corporate books and records."

An additional cost that many companies can face when having to deal with FCPA allegations is the cost of attorney fees to respond to government investigations and actions. See also the WSJ here that talks about Alcatel-Lucent paying 2.5 million in fines.


December 25, 2007 in FCPA | Permalink | Comments (0) | TrackBack (3)

Monday, December 24, 2007

Wishing Everyone A Happy Holiday

Wishing everyone a healthy, happy, and peaceful holiday.

(ph) & (esp)

December 24, 2007 in About This Blog | Permalink | Comments (0) | TrackBack (0)

The Fastow Notes

As noted by Tom Kirkendall here, the Fifth Circuit has ordered that the Enron Task Force notes regarding Andrew Fastow need to be turned over to defense counsel. This order was initially made in the Jeff Skilling case and now has also been included in the Nigerian Barge case (see here).  The bottom line is that the Fifth Circuit, as it should, is going to allow defense counsel the opportunity to see these notes. Some observations here:

  • This could be the straw that breaks the back of the Enron Task Force. If the notes include exclupatory material that was not turned over to the defense counsel in these cases, it could prove important in Jeff Skilling's appeal. Even with a harmless error standard, Fastow was a key witness in this trial and exculpatory material regarding him should have been disclosed.  On the other hand, if there is no smoking gun here, the credibility of the Task Force may be heightened.
  • Skilling's reply brief alleges the destruction of exculpatory material (Reply, p. 133).   It certainly seems ironic that prosecutors who proceeded against Arthur Andersen for alleged destruction of evidence, might possibly have destroyed anything considering the high stakes involved in this case.  Obviously, the merit of this argument needs resolution.
  • Fastow's plea agreement for 10 years, but eventual sentence to 6 years raises some eyebrows.(see here)  Will the notes present evidence of a sidedeal?
  • Why were the prosecutors objecting so strenously to this disclosure of the notes?  If there is nothing here, then it shouldn't be a problem for defense counsel to see these items.  Or is that not the case? 


Addendum - The Orders are:

Download 11107_order.pdf

Download 112807_order.pdf

Download 122007_order.pdf

December 24, 2007 in Enron | Permalink | Comments (0) | TrackBack (0)

Sunday, December 23, 2007

The Letters for White Collar Offenders

Oftentimes in white collar cases, the convicted individual will present letters in an attempt to convince the court to give a lenient sentence. (see here and here). There has been ample discussion about the value that should be afforded to letters written for white collar offenders.  Do they matter and should they?  Should the letters of the wonderful things that the accused did during his or her life cause a judge to reduce a sentence, and should they play any part in determining what that sentence will be?

The federal sentencing guidelines clearly try to move the system away from using these letters - the attempt to reach what I call a "classless sentencing system."  After all, will those who are less fortunate in society have the ability to secure numerous letters.

On the other hand, if a person has spent much of his or her life helping others, serving this country, or being a "good" person -- should that not be a value considered in sentencing. 

The issue of letters arose again this week, as a judge in Connecticut sentenced a defendant convicted of tax evasion (1.8 million) to 16 months in prison.  According to the Connecticut Post here, the judge stated that he had received more letters for the accused than in any other case. Yet, despite the letters, the judge felt that for the sake of general deterrence it was necessary to send the accused to prison. The defendant, a lawyer, faced additional penalty beside the jail time and fine in that he no longer will be practicing law.

On one hand you don't want to give a preference to those who can secure letters in support of a reduced sentence, when others may not be able to do so.  But, on the other hand, it should be equally important to recognize what a person has accomplished in their lifetime to better society.


December 23, 2007 in Tax | Permalink | Comments (0) | TrackBack (0)

DOJ Will Not Appeal Stolt-Nielsen Decision

The DOJ is taking a cautious and wise position in the dismissal of the Stolt-Nielsen Indictment by a court (see here for background) by deciding not to appeal this matter. Issuing a Press Release, the DOJ states:

"The Department of Justice has determined that it will not appeal the dismissal of the indictment in U.S. v. Stolt-Nielsen S.A. et al. While the Division is disappointed with the ruling, it respects the role of the court in making the factual determinations that support the decision that Stolt-Nielsen, two of its subsidiaries, and two executives did not breach the conditional leniency agreement.

Since the Antitrust Division revised its Leniency Program in 1993, cooperation from leniency applications has resulted in scores of convictions and nearly $4 billion in criminal fines. Many of the Division’s major international investigations have been advanced through the cooperation of a leniency applicant, including recent prosecutions involving airline fares, air cargo rates, computer memory chips, vitamins, and other goods and services affecting U.S. businesses and consumers. The benefits to the Division’s cartel enforcement program are greatest when a conditional leniency applicant successfully completes the leniency process. At the same time, the Department must preserve the integrity of the program. Accordingly, the Division will continue to use the Leniency Program as a weapon in the fight against cartels, and administer the program in a transparent and equitable manner that ensures that those conditionally admitted to the program adhere to all requirements to obtain leniency.”


December 23, 2007 in Prosecutions | Permalink | Comments (0) | TrackBack (0)

Saturday, December 22, 2007

Commentary on Skilling's Reply Brief

The Skilling Reply Brief is lengthy as noted here, although not as long as defense counsel would have liked. Their opening line in the Statement of Facts is that "[s]pace limitations preclude a full recitation of the Task Force's distortion of the trial record." (emphasis added)  The irony in the opening portion that details some of the alleged discrepancies including a chart showing some of the "task force's descriptions" along-side a listing of "actual evidence," is that it is followed by the first argument - an argument pertaining to "honest services" fraud. This entry into their first argument is a masterpiece in the art of skillful brief writing.  Some other thoughts:

  • The defense does not present a lay back approach to differences in the record.  They call the government on the carpet with forceful words that emphasize their view of inaccuracies in the government recitation of the facts.  As the appellate court decides the law, and the trial court the facts, this may not be as strong an argument as it reads. But it could become important in light of the legal issues being presented.
  • This case highlights the problems with the "honest services" doctrine. The dissent in Rybicki noted the different views held by jurisdictions on a host of points related to section 1346 of the fraud statutes. And with the Brown decision within the court's reach, the government needed to present clear arguments on why Skilling's case was different. Here again we see an interesting tone in the rhetoric by the defense.  For example, they state in the Reply Brief - "[t]his, to be sure, is nothing more than a call for a 'Jeff Skilling' exception to be grafted onto the wire fraud statute." 
  • Whichever way the court goes on the honest services issue, it will be an issue that is likely to repeat itself until the Supreme Court provides additional clarification.  The question will be whether this case will serve as the next McNally, a case that reigned in the mail fraud statute when the government used an intangible rights doctrine approach.  Or will it be more like what happened in Carpenter, where the Supreme Court expanded property to include intangible property.  Or will the Court sit back, since after all 1346 was enacted post- McNally by the legislature.   
  • The reply brief hits hard on the government response to the giving of the ostrich instruction.
  • The materiality and venue arguments get buried in the middle of the brief.  The reality here being that although they were key factors in the conviction, they may be the hardest to demonstrate as legal errors.
  • The chart on page 109 of the brief is very telling.  It provides a chart of some high profile cases and the length of the jury selection.  (e.g. Bernie Ebbers - 2 days, I "Scooter" Libby - 4 days, Martha Stewart - 6 days). Uniformity only seems to matter to the Sentencing Commission.
  • The "document dump" argument could be a sleeper, although the strong rhetoric at the end of this section is just that - strong rhetoric.
  • The brief ends with a request for bail pending appeal.  And although strong arguments are presented here, it doesn't seem likely that Skilling will be home for holidays.

See also co-blogger Peter Henning's points from this article by Mary Flood in the Houston Chronicle here and Professor Doug Berman of Sentencing Law & Policy Blog here.


Addendum - Check out Tom Kirkendall's Houston ClearThinker's here.

Second Addendum - The comment above on the materiality and venue issues should not be interpreted to seem like these aren't important issues.  They are extremely important ones that the appellate court will need to examine carefully.

December 22, 2007 in Enron | Permalink | Comments (4) | TrackBack (0)

Mortgage Fraud: Déjà Vu All Over Again

The Wall Street Journal had a front-page article (here) about a mortgage fraud scheme in Atlanta that implies a substantial portion of the foreclosures occurring around the country involve some type of fraud by an assortment of buyers, appraisers, closing attorneys, mortgage brokers, and assorted scam artists.  The title is "Fraud Seen as a Driver in Wave of Foreclosures," as if the record number of foreclosures would be significantly less if there was not any mortgage fraud.  The particular scheme in Atlanta seems awfully simple, despite claims by lender Bear Stearns, which suffered over $6 million in losses, that it is quite "sophisticated."  The scheme involved falsified loan applications, property appraisals, and financial statements, with people posing as wealth borrowers to purchase homes and divert a portion of the loan.  Even better, many of the loans required no documentation of the borrowers' financials or employment, making this type of loan especially ripe for fraud.

Is this really some new form of fraud that somehow crept into the system and caught lenders unaware?  Please!  For those of us with a memory that stretches back fifteen to twenty years, there was this thing called the S&L crisis in which a number of banks in Texas, New England, Florida, California, and any place else where real estate boomed collapsed due to bad loans for homes, condo developments, and smaller commercial properties.  What is going on now is not really much different from what occurred back in the late 1980s that led to many banks having to write off billions of dollars of loans on properties that went into foreclosure.  Was the S&L crisis due primarily to fraud?  Certainly not, although there was more than enough shady dealings to account for a sizable number of cases. 

We are, if you will, experiencing déjà vu all over again, in the words of Yogi Berra.  The names and titles are different, but the conditions that led to the increase in mortgage fraud and the types of industry practices that allowed it to flourish are pretty much the same.  Let me highlight a few of the similarities I see:

  • Loan Documentation: Back then, they were called "No-Doc" loans, and now they are called "Stated Income" loans.  Either way, the borrower tells the lender what his/her/its/their assets and income are, and there is no verification by the lender, who simply wants to close the loan and move on to the next transaction.  Will people lie to get a loan, or perhaps to steal?  If you will allow me to quote a teenager in my house: "DUH!" 
  • A Rising Tide Lifts All Boats: Have you heard this one: the housing market is booming, prices are skyrocketing almost overnight, with bidding wars breaking out and sellers getting multiple offers, and banks lending freely to take advantage of the high volume of applicants.  Welcome to the late 1980s in Boston, Silicon Valley, Washington D.C., Los Angeles, etc.  Much like what we've seen in the sub-prime market, increasing home values back then meant no one really paid much attention to whether the borrower could meet the payment schedule because refinancing was just a phone call away . . . until the values started dropping.  For those of us who bought houses in the late 1980s, at least in the D.C. suburbs, we didn't get back above water until 1994 or thereabouts.
  • Inexperienced Lenders Jump Into the Market and Get Burned: The WSJ story talks about how Bear Stearns' Alt-A mortgage group that it had just acquired got burned on these "Stated Income" loans, and that the firm had no fraud detection measures in place.  Well, who cares about a little bit of truth-shading when the loan can be refinanced or the house sold to the next willing purchaser (nee sucker).  How did we get an S&L crisis anyway?  Well, these sleepy financial institutions had to start competing in areas where they were inexperienced, lending to developers with no history rather than those dull, 30-year fixed rate mortgages to local homeowners who would pay off their mortgage and then retire.  There was no "juice" in those loans, so the pressure was on these S&Ls to expand into new areas, just like lenders over the past few years who had to show exponential growth to feed the Wall Street quarterly numbers beast.  The only real difference I can see is that the criminal charges back then were mostly under 18 U.S.C. Sec. 1344, the bank fraud statute, while the frauds today involving mortgage companies will probably require charges under the mail and wire fraud statutes -- no biggie to a federal prosecutor.
  • Grow Market Share: This plays off the previous point about inexperienced lenders, and the fact that even experienced bankers got caught up in the rush to make more, and riskier, loans so they too could keep Wall Street happy.  Washington Mutual has been around a long time, and survived the S&L crisis just fine, but it is now having all sorts of trouble because of its various mortgage products.  Ditto banks like First Horizon, Regions Financial, and  Sun Trust.  Some of their problems are traceable to mortgage securities, which have spread the pain much wider than the more localized issues that triggered the S&L crisis, but many of those institutions are also increasing their loan loss reserves for mortgages they made.  No one rewards a conservative lender when it is a boom, and that was certainly the case both in the 1980s and over the past few years.  Whoever survives the shakeout will do rather well, but it's too early to declare the winners and the losers.  Does anyone remember when Citicorp's stock dropped under $10 back in the early 1990s?  Wanna bet whether that will happen again? Don't make the mistake of thinking that banks learn from the past.
  • These New-Fangled Loans Were Used to Lure in Gullible Borrowers: For those who think "negative amortization" is a new phenomenon in mortgage loans, that was proclaimed as an example of lender overreaching back in the mid-1980s after interest rates were uncapped by the Garn-St Germain Act.  Borrowers have fallen for the siren song of the slick mortgage broker for decades now, and these aggressive loans are nothing more than the adjustable rate mortgages that trapped so many borrowers in the late 1980s and forced them into foreclosure.  Does anyone really think mortgage brokers were more ethical twenty years ago?  I agree that the pain will be much wider this time because of the larger number of sub-prime borrowers who have little chance of recovering financially, but the fact that more people are being hurt does not really make it any different.

Back in 1990-1992, the Department of Justice formed Task Forces to pursue investigations into bank and mortgage frauds in Texas, New England, and San Diego.  I was hired to work in the New England group, and got to spend three years looking at loan documents, financial statements, etc., from loans made by collapsed banks.  There were rotten apples in the banking industry then, just as there was more recently, albeit with different names .  We have not reached the level of bank closures that was seen in 1991, when S&Ls in Texas and savings banks in New England were closing on what seemed like a weekly basis, and let's hope that doesn't happen this time around. 

Fraud always comes to the surface when the housing market collapses, because the acceptable excesses of a boom became the crimes of the bust.  Fraud is a crime of opportunity, and the mortgage scams that are coming to light occur when the conditions are right, such as impatient lenders who will lower lending standards to show a growing book of business.  The increase in mortgage fraud cases is more a symptom of the rise of the housing market than a cause of the increased foreclosures being seen these days. (ph)

December 22, 2007 in Fraud | Permalink | Comments (1) | TrackBack (0)

Friday, December 21, 2007

Skilling's Reply Brief Arrives, Just In Time for the Holidays

In case you need a nice 161-page brief to get you through those colds nights this holiday season, below is Jeffrey Skilling's reply brief challenging his convictions in the Enron prosecution.  This is the shortest brief filed to this point, less than the 200-page tomes filed by both sides in their initial submissions -- but that's not saying much, is it.  As is often the case when one side gets the final word, this brief takes the gloves off and aggressively attacks the prosecutors on a range of issues.  As I've said before, the key issue in Skilling's appeal is how far the honest services issue will spread from the conspiracy count to other counts, based on the Fifth Circuit's decision in United States v. Brown limiting the use of that theory in business fraud cases.  Needless to say, there is a lot of detail in those 161 pages, including challenges to the ostrich instruction, the government's evidence on various counts, and the venue issue. 

Under the Fifth Circuit's rules, the usual amount of time alloted to each side for oral argument is twenty minutes per side, which hardly allows for a discussion of two issues, much less the myriad of points raised by Skilling.  After the oral argument, an early tip-off about whether the Fifth Circuit is leaning toward reversing the convictions will be whether it grants Skilling bail pending the final disposition of the case.  In the Brown case, shortly after oral argument the court granted bail to the defendants and then issued its opinion reversing the convictions.  Skilling's brief alludes to its pending request for bail, and his lead appellate lawyer, Walter Dellinger, is sure to renew it after the oral argument. (ph)

Download us_v_skilling_defendant_reply_brief_dec_21_2007.pdf

December 21, 2007 in Enron | Permalink | Comments (0) | TrackBack (0)

Fifth Circuit Recommends Impeachment of Federal District Judge

The Judicial Council of the Fifth Circuit filed a report (available below) that will be sent to Chief Justice Roberts recommending the impeachment of U.S. District Judge G. Thomas Porteous, Jr., who sits on the U.S. District Court for the Eastern District of Louisiana.  Judge Porteous served as a state court judge in the 24th Judicial District, which covers Jefferson Parish (i.e. New Orleans), before his appointment to the federal bench in 1994.  The report gives four grounds for impeachment:

  1. "[N]umerous false statements under oath during his and his wife’s Chapter 13 bankruptcy, including filing the petition under a false name; concealing assets of the bankruptcy estate; failing to identify gambling losses; and failing to list all creditors."  He is also accused of taking extensions of credit from casinos and paying off certain creditors in violation of bankruptcy court orders.
  2. "[F]raudulent and deceptive conduct concerning the debt he owed to Regions Bank prior to bankruptcy."
  3. Receiving "gifts and things of value from attorneys who had cases pending before him" and failure to disclose his financial relationship with a lawyer in one case before him in which he refused to recuse himself.
  4. "[F]inancial disclosure statements for the years 1994-2000 are inaccurate and misleading because they fail to report the gifts and things of value he received from attorneys, and in the year 2000 failed to report accurately significant amounts of reportable indebtedness owed by Judge Porteous."

Judge Porteous was a subject of a federal investigation involving a bail bondsman that relates back to his state court days, but an AP story (here) notes that federal prosecutors notified him earlier in 2007 that he would not be charged in that case. 

The 1980s saw three federal judges impeached and removed from office: Harry Claiborne of Nevada for tax evasion, Alcee Hastings of Florida for perjury and conspiracy to solicit a bribe, and Walter Nixon of Mississippi for perjury before a grand jury.  In each of those cases, the judge was charged with a federal offense before the impeachment, with Hastings acquitted of the charges before impeachment while Claiborne and Nixon were in jail when the impeachment process started.  Both Claiborne and Nixon received their full salary as Article III judges while serving time before their removal from office by the Senate.  Nixon challenged the Senate's impeachment procedures, which the Supreme Court rejected on non-justiciability grounds (Nixon v. United States, 506 U.S. 224 (1993)).  Interestingly, Hastings is now a Congressman, and would be called upon to vote on Judge Porteous' impeachment if the case gets to the full House of Representatives.

Judge Porteous' case is unusual, at least compared to the three 1980s impeachments, in that he has not been charged with a crime.  Two of the violations alleged in the Fifth Circuit's report could trigger a federal prosecution.  The federal bankruptcy fraud provisions are quite broad, with 18 U.S.C. Sec. 152(2) reaching any persor who "knowingly and fraudulently makes a false oath or account in or in relation to any case under title 11."  Similarly, the bank fraud statute, 18 U.S.C. Sec. 1344, and false statement to a financial institution provision, 18 U.S.C. Sec 1014, would cover the dealings with Regions Bank.  The fourth ground, related to false financial reports, appears to fall outside the statute of limitations period. 

According to the report, Judge Porteous testified at a hearing before the Fifth Circuit's Judicial Council and later argued his case before the decision was made to adopt the report.  The only reference in the report to the vote states that it was by a majority, so it is not clear whether any of the judges dissented.  There is no indication at this point that federal prosecutors plan to pursue any charges.  I would expect that Judge Porteous' statements would be available to a grand jury to review in considering a case, so prosecutors may wait until the impeachment process plays out. 

In case you wondered, the Constitution explicitly provides that impeachment by the House of Representatives and conviction and removal from office by the Senate does not affect a criminal case against the official.  The general impeachment provision is in Article II, Sec. 4, relating to the President, Vice President, and other civil officers, and states that they can be removed from office upon "Conviction of, Treason, Bribery, and other high Crimes and Misdemeanors."  While that sounds like a criminal case, Article I, Sec. 3, Cl. 7 provides, "Judgment in cases of impeachment shall not extend further than to removal from office, and disqualification to hold and enjoy any office of honor, trust or profit under the United States: but the party convicted shall nevertheless be liable and subject to indictment, trial, judgment and punishment, according to law."  In other words, a full-fledged criminal prosecution can come after the impeachment, and there is no double jeopardy bar arising from the Congressional action despite the reference to "conviction" for a high crime or misdemeanor.  (ph)

Download fifth_circuit_judicial_conference_impeachment_report_judge_porteous.pdf

December 21, 2007 in Corruption, Investigations, Judicial Opinions | Permalink | Comments (0) | TrackBack (0)

When Will Scruggs Go to Trial?

The prosecution of Dickie Scruggs and three co-defendants on charges related to alleged bribes paid to a state court judge had been scheduled for trial on January 22, but the defendants have asked for a three- to four-month delay because they claim not to have received all the discovery in the case.  The government filed a brief (available below) rejecting the defense claim that prosecutors have not turned over relevant material, arguing that most of the surveillance materials have been provided, which are the key to the case.  The prosecutors assert, "Although the discovery deadline is still six days away, the government has voluntarily made the bulk of discovery in this case. Evidence seized pursuant to the warranted search of The Scruggs Law Firm is still in the hands of a 'taint' team from another jurisdiction, whose job it is to ensure that prosecutors in the Northern District of Mississippi do not receive any evidence that is privileged or outside the scope of the warrant. The evidence sought pursuant to that search warrant is relatively minor, and will be disclosed to the defense in supplemental discovery, if in fact it exists." [Italics added]  The FBI executed a warrant at the law firm the day the charges were filed, but it appears that the material was not all that important anyway, which raises the question about why the search was even conducted or what prosecutors hoped to find.  It's also a bit puzzling that they can describe the value of documents they have not seen yet because they're still with with "taint team."

While the government does not oppose the defendants' motion, its brief concludes that "the case is straight forward and not sufficiently complex to require a protracted continuance."  While the charges are fairly simple, don't take that to mean it will be an easy case, or a short one.  There will be major battles over the meaning of the recorded and videotaped conversations, and the credibility of the cooperating defendant, Tim Balducci, will be front-and-center from the opening.  With four sets of defense lawyers to deal with, this will not be a simple trial.  The judge is likely to grant the motion, so look for the fireworks to start in the spring, when there is no better time to be in MIssissippi. (ph)

Download us_v_scruggs_government_response_to_defense_motion_for_continuance_dec_20_2007.pdf

December 21, 2007 in Corruption, Prosecutions | Permalink | Comments (0) | TrackBack (0)

Thursday, December 20, 2007

Will a Perjury Trap Be Set for Roger Clemens on Capitol Hill?

There is nothing quite like a high-profile scandal to attract Congressmen like moths to a flame, and the Mitchell Report on steroid and HGH use in baseball is one of the brightest flames around these days.  Two Congressional Committees have scheduled hearings in January on the issue, inviting former Senator George Mitchell and MLB Commissioner Bud Selig to testify.  Back in March 2005, in the first round of publicity-mongering on steroids in baseball, the House Oversight and Government Affairs Committee invited a number of major leaguers to testify about steroid use.  That hearing produced Mark McGwire's famous non-assertion of the Fifth Amendment when he proclaimed he would only talk about the future -- who cares about what a retired baseball player does after his playing days -- and Rafael Palmeiro aggressively asserting that he never used steroids -- only to test positive a couple months later, thus ending his career.

The prospect of such enticing nuggets showing up on YouTube may well result in one or more invitations to superstar pitcher Roger Clemens to testify about his reported steroid use.  Clemens is the highest profile player, perhaps after Barry Bonds, named in the Mitchell Report, and he issued the following statement denying the assertions in the Report: "I want to state clearly and without qualification: I did not take steroids, human growth hormone or any other banned substances at any time in my baseball career or, in fact, my entire life.  Those substances represent a dangerous and destructive shortcut that no athlete should ever take."  A USA Today story (here) quotes Representative Tom Davis as stating that no players will be subpoenaed, but they are free to appear voluntarily and testify under oath.

The source of the information about Clemens is a former trainer, Brian McNamee, who is reported to have spoken to Mitchell and his investigators pursuant to a proffer agreement with federal prosecutors that limits any subsequent use of his statements against him while requiring him to be truthful.  This type of limited immunity, sometimes called a "Queen for a Day" agreement, usually is a prelude to a plea bargain with the government that will include a recommendation of leniency from prosecutors based on the defendant's cooperation.  There is no report at this point that McNamee has agreed to plead guilty to any charges, and there's a chance prosecutors could decide not to charge him or even grant full immunity.  Either way, the limited protection does not mean he is a credible witness automatically.

Given Clemens' denial and McNamee's statements to Mitchell, could there be much better theater than having them both appear on Capitol Hill, a surefire lead story on the evening news?  While statements to the media are not subject to the perjury or false statement laws, much to the consternation of many journalists, testimony before Congress is under oath.  If you were Clemens' attorney, would you have your client testify, especially if there were others out there aside from McNamee who could provide information against him?  On the other hand, given the clarity of his denial of steroid and HGH use, can counsel advise Clemens not to testify if given the opportunity?  While Clemens declined to speak with Mitchell, now that his name it out in public, there will be enormous pressure on him to go to Capitol Hill.  In his statement he said "I plan to publicly answer all of those questions at the appropriate time in the appropriate way."  Is a Congressional hearing the "appropriate" forum, or was he thinking about perhaps going on Larry King?

Of course, Congress would learn nothing of any importance from having Clemens testify, just like no real legislative purpose was served in 2005 when McGwire, Palmeiro, Sammy Sosa, and others were dragged in front of the Committee -- but not Barry Bonds, as it turns out.  The invitation is really asking Clemens to step into a perjury traps because Congressional testimony is under oath, and hence subject to a perjury prosecution.  The trap is easily avoided, if Clemens is not subpoenaed to testify, because he can just decline the invitation while castigating the media.  Indeed, he may already have laid the groundwork for such a position when his statement included the following: "I am disappointed that my 25 years in public life have apparently not earned me the benefit of the doubt."  Perhaps he will simply ask for the benefit of the doubt, but at what cost to his credibility if there's an open invitation to reiterate under oath what he has already said to the media. (ph)

December 20, 2007 in Congress, Media, Perjury | Permalink | Comments (0) | TrackBack (0)

Film Exec and Wife Charged with FCPA Violation

A Press Release of the DOJ tells that "a film executive and his spouse were arrested today on allegations of making corrupt payments to a Thai government official in order to obtain lucrative contracts to run an international film festival in Bangkok, in violation of the Foreign Corrupt Practices Act (FCPA)."  The case - -charged in early December, but just unsealed -- alleges that the defendants "conspired to make more than $1.7 million in bribe payments for the benefit of a government official with the Tourism Authority of Thailand (TAT) in order to obtain the film festival contract and contracts with TAT worth more than $10 million."  The defendants are alleged to have been bidding "for the management contract for the annual Bangkok International Film Festival."


December 20, 2007 in FCPA | Permalink | Comments (0) | TrackBack (0)