White Collar Crime Prof Blog

House Judiciary Committee Subpoenas Gonzales to Produce Documents

The House Judiciary Committee has sent a formal letter and subpoena to Attorney General Alberto Gonzales requesting that he produce at 2 P.M. on April 16th a list of documents.  The subpoena and accompanying letter include documents related to the termination of former U.S. Attorneys.   It explicitly requests that certain items being requested be "complete and unredacted."  It does, however, exclude certain private information and other information, such as "non-public information that pertains solely to an open criminal investigation."  The letter accompanying the subpoena notes "[t]he Department is currently withholding significant information concerning U.S. Attorneys who were considered for termination but were ultimately retained, and concerning individuals considered as replacement candidates."  The letter also states that "[u]nder these circumstances, you must understand why we cannot accept the Department's unilateral judgment as to how much of this information it needs to disclose, or its unilateral judgment as to whether limited viewing of certain information, on Department premises and under Department supervision, and with no copying or note-taking permitted, is sufficient to permit effective and efficient review."

(esp)

Keep Your Eye on the Inglesias Issue

The DOJ attorney dismissal fiasco just doesn't seem to go away.  And the departure of former U.S. Attorney Inglesias is clearly one that merits closer scrutiny.  The Washington Post reports that Inglesias has filed a complaint that his "dismissal amounted to discrimination based on his status as an officer in the Navy Reserve." And the Washington Post also discusses Senator Domenici's connection to Inglesias.

In the meantime, the NYTimes is reporting that Senators want more documents.  And they should be asking for more.  It is not enough to limit this inquiry to emails of those who left posts as US Attorneys.  What perhaps is more frightening is whether any who remain in office had to make any concessions or proceed in a certain way to appease political influences.

(esp)

Tennessee Waltz Trial to Starts

Posted here was a discussion of Tennessee State Senator John Ford, who resigned his position following his indictment.  The case is an outgrowth of an undercover operation called the Tennessee Waltz that originates from the United States Attorney's Office for the Western District of Tennessee. (see here).  Ford, a Democrat, is now beginning trial on bribery, extortion, and witness tampering charges. (see here).

(esp)

Former "Olympic Sprinter' Pleads

In April 2006, the New York Times reported that "Olympic sprinter" Tim Montgomery,  was indicted for bank fraud and money laundering. Montgomery's name was also mentioned during the BALCO investigation when his grand jury testimony was said to be leaked. (see here)  The bank fraud and money laundering case is now resolved, as Sports Illustrated (AP) reports on the guilty plea entered by Montgomery.

(esp)(w/ a Stetson hat tip to Dean Darby Dickerson)

Gonzales Related

Three interesting articles related to the US Attorney happenings -

1.  Richard Cohen has a column in the Washington Post titled, "Gonzales the Cipher"  that compares the AGs memos written to Bush on death penalty cases, when Bush was Governor, to his present handling of the controversy in his office.

2.  Carl Hulse of the NYTimes has a story looking at Senator Peter Dominici's role as it relates to the former United States Attorney David C. Inglesias departure from the U.S. Attorney's office.   Was there interference on a potential federal prosecution?  Did Inglesias suffer because he would not play politics? As the investigation unfolds, these are questions that are likely to be at the forefront.

3. And as it all heats up for Gonzales, it looks like he is practicing his testimony.  According to a Washington Post article by Dan Eggen and Paul Kane, Gonzales is off preparing for what awaits him when he will have answer the comments of those in the legislature.

(esp)

Tax Charges at the Forefront With April 15th Approaching

Immediately prior to April 15th each year one sees a good number of tax cases being charged or plead.  Clearly this can have the effect of deterring those who might be tempted to avoid paying taxes or perhaps not bothering to filing a tax return. For example:

A DOJ Press Release (Central District of California) reports that "the owner and operator of Newport Tux and Uniform in Newport Beach, California, pleaded guilty [  ] to evading the payment of his federal taxes." (see here -Download HannaPR.46.pdf ).

For a list of recent tax charges and convictions see TAXNEWS of the Tax Division of the Department of Justice.

(esp)

Upcoming Events

The National Association of Criminal Defense Lawyers has a full day on white collar crime at their upcoming conference in Cincinnati (April 25-28, 2007). Using experts in white collar cases, parallel proceedings, internal investigations, and litigating intent, are some of the topics being discussed. Registration Information is here.

The American Bar Association has an upcoming program on May 16-18, 2007 on Health Care Fraud.  This 17th Annual Institute covers topics like civil and criminal enforcement, new developments with civil false claims act matters and Medicaid fraud enforcement.  Alice Fisher is billed as the luncheon speaker.  The program can be found here and registration information is here.

(esp)

They Are Dropping Like Flies

The latest in the Attorney General "firings" matter is the resignation of Monica Goodling.  Goodling had been a senior advisor to AG Gonzales, in addition to being the DOJ liasion to the White House.  Clearly this is a tough position to be in when being asked to now answer questions about the sudden departure of several United States Attorneys in various parts of the country. It was announced that she would be taking the 5th Amendment as opposed to responding to congressional questions. (see here)

Also stepping down were three AUSAs in Minnesota. 

Several things seem clear.  1) Gonzales will have a lot to explain in his upcoming testimony. 2) This matter will not just disappear. 3) Someone - who is independent - needs to obtain all the emails and information and investigate if there has been any wrongdoing here.

(See also Washington Post, CBS News - The Politico, Wall Street Jrl,).

(esp)

Is It Politics in Pennsylvania or is it an Attorney Conflict?

According to Philly.Com. the U.S. Attorneys Office located in Philadelphia, Pa. is trying to remove the law firm of Sprague and Sprague from representing State Senator Vince Fumo. Fumo, who is a democrat, is charged in an 139 count indictment (see here), The basis for the removal of the law firm from representing Fumo is an alleged conflict of interest.  But the law firm's response is also interesting as it seems that this conflict is suddenly arising after defense counsel announced that he intends to investigate the U.S. Attorney's motive for prosecuting this case. The recent happenings in the AG's office may raise some interesting arguments in cases that come from the political arena.

(esp) (w/ a hat tip to Kevin Kotch)

Conflicts in College Financial Aid Offices

Carrying on the tradition of his predecessor, Governor Eliot Spitzer, New York Attorney General Andrew Cuomo is pursuing a wide-ranging investigation of conflicts of interest of university financial aid offices that is likely sending a chill across college campuses at this very moment. Cuomo's office has found that financial aid officers at Columbia, USC, and the University of Texas at Austin also owned shares in the parent of Student Loan Xpress, a leading lender to students and parents that is listed as a preferred lender by each of the colleges -- imagine that. To make matters worse, a Bloomberg story reports (here) that a financial aid official in the U.S. Department of Education, Matteo Fontana, sold 10,500 shares of the lender's then-parent, Education Lending Group, Inc., in its 2003 public offering. The prospectus for the offering (here) lists a number of stock owners who sold in the IPO, including the three college officials, who also held options on additional shares.  The IPO price was $9.50 per share, and a Washington Post article (here) notes that a substantial profit was made on the sales.  That is usually the case in such transactions when the insider sell shares acquired at much lower prices when the company was private.  Student Loan Xpress is now a part of CIT Group, which as been subpoenaed along with the Columbia, USC, and UT. 

Fontana's stock ownership may draw the interest of the Department of Justice, which could look into a possible violation of 18 U.S.C. Sec. 203, the federal conflict of interest statute.  It's not clear how the financial aid officials received their shares, or came to be offered an investment in a company that only started in 1999 and rose to become a preferred lender at major universities.  As the parent of a high school senior, I will be sure to take a second look at the recommendations of the college financial aid offices. (ph)

Once More Into the Enron Nigerian Barge Trial

The Houston Chronicle reports (here) that the government has decided to retry the three Merrill Lynch defendants accused of helping Enron by arranging a sham transaction to purchase and then resell Nigerian Barges at the year-end in 1999.  The three executives are Daniel Bayly, the firm's former head of investment banking; James Brown, who headed the asset leasing group; and Robert Furst, Merrill's former liaison with Enron.  The convictions of the three were overturned in August 2006 by the Fifth  Circuit, which found that the government's honest services fraud theory was improper and tainted the convictions (U.S. v. Brown here).  Prosecutors have eliminated that basis for the mail/wire fraud counts, so the government will have to prove a scheme to defraud Enron of money or property, which may be a bit more difficult to establish.  The defendants served a portion of their jail terms before being released on bail by the Fifth Circuit after the oral argument in the case, a clear sign that the convictions were in trouble.  While the Chronicle article mentions that there are plea negotiations, a key issue likely is whether the government will demand that any of them serve additional jail time.  The SEC also filed civil securities fraud charges against them, so any resolution will have to include the civil side of the ledger.  The new trial is scheduled for January 2008, a scant eight years after the transaction. (ph)

Goodling's Attorney Fires Back at the House Judiciary Committee

Monica Goodling, the senior counsel to Attorney General Gonzales who has refused to testify about the U.S. Attorney firings by asserting the Fifth Amendment, has rejected a demand from the House Judiciary Committee that she explain why she is asserting the self-incrimination privilege.  A letter from her lawyer, Akin Gump's John Dowd (available below), states that, while Goodling is innocent of any wrongdoing, a statement by Deputy Attorney General Paul McNulty that he did not receive complete information that led to him making misstatements to Congress has created a sufficient basis for Goodling to assert the Fifth Amendment, precluding any discussion of the exact basis for her position. Dowd's letter ratchets things up a notch by citing to D.C. Legal Ethics Opinion No. 31 (1977) that states it would violate the spirit of the profession's rules to require a witness to appear before a Congressional committee just to assert the Fifth Amendment when counsel notifies the committee in advance of the witness' decision to refuse to testify. 

The House Judiciary Committee's offer to have Goodling meet for a private interview provides her with no protection because the Fifth Amendment is a "use it or lose it" right, meaning that if she were to disclose information to a government official then she could not assert the privilege down the road.  Absent a grant of immunity, which is unlikely, Goodling has two options: speak or assert the Fifth Amendment.  While Congress may not like the result, that's how the protection works.  Dowd's letter may not prevent the Committee from pursuing the unseemly spectacle of demanding Goodling appear to assert the Fifth Amendment in person, as has been done in other situations (e.g. the Hewlett-Packard pretexting hearing in September 2006), to provide the photo opportunity and a forum for Representatives to bemoan the person's assertion of a constitutional right.  (ph)

Download goodling_letter_april_4_2007.pdf

On to the Defense in the Nacchio Prosecution

The government rested its case-in-chief in the prosecution of former Qwest CEO Joseph Nacchio on insider trading charges related to his sales of over $100 million in stock in 2001, right before the shares went into a tailspin.  The defense now starts presenting its case, and there is a substantial controversy already about whether law professor and former University of Chicago Law School dean Daniel Fischel will be allowed to testify as an expert regarding whether the sales were based on material nonpublic information.  The government filed a motion to exclude him from testifying, and if the size of the brief is a measure of the potential importance of the witness, then the sixty-page filing (available below) means Fischel could be quite helpful to Nacchio.  The government argues that the defense did not comply with the expert disclosure rules under Federal Rule of Criminal Procedure 16, and more importantly that Fischel's opinions do not qualify as permissible testimony from an expert because he will simply be restating facts that are ultimately up to the jury to decide, giving only his interpretation.  The defense report on Fischel's opinions (available below) states he will testify that "the economic evidence is not consistent with the Government's allegation that Mr.Nacchio's stock sales during the first two quarters of 2001 . . . were made on the basis of material nonpublic information."  Instead, according to Fischel, the transactions were consistent with Nacchio's stock sales in other periods.

Exclusion of a defense expert can be dangerous because this is the type of issue that can lead to a reversal of a conviction if an appellate court determines that the testimony was admissible.  To this point, the judge has kept the parties on a short leash, prohibiting the government from questioning a witness about Nacchio's transactions in 2002 because it was outside the time frame of the indictment.  While Fischel is well pedigreed in the law and economics field, the judge may well keep his testimony very close to economic principles and away from broad conclusions about Nacchio's intent.  If Fischel is allowed to testify, look for lots of objections from the prosecutors.

The other issue facing the defense is whether it will call Nacchio as a witness.  One aspect of the defense is that Nacchio knew about top-secret national security contracts that others in Qwest's management were not privy to, so he did not sell the shares because he anticipated a decline in the stock price but rather only wanted to diversify his finances while believing good things were on the horizon.  To establish that defense, it may well be that Nacchio will have to testify because it puts his state of mind at the time of the sales directly at issue, and he's the only one who can say what he knew.  The defense could opt not to call Nacchio, but as happened in the trial of I. Lewis Libby, it risks not having any of the evidence of the secret contracts admitted to bolster the claim that he sold for reasons other than the problems with Qwest's deteriorating business -- problems that came to light the following year, leading to a collapse of the stock price.  Like most white collar crime cases, the decision to put the defendant on the witness stand depends on a number of factors, many unknowable to the defense lawyers, and whether the decision was a good or bad one ultimately awaits the jury's verdict.  (ph)

Download government_motion_fischel_testimony_april_3_2007.pdf

Download fischel_expert_testimony_report.pdf

Barnes & Noble Finds Backdating, But No One Is to Blame

A special board committee at Barnes & Noble, Inc. determined that there were numerous instances of stock options backdating, but concluded that everyone received the benefit so no one was to blame for the "mistakes" in the process because there was no intent to defraud.  According to a press release (here):

The Special Committee indicated that the Committee and its advisors received the Company's full  cooperation throughout its investigation. Based on this review, which encompassed 3.8 million pages of documents and interviews of approximately 35 persons, the Special Committee has determined that there were numerous instances of improperly dated stock option grants by the Company. Although the Special Committee determined that there were instances of stock options having been dated using favorable dates that were selected with the benefit of hindsight and that serious mistakes were made, the Special Committee did not find any intent to defraud or fraudulent misconduct by any individual or group of individuals.  The Special Committee found that the Company's dating and pricing practice for stock options was applied uniformly by Company personnel to stock options granted and was not used selectively to benefit any one group or individual within the Company.

Although the company may have exonerated those responsible, and it doesn't appear anyone lost their position over this, it remains to be seen whether the SEC or federal prosecutors will take the same benign view of the conduct.  At a minimum, backdating corporate documents violates the books and records provisions of the securities laws, and the fact that no one responsible for the backdating was a pig by favoring himself or herself to the exclusion of others does not mean there was no fraudulent intent if the goal of the backdating was self-enrichment.  The absence of a favored few receiving options makes it less likely there will be a criminal case, but the SEC will likely review the conduct with a careful eye. (ph)

Taking the Fifth -- More Problems in the AG's House

The actual procedure of taking the Fifth Amendment can present many procedural difficulties for the individual intending to invoke this Amendment.  This is particularly true in high profile and political cases, as the effect of taking the Fifth may lead some to believe that the individual is guilty.

CBSNews reports that Representatives Conyors and Sanchez want Monica Goodling, former adviser to AG Gonzales and liaison to the White House, to talk with them despite her attorney's statement that she will take the Fifth Amendment. The article focuses on whether she is entitled to use this Amendment in this context.

Whatever view one takes of the rightfulness of Goodling being able to take the Fifth Amendment, the procedure may be a problem for her.  If the Committee demands that she appear, it may find her responding to each specific question with an assertion of the Amendment.  After several questions one can find the questioning itself very telling. An alternative here would be for her to talk with the committee members informally.

(esp)

Another Target in the Abramoff Sphere of Influence

When former Deputy Interior Secretary Steven Griles entered a guilty plea to making a false statement to a Senate Committee, he admitted he lied when he testified that his relationship with former superlobbyist Jack Abramoff was nothing special.  In fact, Griles' then-girlfriend, Italia Federici, introduced Abramoff to him, giving Abramoff a special "in" with Griles.  It turns out that another target of the investigation is Federici, who co-founded the Council of Republicans for Environmental Advocacy (CREA) in 1997 with Gail Norton, the former Interior Secretary appointed in 2001 who was Griles' boss.  A target letter sent to Federici by the Tax Division at the Department of Justice in January 2007, available below, states that "[t]he investigation is focused on the alleged illegal manner in which you operated [CREA]."  Among the potential crimes being investigated are conspiracy, tax evasion, making false statement to a Senate Committee, and obstruction of an official proceeding.

Interestingly, one reason identified for sending the target letter is to afford Federici the opportunity to obtain court-appointed counsel, which she has done.  The letter is addressed to her care of the Federal Defender's Office in Washington, D.C., and a Legal Times story (here) notes that her attorney is from that office, due to financial problems.  Abramoff and his clients made fairly significant donations to CREA, and his cooperation may be the basis for charges against Federici. (ph)

Download federici_target_letter.pdf

Cheese Company Executives Found Guilty

Two former executives of Suprema Specialties, Inc., a publicly-traded specialty cheese company in New Jersey, were found guilty of 38 counts of conspiracy, bank fraud, and securities fraud related to fictional revenues at the company, which collapsed in 2002.  Mark Cocchiola, a founder and former CEO of the company, and Steve Venechanos, its former CFO, were found guilty after the jury initially told the judge they were deadlocked, but then returned for more deliberations and returned the guilty verdicts on all counts.  According to a press release issued by the U.S. Attorney's Office (here): "The government presented evidence at trial that between July 2000 and January 2002, Suprema reported approximately $400 million in sales to its six biggest customers, which accounted for over half of its total reported sales for that period. The government’s evidence showed that over 99 percent of that $400 million in sales were entirely fictitious, with no product actually having been sold or shipped."  A story in the Newark Star-Ledger (here) notes that the defendants used the "Richard Scrushy" defense at trial, that they did not know anything about the fraud and were lied to by various subordinates and customers who entered guilty pleas and cooperated with the government.  While that defense worked for Scrushy, it was less successful for Cocchiola and Venechanos, who maintain their innocence and will appeal. (ph)

Alleged Export Violations

Two from South Carolina were indicted as part of a "15-count indictment, which was returned by a federal grand jury in the District of Columbia and unsealed on March 23, [that] charges the defendants with violating the International Emergency Economic Powers Act and the Arms Export Control Act and with acting as illegal agents of a foreign government." Two individuals from India was also indicted.  The DOJ Press Release states that without proper export licenses:

"the defendants acquired in the United States for VSSC and BDL electrical components that could have applications in missile guidance and firing systems. According to the indictment, the defendants concealed from vendors the true end-users of the goods. In particular, the indictment alleges how, in the case of one vendor, Cirrus provided the company with fraudulent certificates that claimed that the end-user in India was a non-restricted entity, when, in fact, the items were for VSSC."

(esp)