White Collar Crime Prof Blog

Scrushy Tries to Get the Judge Bounced

Former HealthSouth CEO Richard Scrushy filed for a writ of mandamus in the Eleventh Circuit to get Chief U.S. District Judge Mark Fuller removed from the corruption case in which he was convicted along with former Alabama Governor Don Siegelman.  The Judge set the sentencing for June 26, and earlier denied a recusal motion related to his ownership interest in an Alabama corporation that has contracts with the military.  According to Scrushy's memo in support of the writ of mandamus (available below):

[The company] provides fuel distribution services at Langley Air Force Base, in addition to other military installations. Assistant United States Attorney Feaga, the lead prosecutor assigned to this case, is a colonel in the United States Air Force reserve. Assigned to Langley Air Force Base, Attorney Feaga is an assistant to Staff Judge Advocate Brigadier General Richard C. Harding, who is the principle legal adviser to the Air Combat Command and staff on all legal issues at Langley, which by definition would include contracts such as those granted to [the company].  At no time did Chief Judge Fuller disclose to Scrushy he is the largest shareholder of several businesses which have substantial contracts and do business with branches of the United States government nor did he request a waiver from Scrushy after full and complete disclosure.

Appellate courts are generally loath to grant a writ of mandamus, and the connection identified between Judge Fuller and the prosecutor is a bit tenuous.  But this case has been so contentious, it would not be a surprise to see the Eleventh Circuit at least consider the petition to ensure that the sentencing is done properly. An AP story (here) discusses Scrushy's filing. (ph)

Download scrushy_mandamus_petition_june_2007.pdf

Paris Hilton Released After Three Days

In a bow to current pop culture and the abiding interests of my two teenagers, TMZ.com is reporting (here) that unimpeachable sources say Paris Hilton has been released from jail after serving only three days of a 23-day sentence imposed for her traffic violation.  That sentence was about half the original 45-day sentence for the offense.  With all the talk about harsh sentencing in white collar cases (e.g. Libby, Skilling, Ebbers, Rigases, etc.), here's one going the other direction. (ph -- and I promise no further posts on this topic, unless they're really interesting)

No Second Act for Radler at the Conrad Black Trial

An effort by defense counsel for Lord Conrad Black to recall the government's primary witness, former Hollinger International chief operating officer F. David Radler, was turned back by U.S. District Judge Amy St. Eve.  The defense claimed that it uncovered new information showing Radler lied during his testimony during the government's case-in-chief about whether he had any knowledge about parole procedures in Canada, where Radler may serve a portion of his sentence.  According to a Bloomberg article (here), the defense claims it learned that shortly before entering into a plea agreement with the government, Radler hired a Canadian lawyer who is an expert on parole procedures, showing that he lied when testifying about his lack of knowledge.  Judge St. Eve denied the motion on the ground that the information was available to the defense when Radler was cross-examined, so its failure to pursue that line of questioning was not a good enough reason to recall  him.  Perhaps the Judge was tired of hearing the defense accuse Radler of being a liar once again, a line of inquiry pursued ad nauseam during the earlier cross-examination.  Will the denial of the defense request be something that would constitute reversible error?  Most likely not, because the evidence is probably cumulative -- how many different ways could Radler be called a liar, anyway? -- and its relevance is minimal because the fact that Radler hired an attorney does not necessarily show that he lied in his testimony.  If Black et al. are convicted, I suspect this would be at worst a harmless error, if the Judge's decision to refuse to recall Radler was even incorrect.

The defense case continues to grind on, although a lack of witnesses gave the jury a break for one day.  Nothing particularly explosive from Lord Black, whose lawyers eschewed calling Donald Trump to testify about the party he threw for his wife that was paid for in part by Hollinger.  The defense case is expected to end shortly, at which point the jury will be charged and we enter the phase of the case that is the equivalent of watching paint dry: jury deliberations.  (ph)

Senate Judiciary Committee Looks Into the Firing of the Ninth U.S. Attorney

In all the tumult over the sentencing of I. Lewis Libby on June 5, lost in the shuffle was another hearing on Capitol Hill on the firing of U.S. Attorneys in 2006, this time focusing on Todd Graves, former U.S. Attorney for the Western District of Missouri.  Graves has been added to the list of U.S. Attorneys fired for no apparent reason, having been asked to step aside in January 2006 in a manner remarkably similar to that used with the other eight U.S. Attorneys in December 2006: a telephone call from the head of the Executive Office for United States Attorneys (EOUSA) saying, in effect, "clear out your office."  The Senate Judiciary Committee heard testimony from Graves and his replacement, Bradley J. Scholzman, who came from the Civil Rights Division and is now the head of EOUSA.  Scholzman generated some controversy in October 2006 when his office filed criminal charges against four members of a liberal voter registration group called ACORN for voting fraud.  Scholzman defended the decision to file the charges in his prepared testimony (here):

These cases, which were brought under the anti-fraud provisions of the National Voter Registration Act, were assigned to an experienced career Assistant United States Attorney, who consulted with the career leadership in the Department’s Election Crimes Branch in accordance with the U.S. Attorney’s Manual in conducting the investigation. The Department has adopted an informal policy of not interviewing voters during the pre-election period, which is intended to avoid actions that could conceivably have a chilling effect on voting. The policy clearly does not mean, however, that the Department forbids the filing of any charges around the time of an election. While the ACORN matter arose in October, Department policy did not require a delay of this investigation and the subsequent indictments because they pertained to voter registration fraud (which examined conduct during voter registration), not fraud during an ongoing or contested election. Consequently, the Department’s informal policy was not implicated in this matter. In sum, there was nothing unusual, irregular, or improper about the substance or timing of these indictments. Three defendants have pled guilty and a fourth is scheduled to plea this week.

While the testimony generated few fireworks, it is part of the case being built in the Senate to try to push out Attorney General Gonzales.  A vote on the "no confidence" resolution on Gonzales may come up during the week of June 11, but whether that has any effect on his tenure remains to be seen. (ph)

Commentary on Libby Sentencing

Receiving a straight guidelines sentence -- and one on the stiff side -- lets the administration feel the full effect of the guidelines sentences they created.  Some thoughts:

1. Convicted defendants who maintain their innocence are placed in a no-win situation when appearing for sentencing.  If they say anything, like for example express remorse, they can significantly hurt their chances on appeal. Judges are liable to shave months off a sentence for acceptance of responsibility.  But the individual who is convicted and still maintains his or her innocence is left in a situation of selecting whether to try and reduce his or her sentence, or risk the chance of success on appeal. And when the sentence is relatively low, taking a chance on the appeal may be better. Libby was respectful to the court, but he certainly did not express remorse, thus maintaining a stronger case for his appeal or possibly for a retrial.

2. Whether the judge will allow Libby to remain free on bail pending appeal is not as definitive as many people believe.  It is true that many white collar offenders do remain free pending appeal, but not all are this fortunate (e.g.,Atlanta Mayor Bill Campbell, Jeffrey Skilling, Jamie Olis). If Judge Walton decides to incarcerate Libby immediately, Libby may appeal to a higher court and ask for a stay pending the appeal.

3.  If Libby is ordered to jail, the question may be whether he is taken on the spot or allowed to report directly to an assigned facility.  There is a benefit to being allowed to report to a facility in that the individual will not be subjected to various prison facilities as they are transferred to their final destination.

4. The administration may be placed in a situation of making a quick decision on whether to pardon Libby or allow him first to serve his sentence.  The pardon would be in sharp contrast to other pardons issued by President Bush.  His past pardons have not been for individuals who were recently sentenced.

5. And then of course there is always the possibility - in criminal cases - of the newly sentenced individual deciding to cooperate with the government.  Even if Libby did have something to offer the government, it may not prove useful as a conviction for perjury and false statements would not make him a particularly credible witness in court.

Checkout - Doug Berman's Sentencing Blog here, discussing upcoming Supreme Court case that could prove helpful to Libby.

(esp)

Former Red Robin CEO Settles SEC Case over Improper Expenses

Michael J. Snyder, former CEO of Red Robin Gourmet Burgers, Inc., settled an SEC enforcement action over his receiving reimbursements from the company for personal travel, entertainment, and meal expenses.  According to the SEC Litigation Release (here):

The Commission's complaint alleges that, during 2002, 2003 and 2004, Snyder incurred personal travel expenses of roughly $1.2 million for charter jet travel, and hotel and dinner expenses. The Complaint further alleges that Snyder submitted expense reports and invoices to Red Robin for payment of these personal expenses, misrepresenting that a business purpose existed for the charter jet trips and hotel and dinner expenses, failing to report the presence of personal guests on the trips, and failing to accurately report the destinations of the charter flights.

According to Red Robin's 2005 proxy statement (here), Snyder's compensation for those years was approximately $700,000, $955,000, and $1,060,000, so his personal expenses of $1.2 million were a significant portion of his overall compensation.  Snyder settled the case by agreeing to a director and officer bar and will pay a $250,000 civil penalty.  Snyder retired from Red Robin in August 2005, and the company's 8-K (here) filed regarding his resignation stated that "Mr. Snyder will reimburse the Company in full for certain expenses determined to be inconsistent with Company policies or lacking sufficient documentation."  It's not clear where he incurred the meal expenses, and it seems a bit odd that the CEO of a restaurant chain would run up a tab at other eateries.  (ph)   

Pretending to Be a Lawyer Draws Larceny Charge

A former paralegal at a New York law firm who first pretended to attend law school, and then told the firm he had been admitted to the bar, has been charged by the Manhattan DA's office with felony larceny.  The paralegal began at Anderson Kill & Olick in 1996, and according to the DA's press release (here), in 1998 he told the firm he had started in a night law program, with his schedule adjusted to accommodate evening classes.  Informing the firm in 2002 that he'd graduated, he then stated he failed the bar twice but passed on the third try in July 2003.  He claimed admission to the New York state bar in 2004.  After becoming an associate in the firm doing litigation, his ruse came to light in October 2006, when he was fired.  The larceny charge is based on "stealing the differential between the salaries he received while working in the position of attorney and the top paralegal salaries during that same period, plus $74,500 in bonuses," totaling over $200,000. 

The chronology here is a bit odd, and it may be that additional amounts could have been charged in the larceny count.  For example, most firms will pay for at least one bar review course and even give time off to study, so I suspect the paralegal got money and certain benefits from purportedly taking (and retaking) the exam, which would explain his "failing" twice.  The delay between the reported July 2003 "pass" and the October 2004 "admission" is more difficult to understand -- did he claim a character & fitness issue, perhaps? 

According to the WSJ Law Blog (here), the paralegal's attorney stated in response to the charges, “We look forward to presenting facts and circumstances we think will mitigate the charges brought by the people.”  It's not entirely clear what "facts and circumstance" would mitigate the charge if in fact the paralegal deceived Anderson Kill over eight years and, perhaps more importantly, for the two years clients believed they were being represented by a licensed attorney and any courts in which he entered an appearance.  The paralegal was also charged in Connecticut for impersonating a lawyer for his role in representing a client in a matter in that state; he is seeking to enter a special rehabilitation program that could result in the charges there being expunged (see Stamford Advocate article here).  The felony charge in Manhattan may be a bit harder to deal with. (ph)

Libby Gets 30 Months

Online press is reporting that I "Scooter" Libby was sentenced today to 2 1/2 years in prison. (e.g., Boston.com; WSJ, CNN, NYTimes) He was convicted of perjury, false statements, and obstruction of justice. The government asked for 30-37 months, with the defense asking for no jail time. This sends a strong message of deterrence that crimes with national security implications will not be tolerated. J. Patrick Fitzgerald wins yet another round of this trial in obtaining a sentence in the range that he requested. This is particularly significant in that according to the Washington Post, the probation department asked for approximately one half of the sentence issued by the court. (see here)

The WSJ notes that the court did not rule on whether Libby would remain free pending appeal. Many assume that this will be automatic, as it tends to be in many white collar cases.  But this is not always the case.  Former Mayor Bill Campbell of Atlanta was ordered directly to prison and not allowed to remain free pending his appeal.(see here)

But it is also important to remember that this case is not over yet.  There are several appellate issues that Libby is likely to raise in the next round. The inadmissibility of evidence that he wished to present will most likely be at the core of these arguments. (see WSJ here). 

(esp)

Commentary on the Indictment of Rep. William Jefferson

The Indictment, described here, offers a good bit about the direction that the prosecution is prepared to take should this case go to trial. Some thoughts:

1. The case is brought in the Eastern District of Virginia, yet the harm alleged in many counts relates to actions related to his position in Congress which of course is located in the District of Columbia and Louisiana. When the government proceeds with conspiracy, they are able to charge in the district where the agreement took place, or where any of the acts took place, and where the parties may have an interest. In this Indictment one finds a cooperating witness in Virginia and the United States Trade and Development Agency also located there.  One also finds others connections to Virginia. The government has enormous discretion in a case such as this is choosing its venue, and the defense basically has none. The government's choice here was to place this case in the "rocket docket" jurisdiction and to place it in a venue that is likely to be more favorable to the government.

2. The Indictment mentions that Rep. Jefferson has a JD degree from Harvard and an LL.M. in tax from Georgetown. Is it really necessary to include a person's educational background in an indictment?  Or is this an attempt by the government to quash any future claims that might be made by the accused  that he did not know what he did was against the law?

3. The Indictment is a classic case of double billing.  The government charges conspiracy for the same acts as the substantive offenses, and then repeats them as predicate acts for RICO.  Thus the charges in some instances are three times for the same conduct.  Is the government permitted to do this- yes.

4. Who are the government witnesses?  Two are obvious, as they are named.  But the rest range from official A, businessperson A, Company A, and proceed through much of the beginning part of the alphabet in like fashion.  Why are there so many undisclosed individuals in this indictment?  Is the government protecting its witnesses so that they testify for them and that their businesses do not feel any repercussions?   Will the defense be able to properly prepare their defense without these witnesses being disclosed?

5.Several counts relate to a deprivation of honest services.  Is it really possible to deprive the United States House of Representatives of their right to honest services?

6. The timing of this Indictment presents some interesting questions also.  How long has the government had its evidence?  Is it just coincidental that it comes the day before the sentencing of I "Scooter" Libby?

Just some initial thoughts.

(esp)

Rep. William Jefferson Indicted

CNN, Washington Post, WSJ, New York Times and others report on the Indictment of Rep. William Jefferson.  For background information see here.   The Indictment is long ( 95 pages) and has many different charges.  Count One alleges a section 371 violation, with it being a conspiracy to solicit bribes by a public official, a deprivation of honest services by wire fraud, and the foreign corrupt practices act.  Count Two is also under 371 and alleges a conspiracy to solicit bribes and a deprivation of honest services by wire fraud. The remaining counts are substantive offenses: counts three and four are bribes by a public official; counts five through ten are schemes to deprive citizens of honest services by wire fraud, eleven is a Foreign Corrupt Practices Act count, twelve through fourteen are money laundering, fifteen is obstruction of justice, and the final count alleges RICO.  There are also forfeiture allegations.

More details will follow.

(esp)

U.S. Rep William Jefferson Background on the Investigation

The investigation of Congressman Jefferson has been the subject of several blogspots.  For background information see:

Gonzales on the Warm Seat

A Response to Gonzales

Special Privilege - DOJ "Firings" Investigation

Former Representative Ney Receives 30-Month Sentence

What's Coming in 2007

Bribery Investigation Doesn't Hurt Election Result

Who Knew What When About Representative Foley's Communications

Payer of Bribe to Louisiana Congressman Sentenced to 87-Month Prison Term

DC Circuit Says Jefferson Can Review Documents

Rep. Jefferson's Documents Remain Locked Up

Documents Seized from Rep. Jefferson's Office Remain on Ice

District Court Hears Argument in Challenge to Search of Rep. Jefferson's Office

What Does the Speech or Debate Clause Protect?

Pennsylvania Senate Aides Charged with Obstruction for Trying to Wipe E-Mails

If It Were Your Office . . .

Executive v. Executive

Former Aide to Rep. Jefferson Sentenced to 8 Years on Bribery Charge

President Bush Orders Evidence Seized from Rep. Jefferson's Office Sealed

Does the Speech Or Debate Clause Affect the Search of Rep. Jefferson's Office?

Another Guilty Plea in Corruption Investigation of Louisiana Congressman

Six Aides to Rep. Jefferson Subpoenaed in Corruption Probe

Former Legislative Assistant to Louisiana Congressman Pleads Guilty to Bribery Charges

Is Perjury a "Technicality"?

Does Corruption Ripen in the Summer?

Louisiana Congressman's Home Searched (esp)

DOJ Civil Rights Division Hiring

According to Jason McClure of the Legal Times (Law.Com) a focus this week of the DOJ "firings" investigation will be the hiring practices in the civil rights division.  A hearing before the U.S. Senate Committee on the Judiciary has the following lineup of witnesses set for Tuesday -

Updated Witness List Hearing before the Senate Judiciary Committee on “Preserving Prosecutorial Independence: Is the Department of Justice Politicizing the Hiring and Firing of U.S. Attorneys? – Part V” Tuesday, June 5, 2007 Dirksen Senate Office Building Room 226 2:30 p.m. Panel I Bradley J. Schlozman Associate Counsel to the Director Executive Office for United States Attorneys Former Interim U.S. Attorney for the Western District of Missouri Former Principal Deputy Assistant Attorney General and Acting Assistant Attorney General for the Civil Rights Division U.S. Department of Justice Washington, DC Panel II Todd Graves Former U.S. Attorney Western District of Missouri Kansas City, MO

(esp)

ABA Program With Former US Attorney Carol Lam

The American Bar Association Criminal Justice Section's White Collar Crime Committee and Perkins Coie LLP - 

Program Title:  Staying on Track When Worlds Collide:  Practical Advice for Corporations Conducting Internal Investigations and Responding to Government Inquiries

Keynote:   Carol Lam, Sr. Vice-President and Lead Counsel, Qualcomm, and former U.S. Attorney for the Southern District of California, San Diego, CA.

Date:  June 7, 2007

Time:  3:00 - 5:00, with reception following

Location:  University Club of Chicago, 76 E. Monroe Street, Chicago, IL

For more information here.

(esp)

Uploading "24" Prior to Broadcast

The U.S. Attorneys Office of the Central District of California issued a press release of a recent federal criminal complaint against an individual who is alleged to have "uploaded the first four episodes of this season’s "24" earlier this year before they were originally aired on the Fox television network."

Press Release -

Download 24upload.073.pdf

(esp)

The Forthcoming Libby Sentencing

I "Scooter" Libby is set to be sentenced Tuesday for the crimes of obstruction of justice, false statements, and perjury.  The predictions are certainly the focus of much commentary (e.g., here, here, and here).  But with many looking at the numbers, it is important to recognize that this sentencing presents an opportunity for a judge to look beyond numbers and sentence the individual. The defense sentencing memorandum spends the first 23 pages of the 33 page document focusing on the individual.  Only after this part of the memo do we see discussion of the guidelines and the applicable law. Now there is a separate motion in opposition to the government's memo, but it is clear that the defense will be calling for the judge to sentence the individual, not individual "x" who has been convicted of committing certain crimes. The government will, as usual, likely be asking for the court to follow the strict numerical calculations of the guidelines.

In 116 Yale L.J. Pocket Part 279 (2007), I wrote, "The bottom line is that we need to return to individualizing the sentencing process because we do not sentence numbers - we sentence people.  If we really believe that the time should fit the crime, then we need to start realizing that not all crimes and not all criminals are alike." 

Whether this approach gives Libby a longer or shorter sentence is subject to debate.  But the interesting question will be whether the judge wants to be a part of this debate, or merely plug in numbers and sentence the next defendant in the courtroom.

(esp)

P.S. - Check out Professor Doug Berman's analysis on the Sentencing Law and Policy Blog here.

Where the Libby Case All Started

Although I. Lewis "Scooter" Libby was convicted of perjury, false statements and obstruction of justice, the case originates from an investigation involving the unauthorized leak of information about Valerie Plame's role as a CIA operative. It is therefore interesting to see Fox News reporting, just days before the sentencing, that Valerie Plame is suing the CIA related to a book she is writing.  For details see here. 

(esp)

Green on White Collar Crime Sentencing

Professor Stuart Green is doing a guest stint at the PrawfsBlawg and has an interesting post (here) on sentencing in white collar crimes, "White-Collar and Red-Handed."  He discusses the recent sentencing of a former Chinese government official to death for accepting bribes, and the suicide of a Japanese minister about to face a Parliamentary inquiry for possible bid-rigging.  Stuart addresses the broader question of how harsh should sentences for white collar offenses be, a particularly timely topic with defendants like I. Lewis Libby, Richard Scrushy & Don Siegelman, and Joseph Nacchio facing prison terms.  He writes:

What is the appropriate penalty for white collar crimes? When are they too harsh? When too lenient? Criminal law scholars traditionally distinguish between ordinal and cardinal proportionality. Ordinal proportionality concerns how wrongdoers are punished relative to each other. Cardinal proportionality deals with the absolute severity levels anchoring the penalty scheme as a whole. Most commentators believe that the sentencing scheme in the U.S. (as in China) is far too harsh from the perspective of cardinal proportionality: the whole system is ratcheted up too high. But ordinal proportionality is something else. Is there any reason why the penalties for our most serious white collar crimes should necessarily be lower than the penalties for our most serious blue collar crimes?

Maybe we'll get Stuart to join us for a little while, too. (ph)

The Libby Sentencing

The sentencing of I. Lewis Libby is set for June 5 before U.S. District Judge Reggie Walton, and the defense sentencing filings are now available below.  In sharp contrast to the government's recommendation of a 30-37 month prison term under the Sentencing Guidelines, lawyers for the former chief of staff to Vice President Cheney ask for probation.  The Probation Office's presentence report, which is not available, determined that the Sentencing Guidelines provide for a base offense level of 14, which calls for a sentence of 15-21 months.  Both the prosecution and defense agree with the base offense level calculation, but the government has argued for enhancements to increase the sentence.  Libby's team agrees with the Probation Office's recommendation that the Judge depart downward based on three grounds: Libby's history of public service; the collateral consequences on his career from the conviction; and, the criminal conduct represents aberrant behavior unlikely to be repeated.  Based on these grounds, the defense seeks the sentence of probation.

What will the sentence be?  Jeralyn Merritt from TalkLeft guesses (here) that the sentence will be the Martha Stewart double-nickel: five months imprisonment and five months home confinement.  Professor Doug Berman of the Sentencing Law & Policy blog (here) hedges his bet on the sentence by guessing a range of "something between 1-2 years" -- that would cover a departure in either direction.  If those interested are in a sporting mood, a better approach is to wager on the over/under.  I would put that line for over/under at a sentence of one-year-and-one-day, a particular favorite in white collar crime cases.  The extra day means that the prisoner is eligible for the 15% good time credit under the Bureau of Prisons rules, so the actual sentence is a bit over ten months.  Moreover, the last portion can be served in a half-way house, so the time in an FCI is more like 8+ months. 

I peg my own guess at a year-and-a-day because that means the Judge could depart a bit from the Guidelines range, per Probation's suggestion, and still impose a substantial prison term.  Given that Judge Walton was not always pleased with the defense during the trial, I suspect he might not cut as much slack as he would otherwise.  After imposing the sentence, I also suspect the Judge will allow Libby to remain free on bail pending appeal.  Despite the statutory presumption that a convicted defendant goes to jail after sentencing, the trend in white collar crime cases has been to allow the defendant to remain free while pursuing the appeal, and there are certainly legal questions in the case that are sufficiently close to justify permitting Libby to remain out on bail. (ph)

Download us_v_libby_defense_opposition_sentencing_memo.pdf

Download us_v. Libby Defense Sentencing Memo.pdf

Did Karl Rove Sic Prosecutors on Former Alabama Gov. Siegelman?

Any description of the prosecution of former Alabama Governor Don Siegelman and former HealthSouth CEO Richard Scrushy that does not include words like tortuous, labyrinthine, or bizarre just doesn't quite capture how strange this case has been.  Coming on the heels of Scrushy's acquittal on securities fraud charges, the corruption case against the two men has included allegations of a political witch hunt of Siegelman, who barely lost re-election in 2002 and was running for the Democratic nomination while on trial in 2006.  Since the trial, e-mails allegedly between jurors discussing the case have surfaced from an anonymous source and raise questions about possible misconduct, although the court denied a motion for a new trial based on this evidence.  A defense motion questioning racial discrimination in the jury selection remains undecided.  Allegations that the presiding judge has secret ties to a federal prosecutor through a company in which he was an officer triggered a recusal motion that was denied.  Now comes a story in Time (here) alleging that Presidential adviser Karl Rove arranged to have Siegelman investigated by the U.S. Attorney's in the Northern and Middle Districts of Alabama -- the corruption case was prosecuted in the Middle District.  According to the article, "A longtime Republican lawyer in Alabama swears she heard a top G.O.P. operative in the state say that Rove 'had spoken with the Department of Justice' about 'pursuing' Siegelman, with help from two of Alabama's U.S. attorneys."  The claim against Rove is hearsay, but that hardly seems to matter.  Look for Siegelman -- and Scrushy, who is not shy about assailing the government -- to raise a great hue and cry about the prosecution's motives.  Like their other claims, it likely will fall on deaf ears in the District Court, and probably won't get much traction in the Eleventh Circuit, either.  I'm tempted to say that this case can't get much weirder, but no prediction is safe with this one. (ph)

Rumblings of a Plea from Milberg Weiss

There are indications that partners at Milberg Weiss are negotiating a plea deal with the government to put an end to the prosecution of the firm for making secret payments to named plaintiffs in class actions for which the firm was lead counsel.  Recent reports that former name partner David Bershad is also negotiating to plead guilty for his role in the scheme (see earlier post here) means that any hope the firm had of defending itself on the charges goes down the tubes if Bershad admits to criminal conduct in the course of his work on behalf of Milberg Weiss clients.  The criminal liability of organizations, such as law firm partnerships, is based on respondeat superior, so Bershad's conduct would be attributed to Milberg Weiss.  An article in The Recorder (here) includes speculation that the firm may be required to pay a fine of $50 million to $100 million, a substantial amount of money. 

For the firm, more important than the fine is avoiding having to enter a guilty plea, which would haunt it in the future as it tries to obtain appointments in securities class actions.  I expect the government is willing to enter into a deferred prosecution agreement under which Milberg Weiss will admit to violations and agree to certain reforms in its operations and governance, and after a period of time the current charges will be dismissed.  While not a pleasant outcome for the firm, it sure beats a criminal conviction by a jury, which would be a foregone conclusion if Bershad admits his own guilt.  What reforms the government demands will be interesting -- might it seek the removal name partner Melvyn Weiss from his role at the firm he helped found and turn into a plaintiffs class action powerhouse?  (ph)

SEC Files Securities Fraud Complaint Against Four Former Mercury Interactive Officers

The SEC filed a civil enforcement action alleging securities fraud against four former officers of Mercury Interactive, Inc. for their role in options backdating from 1997 to 2003, and for two defendants allegedly manipulating revenues.  The defendants are former CEO Amnon Landan, two former CFOs, Sharlene Abrams and Douglas Smith, and the company's former general counsel, Susan Skaer (SEC Litigation Release here).  The company, now a division of H-P after being acquired in 2006, settled the case by agreeing to pay a $28 million civil penalty.  This comes on the heels of the Brocade Communications settlement of an options timing complaint for $7 million (see earlier post here), and in Mercury Interactive's case the accounting violations likely triggered the higher fine.  One particularly notable piece of evidence cited by the SEC in its complaint (here) regarding the revenue recognition issue is a slide in a PowerPoint presentation prepared by Abrams that discussed how the company treated order backlogs that stated, "Our Hidden Backlog . . . What Any Analyst Would Love to Get Their Hands On!"  This is probably worse than some of the e-mails we've seen in cases, regardless of whether there's an innocent explanation for the statement.

The role of Skaer as general counsel fits into a pattern seen with increasing frequency lately.  The SEC -- along with federal prosecutors -- has shown a greater willingness to pursue charges against a company's lawyers, particularly in-house counsel, for their role as a gatekeeper who is responsible for ensuring the paper-flow is correct and that the requirements of the law are fulfilled.  The number of general counsels accused of securities violations for options backdating continues to grow.

With the civil case filed, the next issue is whether federal prosecutors will file charges.  The U.S. Attorney's Office for the Northern District of California has been looking at the company.  The SEC's allegations of false filings, including knowing false certifications of the financial statements, is the type of violation that is more likely to trigger criminal charges.  Whether the turmoil in the U.S. Attorney's Office explains why the Commission acted alone, or whether the decision was made not to pursue charges, is unknown at this point, but a criminal case can't be ruled out just yet. (ph)

Judge Kaplan Confronts the Issue of Remedy in the KPMG Tax Shelter Prosecution

The Second Circuit's recent decision (see earlier post here) invalidating the civil remedy crafted by U.S. District Judge Lewis Kaplan to overcome the constitutional violation he found in the denial of attorney's fees for sixteen KPMG defendants raises the question of how the Judge will proceed from here.  In criminal cases, the usual remedy that comes to mind for violations of a defendant's rights is the exclusionary rule, except in this case there's really nothing to exclude because the violations did not yield any evidence for the government, at least not directly.  In finding the pressure prosecutors put on KPMG to deny attorney's fees to its former partners and employees was a violation of the right to counsel and due process, the Judge focused on the government's conduct during the investigatory stage.  But that conduct did not impact the evidence used to obtain the indictments, unlike a Fourth Amendment violation.

The Judge issued an order (here courtesy of the WSJ Law Blog) asking the parties to address the following question: "What if any sanctions other than dismissal of the entire indictment are available with respect to the constitutional violations found by the Court?"  The short answer is: not many, at least if the remedy is to address the violation itself and not as form of punishment for prosecutorial misconduct.  Even the dismissal option is not an easy one to reach.  Controlling Supreme Court precedent makes it difficult to dismiss an indictment because of prosecutorial misconduct during the pre-charge phase, so unless the violation resulted in the government obtaining tainted evidence there are not many other options available.  Not to blow my own horn, at least not too much, I wrote two articles addressing the issue of remedies for prosecutorial misconduct, and the conclusion I reached is that dismissal to punish prosecutors is difficult to justify under the Constitution and other remedies only indirectly address the  misconduct because society pays the price when a prosecution is hamstrung.  For those suffering from terminal insomnia, the articles are Prosecutorial Misconduct and Constitutional Remedies, 77 Wash. U.L.Q 713 (1999) [available on SSRN here], and Prosecutorial Misconduct in Grand Jury Investigations, 51 S. Carolina L. Rev. 1 (1999) [available below].

The Judge's order poses another question to prosecutors that may be a bit disingenuous.  Judge Kaplan asks: "What if any steps are [sic] the government prepared to take voluntarily in an effort to remedy the constitutional violations found by the court?"  The government likely does not agree with the court's findings, and no doubt is champing at the bit to appeal to the Second Circuit.  Would volunteering a remedy concede that the determination of constitutional violations was correct?  Moreover, there's a measure of "name your own punishment" to the order that puts the U.S. Attorney's Office in a difficult position.  If prosecutors were to recommend a remedy that the court determined was inadequate, they would be castigated again for not protecting the rights of the defendants and risk further wrath from the Judge.  If they propose significant remedies -- which are a bit hard to imagine at this point -- then they could make obtaining convictions even more difficult in an already complex case.  I suspect prosecutors will pass on the Judge's invitation.

An interesting question will be whether the Judge crafts a remedy that prevents prosecutors from appealing the underlying finding of constitutional violations.  An order dismissing the indictments is immediately appealable, as would be the exclusion of significant blocks of evidence.  Less drastic remedies may not fully vindicate the constitutional violations, but could insulate the decision from appeal except through a writ of mandamus, which is difficult to obtain.  Is Judge Kaplan willing to go to the limit and order dismissal of the indictments, opening up his decision to review by the Second Circuit?  Oral argument is scheduled for July 2.  (ph) 

Download prosecutorial_misconduct_in_grand_jury_investigations.pdf

DOJ Expands Its Internal Investigation

The Department of Justice Inspector General and its Office of Professional Responsibility disclosed in a letter (here) to Senate Judiciary Committee Chairman Patrick Leahy and ranking member Arlen Specter that they have "expanded the scope of our investigation" of possible wrongdoing in the Department.  According to the letter, the two offices are now looking into "allegations of Monica Goodling's and others' actions in DOJ hiring and personnel decisions; allegations concerning the hiring for the DOJ Honors Program and Summer Law Intern Program; and allegations concerning hiring practices in the DOJ Civil Rights Division."  Whether the internal investigation turns up anything of interest is an open question because the offices are a part of the Department.  In her testimony before the House Judiciary Committee, Goodling, the former White House liaison for Attorney General Alberto Gonzales, said that in a few instances she allowed political affiliation to affect hiring  the hiring of Assistant U.S. Attorneys, something for which she expressed "regret."  Given the grant of immunity to Goodling, there is little likelihood criminal charges will be recommended against her, and to this point no one else has been identified as acting in the same way as Goodling.  She may well make a convenient -- and unchargeable -- scapegoat for the IG and OPR investigation. (ph)

SEC Settles with Brocade Over Options Backdating

The SEC settled a civil enforcement action with Brocade Communications Systems, Inc., over options backdating by the company's CEO, Gregory Reyes.  The case became the poster child for Chairman Christopher Cox's new procedure that requires the SEC staff to get authorization from the full Commission before negotiating a corporate penalty rather than presenting an agreed amount for approval.  This is part of Cox's plan to exert greater control over the Enforcement Division and to address the issue of what fines are appropriate when a company's shareholders bear the burden of the harm from the underlying securities fraud and then the company pays a fine on top of those losses.  In the Brocade settlement (SEC Litigation Release here and complaint here), the company agreed to pay a $7 million civil penalty, which now sets the benchmark for future cases that can be compared to the amount of options issued and the level of executive involvement.  Reyes and Brocade's former human resources director were indicted on conspiracy and securities fraud charged, and sued by the SEC, in July 2006, so this case is likely viewed as a fairly egregious one.  I suspect that future settlements of pure options backdating cases, i.e. ones that do not also involve accounting fraud aside from the misstated income and expenses due to the backdated options issuance, will likely come in at a lower amount absent significant personal gains by executives. (ph)