White Collar Crime Prof Blog

Should Libby Have Been Required to Serve a Day in Prison?

The President's commutation of the thirty-month sentence of I. Lewis Libby has created a bit of a mess on a number of different fronts.  First, was it really a commutation?  The former Pardon Attorney at the Department of Justice, Margaret Love, explains that when the executive commutes a sentence it merely reduces the penalty, but does not eliminate it all together.  In her view, it should be termed a remission and not a commutation because Libby never served any time in prison.  While the President can issue a pardon, which would eliminate the punishment altogether, the commutation in this case is not the typical one.

To make things even more complicated, one rational offered for commuting the prison term was that Libby would still be subject to punishment,  The President's Grant of Executive Clemency (here) states that "pursuant to my powers under Article II, Section 2, of the Constitution, do hereby commute the prison terms imposed by the sentence upon the said Lewis Libby to expire immediately, leaving intact and in effect the two-year term of supervised release, with all its conditions, and all other components of the sentence."  An order (here) issued on July 3, 2007, by U.S. District Judge Reggie Walton, who presided over the trial and sentenced Libby, questions whether the term of supervised release is legally permissible.  The statue, 18 U.S.C. Sec. 3583(a), states that a term of supervised release may be imposed "after imprisonment," but of course Libby will not serve any time in prison.  The Judge has asked the parties to the litigation for their position on the issue, and in a footnote raises the question whether the views of the President should be solicited.  I doubt either party will encourage such a submission, and I suspect that even if asked, the White House would decline to participate lest it become mired further in the prosecution of Libby.

Finally, would any prison sentence have been acceptable to the President?  While the U.S. Probation Office recommended a downward departure from the 10-16 month range called for by the Federal Sentencing Guidelines under its calculation, it did not recommend a specific term or even probation.  But, according to the President's Press Secretary, Tony Snow, any time in prison would have been "excessive" and therefore would have triggered the grant of executive clemency, perhaps even a day.  In a statement to the press (here), Snow asserted that "he [the President] said it was excessive, and he thought that any jail time was excessive. And therefore, he did not see fit to have Scooter Libby taken to jail." [Italics added]  Snow went on to note, "You have obstruction of justice, and then you have mitigating factors that bumps it down. And the bump down gets you, according, again, to the parole commission, to an area where it would be appropriate, it would be within acceptable guidelines to have such things as home detention or probation. Probation is something that is going to be required in this case."  Probation -- actually supervised release, but the Press Secretary may have watched one too many Law & Order episodes -- appears to have played a key role in the President's analysis of what was an "excessive" sentence, but in fact it may be off the table now under the governing statute for a term of supervised release.

Commutation, or remission, is certainly half-a-loaf, which may have been the President's design all along because a full pardon would have been viewed as a complete usurpation of the judicial process before the court of appeals even heard the case.  But issuing it before the sentence began, even for a day, sends the message that factors outside the normal considerations of the appropriate punishment were at work in this case.  When a term like "excessive" is used to justify the decision, the obvious question is, "Compared to what?"  The Eighth Amendment contains a prohibition on excessive fines, which requires some consideration of the severity of the underlying violation.  Similarly, the Supreme Court's pre-Booker analysis of sentencing departures in Koon required that the case be "outside the heartland" before a judge could grant a departure, meaning that it must be extraordinary compared to other cases.  What makes the Libby sentence so different from those imposed in other perjury and obstruction of justice prosecutions, or other such defendants if one wishes to focus on the individual?  The President's commutation means that there will not even be a term of home confinement, resulting in a punishment far less than almost all sentences for a felony in the federal system.  Libby's public service and the fact that he is a first-time offender do not appear to be so distinctive as to require that there be no form of confinement, unless one wishes to make public servants convicted of crimes largely immune to prison terms because virtually none will ever have a prior conviction.  Perhaps it is as simple as sentencing czar Doug Berman is quoted as stating in a Washington Post article (here) about the President's decision: "My friend Scooter shouldn't have to serve 30 months in prison because I don't want him to." (ph)

Stiff Sentences Handed Down to Enterasys Executives

Four former executives of Enterasys Networks, Inc., a Massachusetts network router company, received substantial prison terms for their role in an accounting fraud at the company in 2001.  The defendants, who were convicted on a variety of charges including conspiracy and securities fraud, include Enterasys' former CFO, sentenced to over eleven years, and its former senior VP for finance, who received a sentence of over nine years.  The other two executives received prison terms of eight and three years.  Problems arose at the company as the tech bubble burst in 2000, and by 2001 the pressure was on to maintain the stock price in the face of declining revenues.  According to a press release (here) issued by the U.S. Attorney's Office for the District of New Hampshire:

Evidence at trial showed that starting in the summer of 2001, the four defendants and other Enterasys executives inflated Enterasys’s revenue figures in order to satisfy the publicly reported expectations of Wall Street analysts and to increase, or at least maintain, the price of Enterasys stock. The conspirators backdated and falsified documents and concealed material terms of business transactions from Enterasys’s auditors in order to inflate revenues. The conspirators also fraudulently created false revenue by secretly investing company funds in other companies and causing those companies to use the investment proceeds in turn to buy Enterasys products. The court found that public investors lost at least $97 million as a result of the fraudulent scheme.

The company's former CEO earlier entered a guilty plea to charges.  Don't think that sentencing in corporate fraud cases is diminishing.  (ph)

Trading Ahead of the Hilton Hotels Offer

Trading in Hilton Hotels Corp.'s stock and call options jumped wildly right before the announcement after the close of trading on July 3 that Blackstone Group would take the company private at $47.50 per share.  The stock price had been hovering in the low thirties, although on July 3 the shares jumped over $2 per share to $36, still more than $10 from the offer price.  According to a Bloomberg story (here), trading in Hilton Hotels call options was up over nine times the average volume before the announcement, and a number of trades were in out-of-the-money contracts, indicating that -- here's a shocker -- someone had a pretty strong inkling something was about to happen to the stock.  Another deal, another SEC insider trading investigation, in all likelihood.  We'll see if anything comes of it. (ph)

SDNY Dismisses Counts in FCPA Indictment on Statute of Limitations Grounds

In a recent ruling, the Southern District of New York issued an opinion dismissing all counts of an Indictment, except false statement counts.  The government argued that the statute of limitations should be tolled "based on the government's official requests for foreign evidence from the Netherlands and Switzerland.  In rejecting this argument, the court stated that "because the government did not move to "'suspend the running' of the statute of limitations until after it had expired, the government is not entitled to any tolling under section 3292."

This case presents the difficult situation of trying to obtain evidence from a foreign country in a timely manner. Letters rogatory and use of treaties to secure this evidence can take time.  In these situtations the government has the ability to request an extension from the court.  The problem in this case was that the government did not make a timely request to the court.

The decision -

Download kozeny_order_on_motion_to_dismiss_on_sol_grounds.pdf

(esp)

"Far from a Slap on the Wrist" - Libby's Sentence

"Far from a slap on the wrist," is what Tony Snow, white house spokesperson, said when talking about the fact that President Bush decided to commute Libby's sentence so that he will not have to serve any jail time.  After all, Libby will have probation or is it supervised release, a fine, and the collateral consequences that white collar offenders often face. The court is faced with an unusual circumstance of how to deal with the supervised release in light of the fact that the accused did not serve a prison sentence.  The courts order requesting the government and defense to submit briefs on this issue and commentary can be found here on Doug Berman's Sentencing Law & Policy Blog.

But will Libby be required to suffer all the indignities suffered by other offenders?  Will he have to pee in a cup? If it becomes probation then 18 U.S.C. 3563 (5) may apply, which states: 

"for a felony, a misdemeanor, or an infraction, that the defendant refrain from any unlawful use of a controlled substance and submit to one drug test within 15 days of release on probation and at least 2 periodic drug tests thereafter (as determined by the court) for use of a controlled substance, but the condition stated in this paragraph may be ameliorated or suspended by the court for any individual defendant if the defendant's presentence report or other reliable sentencing information indicates a low risk of future substance abuse by the defendant;"

Will the court waive this one?  Or will this be the point that President Bush steps in to pardon Libby? (see NYTimes article discussing Bush's response to a question on a possible pardon of Libby)

(esp)

Perhaps No Dismissal in Stein (KPMG) Case

Judge Lewis Kaplan's initial decision in the Stein case left many wondering what would happen if the case landed back on his desk.  Would he dismiss the matter, or proceed to trial?  What would be the remedy for the government's conduct/misconduct (see here) Despite government briefs that allowed for a dismissal, the court may be reconsidering this position.  Lynnley Browning  reports on this case in a NYTimes article titled, "In a Shift, Judge Demurs on Dismissing KPMG Case."

(esp)

The Libby Motion

Will we be seeing defense counsel making "The Libby Motion,"  what will the motion contain, and how will judges react?

Clearly, every criminal defense lawyer who practices in the white collar arena is asking him or herself - why shouldn't my client have this same privilege?  After all the client may have been convicted of a perjury or obstruction charge, may have children, may be suffering the collateral consequences of the loss of a law license, may have served their country - perhaps in war, and may be a first offender. Should they not receive the same sentence of "no time."

One should expect that there will be Libby Motions made, and/or motions that contain this language in a request for a departure from the guidelines.  The motion will likely include a comparison to the client's circumstances with that of Libby. It will probably also contain language from the U.S. Sentencing Guidelines that speaks to a basic policy consideration of the guidelines being to obtain "reasonable uniformity in sentencing by narrowing the wide disparity in sentences imposed for similar criminal conduct."  And after all, the guidelines permit departure for factors that were not considered by the U.S. Sentencing Commission. Did the Commission consider that a President would take an entire sentence and commute it prior to the individual even seeing one day in jail?  And understanding that the U.S. Sentencing Commission did not consider this, should a departure therefore be allowed?

And the judges, what will they do with these motions?  The activist ones - might follow the activist executive and say - yes this is grounds for departure.  But more likely we will see judges continue to follow the flow of the guidelines and sentence individuals as if the Libby case did not exist.

And we law professors will be left to try and explain this to students. 

(esp)

Commentary on Bush's Commuting of Libby's Sentence

This is clearly a controversial move by President Bush - to commute the prison sentence of Libby.  Some thoughts:

1.  The Timing - Why did President Bush commute this sentence just hours after a three court panel (made up of two Republicans and one Democrat) had ruled that Libby would not receive bond pending appeal?

• President Bush states that the prison sentence here is "excessive" - but there is a big difference between 30 months and no time.  One has to wonder why he didn't wait until Libby had served some time and then commuted the sentence.  Was he afraid of Libby cooperating to avoid jail time? Was it necessary to commute the sentence immediately to avoid Libby moving from being a jailer to a cooperator?  Bush's immediate dismissal of the entire jail sentence is suspect when he could have adjusted the sentence by waiting until Libby served some time, before issuing him a  free "get out of jail card."
• And if he planned to commute the sentence, was this prosecution really worth it?  Will it have a deterrent effect absent the jail time? How much money was spent on this prosecution and as a taxpayer was the dollar spent wisely here?  If the goal was not to have Libby serve jail time, would an earlier resolution have been more appropriate.

2. Was this a political decision?

• Whether one calls this political or a benefit for the privileged, it is clear that the typical person convicted of a crime would not receive this benefit.  This is a scenario so far removed from the norms of the system that one has to recognize that this action is clearly suspect.
• The judges involved in this case are far from individuals who would be considered activist judges - does this make the executive - the President - the activist?

3. What does this say about the Federal Sentencing Guidelines?

• A new departure from the guidelines has been created.  It can only occur when the President of the United States authorizes it. It is not founded on any departure law considered by the U.S. Sentencing Commission or Congress.  It is premised on whether you have a direct connection to the President.
• Can future defendants who are convicted with similar conduct argue that they should receive a sentence of no time so that like defendants receive like punishments?
• This sentence, perhaps high, was within guideline range.  Does this case represent the need to revise the guidelines to offer first time white collar offenders softer and more reasonable sentences. Or is this case a one-time exception?

4.  Recognizing the effect on third parties is important.

• President Bush recognizes the effect of this conviction on Libby's wife and children - they have suffered.  It is good that Bush understands the injustice in society to innocent parties when someone is convicted of criminal conduct.  But is this not something that all families of the convicted face.  Should courts and the U.S. Sentencing Commission consider this in recommending a sentence?

Perhaps President Bush is correct that Libby did not deserve jail time.  But what is bothersome here is that one elite individual is receiving this benefit while others with comparable circumstances will not have this benefit - it all comes down to who has access to the President.  Is this equal justice under law?

(esp)

Comment of Attorney Ted Wells

Attorney Ted Wells, Libby's lawyer issued a statement as follows:

“Mr. Libby and his family wish to express their gratitude for the President’s decision today.  We continue to believe in Mr. Libby’s innocence.  Scooter and his family appreciate the many Americans who have supported them over the last two years.”

(esp)

Prosecutor Patrick J. Fitzgerald's Response

In a most professional way, Prosecutor Patrick J. Fitzgerald responds to the President's statement commuting Libby's sentence.  He states:

"We fully recognize that the Constitution provides that commutation decisions are a matter of presidential prerogative and we do not comment on the exercise of that prerogative.

We comment only on the statement in which the President termed the sentence imposed by the judge as "excessive." The sentence in this case was imposed pursuant to the laws governing sentencings which occur every day throughout this country. In this case, an experienced federal judge considered extensive argument from the parties and then imposed a sentence consistent with the applicable laws. It is fundamental to the rule of law that all citizens stand before the bar of justice as equals. That principle guided the judge during both the trial and the sentencing.

Although the President’s decision eliminates Mr. Libby’s sentence of imprisonment, Mr. Libby remains convicted by a jury of serious felonies, and we will continue to seek to preserve those convictions through the appeals process."

Statement here -

Download us_v_libby_special_counsel_statement_july_2_2007.pdf

Stay tuned for Commentary.(esp)

Bush to Commute Libby's Sentence

The Wall Street Jrl headline is: "Bush Spares Libby From Prison Term."  (see also CNN) Just hours ago a three judge panel ruled against Libby's request for an appeal bond (see here).  We are now seeing President Bush's response to this ruling. Commuting the sentence will mean that I. Lewis "Scooter" Libby will continue to have a federal conviction. He will have to pay his fine and will remain on probation.  It will mean, however, that the 30 month sentence will not have to be served.  Obvious questions:

Is Libby receiving treatment that other offenders are not given - e.g. - Siegelman, Scrushy, Olis, Ebbers, and the long list of other individuals convicted of white collar crimes. And how about all the other offenders serving time in prison? And how will Martha Stewart feel about this - she served a sentence for similar alleged conduct?

Does Libby deserve this special treatment?  Many claim he does and many say the opposite?  Does this presidential decision negate the U.S. Sentencing Guidelines - a move to keep sentences equal for like defendants?

It will be interesting to hear the President's comments on why this decision was made.  Obviously more Commentary will follow.

(esp)

________________________________________________

UPDATE:  The President's statement is available here.  He explains:

I respect the jury's verdict. But I have concluded that the prison sentence given to Mr. Libby is excessive. Therefore, I am commuting the portion of Mr. Libby's sentence that required him to spend thirty months in prison.

My decision to commute his prison sentence leaves in place a harsh punishment for Mr. Libby. The reputation he gained through his years of public service and professional work in the legal community is forever damaged. His wife and young children have also suffered immensely. He will remain on probation. The significant fines imposed by the judge will remain in effect. The consequences of his felony conviction on his former life as a lawyer, public servant, and private citizen will be long-lasting.

The Constitution gives the President the power of clemency to be used when he deems it to be warranted. It is my judgment that a commutation of the prison term in Mr. Libby's case is an appropriate exercise of this power.

(ph)

D.C. Circuit Denies Libby Bail Pending Appeal

The District of Columbia Circuit Court of Appeals denied the expedited motion of I. Lewis Libby for bail pending appeal of his convictions on perjury, obstruction of justice, and false statement charges (see earlier post here).  Libby's name is already listed on the Bureau of Prisons website under its "Inmate Locator" under Register Number 28301-016, which likely means they are preparing for his placement in the federal correctional system.  Possible locations near Washington, D.C., where his family lives, include the Morgantown, West Virginia, FCI, which currently houses former Representative Bob Ney of Ohio.  Other possibilities are the FCI in Cumberland, Maryland, where former lobbyist Jack Abramoff is serving his term, or Petersburg, Virginia, which has a minimum security camp.  Of course, there is also pressure being put on President Bush to issue a pardon for Libby, which would eliminate his going to prison and negate his appeal.  An AP story (here) discusses the D.C. Circuit's decision. (ph)

Scrushy & Siegelman - How Long Will They Be in Prison?

Former HealthSouth CEO Richard Scrushy and former Alabama Governor Siegelman remain in jail after the court had them taken immediately from the courtroom into custody.  Unlike many white collar offenders, these gentlemen were not afforded the opportunity to report to prison.  Additionally they were not given the chance to remain free pending their appeal. (see here and here)

It may seem difficult to discern when an individual is allowed to remain free pending their appeal, and whether they will be permitted to report to prison as opposed to being hopscotched through the prison system to their eventual assignment. Some examples - Jamie Olis of Dynergy went directly to prison; Bernie Ebbers remained free pending his appeal; Jeff Skilling went to prison immediately but was allowed to report to his assigned facility; Bill Campbell - former Mayor of Atlanta - went to prison immediately but was allowed to report to the facility. 

One thing is clear - if you cooperate with the government, you will likely be given the courtesy of being allowed to report to prison.  Today, if you avail yourself of your constitutional right to trial by jury, and are unsuccessful at that trial, there is a chance of one of three things happening: 1) you will remain free pending the appeal; 2) you will get to report directly the facility after the Bureau of Prisons has made the assignment; or 3) you will go directly to jail.

A key factor in remaining free pending the appeal is whether there is a "substantial question of law or fact" that might result in an eventual reversal of the conviction.  This is an issue that "Scooter" Libby's counsel will likely be addressing in the appellate court.

In the Scrushy/Siegleman appeal, we are likely to see some fascinating issues considered.  For example, is this a bribery case where neither the briber or the bribee received any personal benefit? And if so, how do you ascertain the loss is this scenario?  For other appeallate issues see here. But whether the 11th Circuit will consider these issues sufficient to offer an appeal bond, remains to be seen.

(esp)

What It Costs to Defend a White Collar Crime Prosecution

A complex white collar crime prosecution can involve enormous sums for defense counsel, particularly when the lawyers are from leading New York or Washington D.C. firms.  A recent district court decision in Westar Energy v. Lake (available below) gives a little bit of insight into just how much money is involved, and the resources the firms commit to defending their client.  Douglas Lake was a senior executive at Kansas utility Westar Energy, and was indicted along with former CEO David Wittig on fraud charges.  The first trial ended in a hung jury, while the second resulted in a conviction of Lake on some counts related to an alleged fraud involving the use of corporate resources for personal purposes and false reporting to the SEC.  In January 2007, however, the Tenth Circuit reversed the convictions, finding insufficient evidence to support some of the charges and remanding for a third trial on others, including a conspiracy count, and Lake was released from prison.  In February 2007, the government decided to go forward with a third trial. 

Westar has a broad indemnification provision in its by-laws that allows for advancement of reasonable attorney's fees, and through April 2005 the company advanced $4.6 million to Lake's attorneys from Hughes Hubbard in New York and local counsel.  After that point, however, Westar refused to pay any further, and Hughes Hubbard has moved to withdraw from representing Lake in the third trial because it has not been paid about $4 million in fees.  In addition to his trial counsel, Lake retained Wilmer Cutler from Washington D.C. to represent him on appeal, which cost $2.2 million and involved seven or eight attorneys billing time on the matter.  All told, Lake's legal fees in the criminal matter to this point have totaled over $15 million, and he has also incurred costs in defending private securities class actions and shareholder derivative suits.

While the court expressed some concern about the billings by Lake's lawyers, U.S. District Judge Julie Robinson rejected Westar's argument that the billing rates should be capped at the amount a Kansas lawyer would charge and not the rates of New York and D.C. lawyers, a difference of of about two-thirds -- those city-slickers don't come cheap.  She noted that if Westar wanted to limit the amount of reimbursement to what a local law firm would charge -- the company is headquartered in Wichita -- it should have put that into the contract.  Given the complex nature of the case, Judge Robinson determined that Lake's hiring of New York trial counsel and DC appellate lawyers, along with local counsel, was not unreasonable.  The court only required Westar to pay 50% of the claimed fees for Hughes Hubbard and Wilmer Cutler because of questions about the reasonableness of their bills, but still ordered a payment of over $3 million.  For future legal fee disputes, the court created a mechanism to ensure that Westar would pay the fees but could still object to amounts it viewed as unreasonable: if Westar wants to object to a bill, then a federal magistrate judge will decide the issue, but it must pay any amounts to which is does not object.  This resolution may allow Lake to retain his trial counsel for the third proceeding, which would likely be a significant advantage because of the lawyers' familiarity with the issues.  And it sure ain't cheap to defend a white collar crime case, especially when you have to fight to get the fees paid.  By the way, guess who pays the costs of deciding how much Lake's lawyers are entitled to be paid? (ph)

Download westar_energy_v_lake_attorneys_fees_opinion_june_28_2007.pdf

Another Leaving at DOJ

The ever-increasing turnover rate at DOJ just increased even further, with another individual announcing a departure. Assistant Attorney General Rachel Brand announced her departure from DOJ, effective July 9, 2007. A DOJ Press release states:

"As Assistant Attorney General for Legal Policy, Brand managed the development of a variety of civil and criminal policy initiatives, the creation of departmental regulations, and the Department’s role in the confirmation of the President’s judicial nominees. She played an integral role in securing reauthorization of the US  A PATRIOT Act in 2006, and was responsible for preparing Chief Justice John Roberts and Justice Samuel Alito for their confirmation hearings."

(esp)

Jury Deliberations Resume on Monday in Conrad Black Trial

The jury deliberations in the Conrad Black trial will resume on Monday. Canada.com reports on a recent request by the jury to view a prosecution summary chart.

(esp)

English Magistrate Rejects Extradition and Castigates the U.S. Prosecutor

An English Magistrate rejected the request of the U.S. government to extradite Stanley Tollman to face bank fraud and tax evasion charges that he defrauded investors of over $100 million (opinion available below).  The ground for denying the request was that the passage of time since the underlying criminal conduct would make it "unjust and oppressive" to extradite the defendant to face the charges.  Among other things, the Magistrate noted that two important witnesses, one Tollman's brother, have died since the case was first indicted, and the underlying transactions took place in the early 1990s so documents may no longer be available.  Interestingly, the Magistrate did not find that Tollman was a fugitive even though he left the U.S. while his lawyers were negotiating his surrender with prosecutors (see New York Times story here).  The court noted that Tollman, a South African citizen, lived openly in Great Britain after the indictment.  Therefore, his argument that the passage of time harmed his defense was not negated by his having been a fugitive.

While the court did not rest its decision specifically on the ground of prosecutorial misconduct, it found that the Assistant U.S. Attorney in the case had been less than honest in his dealings with foreign courts and his conduct "reprehensible."  In one instance, the Magistrate determined that the prosecutor misled a Canadian court related to having Tollman's brother returned to the United States.  The prosecutor was also alleged to have said that he would make Tollman's "life as miserable as possible" and would make his wife, who was also indicted, do a "perp walk" when she returned to New York -- the same Magistrate earlier turned down an extradition request for Mrs. Tollman.  The prosecutor submitted an affidavit denying he made the statements, which the Magistrate found "to be untruthful."  The English court sent a clear message that there was prosecutorial overreaching, a point that will not aid the Department of Justice if it appeals the decision. (ph)

Download us_v_tollman_magistrate_extradition_decision.pdf

Internet Gambling Processor Pleads Guilty

The co-founder of NETeller PLC, which acted as a middleman to facilitate Americans placing bets with on-line gambling sites, entered a guilty plea to one count of conspiracy and is cooperating with the government investigation.  The company did not take any bets itself, instead served as the conduit through which the money passed to the gambling concerns located off-shore and handled the proceeds of any pay-offs.  The defendant was arrested in January 2007, along with the company's other founder, as part of a broad federal crackdown on internet gambling that caused the shares of a number of companies, most traded in London, to fall sharply.  Federal law now prohibits virtually all internet gambling.  A Reuters story (here) discusses the guilty plea. (ph)

Four Former ConAgra Execs Settle SEC Accounting Fraud Charges

Four former finance executives at ConAgra Foods, Inc., settled SEC civil enforcement and administrative actions for their roles in a variety of accounting entries that inflated the company's earnings and resulted in misstated financial statements being filed.  The executives served at one time as the CFO, controller, and vice president for taxes, and according to the SEC Litigation Release (here): "These enforcement actions variously address alleged improper accounting practices, inaccurate disclosure and income tax errors occurring between ConAgra's fiscal years 1999 and 2005 that resulted in ConAgra materially misstating its financial performance in its public statements and periodic filings with the Commission."  The defendants will pay a total of $1.7 million in disgorgement, prejudgment interest, and civil penalties. (ph)

Scrushy and Siegelman Go Directly to Jail

It took a few days of hearings before Chief U.S. District Judge Mark Fuller finally sentenced former HealthSouth CEO Richard Scrushy and former Alabama Governor Don Siegelman to prison for their convictions on conspiracy and corruption charges.  Although the government sought sentences of twenty-five and thirty years for the two, Scrushy received a sentence of nearly seven years (82 months), and Siegelman was sentenced to a bit more than seven years in prison (88 months).  Both men testified at the sentencing hearing, requesting mercy from the court. 

While the sentences were lower than the prosecutor's recommendation, Judge Fuller ordered the defendants taken into custody immediately to begin serving their terms, denying requests for bail pending appeal.  In white collar crime cases, it is much more common for a defendant to be given a reporting date -- usually a few weeks out -- so that the Bureau of Prisons is ready to process the person to the facility where the sentence will be served.  By having them placed in custody immediately, Scrushy and Siegelman will likely be held in a facility temporarily until assigned to a prison, a process that can take weeks -- or, as Jamie Olis learned the hard way, even months.  Defense counsel for each is likely to file a petition for bail pending appeal with the Eleventh Circuit, but even that process, while expedited, can take weeks and the prospects for success are cloudy at best.

Scrushy and Siegelman have vowed to appeal, and given how hard-fought the case has been, there's a decent chance prosecutors will appeal the sentence, arguing that the court miscalculated the gain from the bribery that should result in a higher calculation under the Federal Sentencing Guidelines.  A WTVYNews4.com story (here) discusses the sentencing. (ph)

Are Prosecutors Getting Ready to Go After Weiss and Lerach?

The Los Angeles Daily Journal is reporting that prosecutors offered a plea deal to leading class action attorneys Melvyn Weiss and William Lerach related to allegedly illegal kickbacks paid to representative plaintiffs.  The report also indicates that former Milberg Weiss name partner David Bershad is cooperating in the investigation of his former firm, which was indicted along with him and another firm partner in 2006.  The investigation of the firm has been tortuous, to say the least, having lasted now since about 2000.  At one point, Weiss and Lerach were identified as targets, but then in February 2006 the U.S. Attorney's Office in Los Angeles apparently notified them they were no longer targets (see earlier post here).  Now they may be back on the list, and indeed much more than mere targets but the principle focus of the case.  If Bershad does plead guilty, there is little the firm can do to fight the charges, and it may be in the interest of the remaining partners to end the prosecution with some type of settlement agreement. 

One hang-up with the reported plea offer is that it would have required Weiss and Lerach to serve a term in prison, which neither is amenable to at this point.  When prosecutors make plea offers this far into an investigation after securing the cooperation of another defendant, it may well be a sign that the government will move against the two lawyers in the near future.  A Reuters story (here) discusses the Daily Journal report (which is available only by subscription).  (ph)

The Bumpy Road at the Reyes Trial

The first options backdating criminal prosecution to go to trial seems to be quite a bumpy road out in Baghdad-by-the-Bay -- San Francisco.  Gregory Reyes, the former CEO of Brocade Communications, is accused of securities fraud for his role as a committee-of-one who decided on options awards to employees, including new hires, that involved backdating of a number of the grants.  There was a bit of a stir at the start of the trial when one of the first witnesses, a human resources employee at the company, testified that at one time Reyes said, "It's not illegal if you don't get caught" (see earlier post here).  While U.S. District Judge Charles Breyer allowed the testimony to come in, according to Justin Scheck on the CAL LAW blog Legal Pad (here), the witness showed a distinct lack of memory and some rather nettlesome behavior in responding to questioning.  In describing her testimony, Justin opines that she "is an incredibly bad witness."  Her lack of memory in other areas may well negate the harm to Reyes from recounting his pithy comment on what constitutes illegal conduct.

While that may not be all that helpful to the government, Reyes' defense counsel, Richard Marmaro, has apparently fallen well out of Judge Breyer's favor.  The defense has objected to what it views as the Judge's bias in conducting the trial and reacting to witnesses.  As recounted on the estimable Wall Street Journal Law Blog (here), Judge Breyer rejected what was by his count the "third or fourth" mistrial motion, all coming in the first five days of trial.  Among other things, the Judge told Marmaro, "If you want to turn this into a popularity contest, so be it. I can’t try the case to please friends, associates and summer associates at Skadden.”  Of course, those associates are making more than most federal judges and many of us lowly law faculty, although I think we have much better jobs.  These aren't the types of fireworks one would expect in a trial about the former CEO's knowledge of the proper tax and accounting treatment of options and the recording of employee compensation.  (ph)

Executive Fired for Trying to Destroy Documents During an Internal Investigation

With investigations of corporations for criminal conduct a common feature of the landscape these days, any news about an attempt to destroy corporate records is sure to get the attention of prosecutors.  That conduct is particularly problematic when the it is the company's chief accounting officer. Homebuilder Beazer Homes USA, Inc. is being investigated by the FBI and HUD over its mortgage lending practices, and has commenced an internal investigation.  The company disclosed that it recently learned its chief accounting officer tried to destroy documents, and it responded swiftly by terminating him for cause.  In an 8-K (here), Beazer stated that he

has been terminated for cause, under the terms of his employment agreement, due to violations of the Company’s ethics policy stemming from attempts to destroy documents in violation of the Company’s document retention policy. The action was taken by the Board of Directors and management following a briefing by the independent legal counsel retained by the Audit Committee of the Board of Directors. As previously disclosed, the Audit Committee, with the assistance of independent legal counsel, is conducting an internal investigation of the Company’s mortgage origination business and related matters and recently became aware of [the chief accounting officer]’s actions during that investigation. As a result, [his] employment agreement dated as of September 1, 2004 as amended effective as of February 3, 2006, has been terminated.

Prosecutors will be especially eager to learn the details of the document destruction to see if it constitutes obstruction of justice.  The Sarbanes-Oxley Act included provisions expanding the scope of the obstruction of justice statutes, making it easier to prove such cases.  Given the person's expertise in accounting, it's unlikely that an ignorance defense would get much traction. (ph)