January 2008

US District Judge Neal Biggers on Wednesday denied Dickie Scruggs’ motion to reconsider allowing him to add attorney Kenneth Coghlan to his legal team (earlier). Judge Biggers’ order, linked here (in .pdf) by the Daily Journal, also clarified which ”previous bad acts” the federal prosecutors will move to admit in US v. Scruggs:

“…[Joey] Langston pleaded guilty to another charge of judicial bribery and agreed to testify in the present case against defendant Richard Scruggs about Langston’s knowledge of alleged prior similar bad acts by Scruggs as provided for by Rule 404(b) of the Federal Rules of Evidence.”

Although US Magistrate Judge Michael T. Parker’s order of January 24 clearly granted State Farm’s motion to take a deposition from Dickie Scruggs in State Farm v. Hood (earlier), a bench memorandum submitted on Wednesday by State Farm indicates that Hood is running interference for Scruggs and is attempting to sabotage the deposition. John O’Brien’s Legal Newsline story is here.

Charles Nolon Bush, a former Port Orchard, Washington resident who fled to France and then Poland after his investment business collapsed in 2002, was ordered detained on Monday in US District Court in Tacoma; he was indicted by a federal grand jury in Seattle in August 2006 on 32 counts including securities fraud, wire fraud, mail fraud and money laundering. He is alleged to have fraudulently taken $30 million in investor funds in a Ponzi scheme. Bush was arrested in Warsaw in August 2007; he fought extradition but was returned to the US earlier this month. The DOJ press release is here.

In the aftermath of public revelation that former Hinds County DA Ed Peters was advising a plaintiff behind the scenes in a case before Judge Bobby DeLaughter and that a special master had been removed by DeLaughter after Peters became involved (here), the replacement special master in that case (Eaton v. Frisby et al) has resigned. Jackson attorney Larry Latham, who had replaced Jack Dunbar, on Monday told Circuit Judge Swan Yerger that Peters had spoken with him about the appointment and that it was necessary for him to resign to avoid any appearance of impropriety. Peters and DeLaughter have not been charged. Patsy Brumfield’s Daily Journal story is here.

UPDATE: Jerry Mitchell’s Clarion-Ledger story here has more details: that Latham says he was unaware that Dunbar was serving as special master, that Peters’ call to him came four days before DeLaughter removed Dunbar, and that Peters asked him not to bring up his name. Mitchell also reports:

“In a motion filed Tuesday to protect potential evidence, Frisby’s attorneys said it’s obvious Peters and DeLaughter communicated privately because Peters knew about the plan to replace Dunbar - something they said Dunbar himself didn’t know.”

US Office of Special Counsel head Scott Bloch last week sent a letter to Attorney General Michael Mukasey complaining that the DOJ is impeding his office’s investigation into the firings of eight US Attorneys. The independent agency headed by Bloch has the responsibility of enforcing protection of federal civil service employees from politicization. Bloch claims that he has repeatedly been refused access to documents and other evidence and that DOJ officials want him to delay his investigation until their own internal investigation is finished — which Bloch said could push his time frame to the end of the administration “when there is little hope of any corrective measures or discipline possible.” Richard Schmitt and Tom Hamburger’s LA Times story is here; AP here.

In court documents filed late Monday in US District Court in Los Angeles, prosecutors recommended that former Milberg Weiss senior partner William Lerach serve two years in prison. Lerach pleaded guilty on October 29, 2007 to one count of conspiracy to obstruct justice in connection with the firm’s hidden payments to repeat plaintiffs in class action lawsuits. However, the  the pre-sentencing report filed by the probation office recommended a sentence of 15 months. Lerach’s guilty plea called for a prison term of one to two years. Sentencing is scheduled for February 11, 2008 before US District Judge John Walter. On Tuesday, Judge Walter sentenced former Milberg client Seymour Lazar to six months home confinement. Lazar, an 80-year-old retired attorney who was the recipient of $2.6 million in secret payments from the firm, had pleaded guilty in October to obstruction of justice, subscribing to a false tax return and making a false declaration to the court.  The Houston Chronicle has the Bloomberg News story here.

Prosecutors in US v. Scruggs et al on Monday filed notice that they “will seek to introduce similar acts evidence pursuant to Rule 404(b), Fed. R. Evid., at the trial of the above-captioned case”. Patsy Brumfield’s preliminary story in the Daily Journal is here. The question, of course, is which similar acts; it could be the Langston case now unfolding, or others yet unknown.

Meanwhile, Scruggs seems intent on creating a possible appeal issue. On January 17, US District Judge Neal Biggers denied in no uncertain terms Scruggs’ motion to add attorney Kenneth Coghlan to his legal team. Reason: Coghlan had briefly represented Scruggs’ co-defendant Steve Patterson early in the case; Patterson has now pleaded guilty and is cooperating with prosecutors. But on Friday January 25, Scruggs’ lead attorney John Keker filed a motion to reconsider which announces Scruggs’ intent to consult Coghlan on non-evidentiary issues if the motion is denied. Alyssa Schnugg’s Oxford Eagle story is here.

After the prosecution rested on Friday in the federal tax fraud trial of actor Wesley Snipes and two co-defendants (earlier), Snipes’ lead attorney Robert Bernhoft promised a parade of celebrity witnesses and hinted that Snipes would take the stand in his own defense. But on Monday the defense rested without calling a single witness, asserting that the government had failed to meet its burden of proof. Bernhoft moved for a directed verdict of not guilty, which US District Judge William Terrell Hodges denied. Closing arguments are scheduled for Tuesday morning. AP/Yahoo here, Ocala Star-Banner here.

In his guilty plea, Joey Langston admitted bribing a “close personal friend” of state Circuit Judge Bobby DeLaughter in order to influence the judge to resolve a case in favor of Dickie Scruggs; the friend has been widely identified as former Hinds County District Attorney Ed Peters (earlier). Undoubtedly as a result of the publicity, defense attorneys for Jeffrey Frisby in another case being heard by Delaughter (Eaton Corp. v. Jeffrey D. Frisby et al) have filed motions asking for an impartial review of DeLaughter’s decisions in that case after learning from “accidental e-mails” that Ed Peters has been advising Eaton behind the scenes even though he is not the attorney of record. The Frisby motions also claim that DeLaughter removed a special master from the case after Peters became involved because his rulings had been unfavorable to Eaton. Bobby Harrison’s Daily Journal story is here.

Jerry Mitchell’s Clarion-Ledger story today indicates that this case and others are now part of an expanded FBI investigation.

Laura I. Flores of Arlington, Virginia, a former office manager for three House Democrats, pleaded guilty on Friday to a single count of wire fraud in US District Court in Alexandria. Flores admitted receiving approximately $200,000 from false expense vouchers she submitted during 2005 and 2006. The vouchers were paid from funds allocated to the three House members to be used for operational expenses; Flores had the funds diverted to her personal bank account. Sentencing is scheduled for May 2, 2008; the DOJ press release is here. A Washington Post story here identifies the three Representatives as Jane Harman, Neil Abercrombie and Jim Costa.

• Schering-Plough President Carrie Smith Cox’s large stock sale prior to the public release of the Vytorin clinical trial results has now come to the attention of the Congressional committee already investigating the Vytorin ad campaign. (Junkfood Science; earlier)
• Tom Kirkendall discusses the Enron Task Force’s continued refusal to turn over potentially exculpatory evidence, especially regarding Andrew Fastow. (Houston’s Clear Thinkers)
• Is the DOJ’s prosecution of Geoffrey Fieger a political vendetta? (Scott Horton in Harper’s)

U.S. District Judge Christopher Droney denied Defendant Christopher Garand’s motion for mistrial Friday in the Gen Re fraud trial, currently taking place in Connecticut. The motion was based on the prejudicial nature of a taped conversation played to the jury. In the conversation, between former Cologne Re Dublin CEO John Houldsworth and then-Gen Re Senior VP Garand, Houldsworth asks Garand “How much cooking goes on there [at AIG]?” Garand answers, “Quite a bit. They’re fairly aggressive. They’ll do whatever they need to do to make their numbers look right.” Garand’s attorney, Jonathan Rich, complained that the reference to AIG book-cooking constituted “exceptionally inflammatory language.” Droney disagreed. Of course, anything that hurts your client is, ipso facto, prejudicial. The testimony here, however, seems to go to the heart of the government’s primary allegation–that the former Gen Re executives on trial helped AIG cook the books on two reinsurance transactions. Evidence must be relevant to be admissible, and the prejudicial nature of the evidence must outweigh its probative value before a judge can exclude it. Here it appears that Judge Droney not only denied a mistrial, but also refused to strike the tape evidence in the first place. The trial is expected to last two more weeks. The AP story, carried in the Houston Chronicle’s chron.com, is here. 

In Hattiesburg on Thursday, US Magistrate Judge Michael T. Parker ordered Mississippi Attorney General Jim Hood to appear and testify at a reconvened hearing to be held in State Farm’s lawsuit against him. Parker also granted State Farm’s motion to take a deposition from Dickie Scruggs.  US District Judge David Bramlette has yet to set a date for the hearing. Anita Lee has the (Biloxi/Gulfport) Sun-Herald story here.

Hood allowed Scruggs and his associates to use the threat of criminal prosecution to extort a civil settlement from State Farm in Hurricane Katrina class action litigation. As part of the settlement Hood agreed not to pursue further criminal investigation; when he announced last September that he was reopening his investigation, State Farm filed suit and obtained a restraining order. Hood backed out of testifying at a prior hearing and agreed to stop, only to announce resumption of his quest earlier this week. With this order we are now one step closer to discovering the full extent of the Hood/Scruggs “cooperation.” More background: In a post from Tuesday, Alan Lange of Y’all Politics takes a look at patterns.

Arthur Vanmoor: Mensa member, inventor and patent holder; notorious “Big Pimpin’ Pappy” of the escort service business in Broward County, Florida until he was convicted on state racketeering and prostitution charges (2004 story here). Now Vanmoor has been convicted by jury trial on 19 federal counts including mail fraud, wire fraud, Food Drug & Cosmetic Act violations and conspiracy; the March 2005 indictments arose from his operation of websites offering fake cures for cancer, migraine, flu and other diseases or conditions. Vanmoor’s websites falsely claimed to be selling FDA approved drugs and contained fake articles written by fake doctors; evidence at the trial showed that Vanmoor continued to operate the websites in violation of a December 2005 restraining order. Sentencing has not been scheduled; the DOJ Press Release is here.

In Houston on Wednesday US District Judge Ewing Werlein delayed the Enron-related conspiracy and wire fraud retrial of former Merrill Lynch executives Daniel Bayly and Robert S. Furst. The trial was scheduled to start next week but Werlein granted the delay because Bayly, Furst and James A. Brown (who is scheduled for a separate retrial) have filed an appeal with the Fifth US Circuit Court of Appeals in New Orleans asking the court to overturn Werlein’s earlier ruling not to dismiss all charges. The three were convicted in 2004 in the Enron Nigerian Barge case but the Fifth Court reversed the convictions in 2006, rejecting the government’s “honest services fraud” theory. The Yahoo/AP story is here.

Former Illinois Governor George Ryan, Sr. on Wednesday petitioned the US Supreme Court to reverse the Seventh Circuit’s affirmance of his fraud and racketeering convictions. The 37-page petition for certiorari focused primarily on juror misconduct and other jury issues including the replacement of two jurors 8 days into deliberations. The AP story is here. Ryan was convicted in April 2006 on 18 counts for steering state business to associates in exchange for bribes, obstructing anti-corruption efforts to in order to protect his fundraising and misusing state resources for political gain. He is currently serving a 78 month prison sentence. In August 2007 a sharply divided panel of the Seventh US Circuit Court of Appeals rejected his appeal.

According to court records made public on Monday, the pre-sentencing report filed by federal probation officials in the case of Brent Wilkes recommends that Wilkes be sentenced to 60 years in prison. Wilkes, the owner and founder of defense contractor ADCS Inc, was convicted by jury trial in November by on 13 counts including conspiracy, bribery, money laundering and wire fraud in connection with the Duke Cunningham bribery scandal. Cunningham is serving a 100 month sentence. Prosecutors have not yet commented on the recommendation; Wilkes’ attorney Mark Geragos claimed that probation officials were attributing all the firm’s federal contract work to criminal behavior and called the recommendation “essentially a life sentence” for Wilkes, who is 53. Sentencing is now scheduled for February 19 before US District Judge Larry Burns in San Diego. The San Diego Union-Tribune story is here.

The First US Circuit Court of Appeals on Friday overturned the convictions of Robert A. Urciuoli, former president and CEO of Roger Williams Medical Center in Providence, Rhode Island, and former hospital vice president Frances Driscoll. The two were convicted of honest services mail fraud in October 2006 in connection with allegedly hiring (now former) state Sen. John Celona to improperly influence legislation. The court found that US District Judge Ernest Torres erred in his jury instructions by allowing the jury to consider conduct which might not constitute a federal crime. Celona, who pleaded guilty to three counts of mail fraud and received a 30 month federal prison sentence last year, had testified for the prosecution; the hospital avoided prosecution by agreeing to oversight.

On Tuesday in Providence, USA Robert Clark Corrente announced that his office will retry Urciuoli and Driscoll “as soon as the court can accommodate us.” The Providence Business News stories are here and here.

Attorney Robert Arledge of Vicksburg, Mississippi on Thursday was sentenced to 78 months in prison and ordered to pay $5.8 million in restitution by US District Judge David Bramlette in Jackson. Arledge was convicted by jury trial in October on 7 counts including conspiracy, wire fraud and mail fraud in a scheme to defraud Wyeth Pharmaceutical by knowingly allowing clients to submit false Fen-Phen claims for $250,000 each to a settlement fund. More than 20 claimants were charged in the scheme; most have been sentenced. WAPT has the AP story here.

Former Brocade Communications Systems CEO Gregory Reyes was sentenced on Wednesday to 21 months in prison and fined $15 million by US District Judge Charles Breyer in San Francisco. Reyes was convicted in August 2007 after an 8-week jury trial on ten counts including conspiracy, securities fraud, lying to accountants and falsifying books and records in connection with the backdating of options grants to Brocade employees. Reyes will be allowed to remain free on appeal; the San Francisco Chronicle has the story here.

A federal grand jury in Oklahoma’s Eastern District on Friday indicted Oklahoma State Auditor and Inspector Jeff McMahan and his wife Lori McMahan on nine counts including conspiracy, honest services mail fraud and Travel Act violations to promote state bribery. McMahan, a Democrat, is accused of accepting bribes and gratuities in exchange for favorable treatment of an unindicted co-conspirator and his business interests. That person is said to be Kiowa businessman Steve Phipps, who has been cooperating with prosecutors. The Oklahoman has the story here.

Nick Gillespie and Matt Welch, of reason.tv and Reason magazine respectively, take aim at congressional interference in Major League Baseball’s performance-enhancing drug controversy. The essay is here from yesterday’s Washington Post. 

Meanwhile, at Yahoo! Sports, Jonathan Littman highlights the IRS’s aggressive use of Title 18, United States Code, Section 1001, a federal felony statute, to prosecute professional athletes for lying to government agents. Littman’s piece, here, cites my long-standing criticism of Section 1001. My original findlaw.com article on the dangers of talking to government agents, even in an informal setting, is here.

Former Goldman Sachs trader David Pajcin, one of the principals in a wide-ranging $6.7 million insider trading and securities fraud scheme, was sentenced on Friday to time served by US District Judge Victor Marrero in Manhattan. Pacjin had been in prison since early 2006. He had cooperated with prosecutors and his testimony led to subsequent guilty pleas from the other participants.  Yahoo News has the NY Times story here. Eugene Plotkin, a former Goldman Sachs research associate, was sentenced to 57 months in prison earlier this month (Yahoo/Reuters story here).  Defendants Stanislaw Shpigelman and Jason Smith are serving prison sentences of 37 and 33 months respectively and two more defendants are awaiting sentencing.

US Rep. William Jefferson (D-La.) on Thursday testified under oath for the first time since being indicted on corruption charges in 2005. The testimony came at a hearing before US District Judge T.S. Ellis III in Alexandria. Jefferson’s attorneys are seeking to suppress his statements to FBI agents during the August 2005 search of his Washington home, as well as all documents seized during the search. Jefferson claimed that his treatment by FBI agents was so hostile that he assumed he was going to be arrested and his lawyers argued that he should have been read his Miranda rights, but under cross examination he admitted that he spoke to the agents voluntarily.

Ellis did not rule on the motions immediately; Jefferson’s trial is scheduled to begin on February 25. He faces 16 counts including bribery, racketeering, money laundering and obstruction of justice. The AP story is here.

A Sunday New York Times story here examines the Scruggs cases to date and provides some background on political operative and Scruggs associate P. L. Blake.

The federal criminal trial of former Gen Re and AIG executives on accounting-related fraud charges, has seen spotty media coverage. Today’s post by David Voreacos and Jane Mills at Bloomberg.com is a welcome exception to the general run of stories on this case. It details the cross-examination of former Gen Re Vice-President Richard Napier, a key government witness, and intelligibly places that cross-examination within the broader context of the government’s allegations.  

A Wednesday story and video at News 3 Memphis provides a quick overview of the developing situation. Scruggsiana: Greatest Hits posted yesterday at folo goes into more detail. David Rossmiller at Insurance Coverage Blog was following Scruggs’ antics in the State Farm/Katrina litigation well before the indictments and has continued to report events even as the indictments and guilty pleas move beyond insurance cases. Still, what’s happened to date may just be the beginning.

Former Homestore Inc. CEO Stuart Wolff’s fraud conviction was overturned on Monday by the Ninth US Circuit Court of Appeals in San Francisco. A three-judge panel of the court agreed with Wolff’s contention that US District Judge Percy Anderson should have recused himself because his ownership of AOL stock gave him a “financial interest in the subject matter in controversy;” AOL was a party to the alleged offenses.

Wolff was convicted on 18 felony counts involving an alleged scheme to inflate the company’s revenue by $67 million in a series of sham three-way transactions. He was sentenced in October 2006 to 15 years in prison, fines and restitution. The appellate court returned the case to US District Court for ressignment to a different judge and possible retrial. The San Francisco Chronicle has the story here. Homestore has since changed its name to Move Inc.

On Tuesday in US District Court in Oxford, Mississippi, former State Auditor Steve Patterson pleaded guilty to attempting to bribe state Circuit Court Judge Henry Lackey in an attempt to obtain a ruling favorable to the Scruggs Law Firm in a dispute over Hurricane Katrina litigation fees. Famed attorney Dickie Scruggs, his son Zach, Patterson and attorneys Tim Balducci and Sid Backstrom were indicted on November 28, 2007. Balducci has already pleaded guilty; trial for the remaining defendants is set for March 31, 2008. The AP has a story here and Alyssa Schnugg has more here in the Oxford Eagle.

In a separate federal case that is just beginning to unfold, it was revealed Monday that Scruggs’ former attorney Joey Langston has pleaded guilty to offering a bribe to state Circuit Judge Bobby Delaughter on behalf of Scruggs; Delaughter subsequently issued a ruling favorable to Scruggs in an asbestos litigation fee dispute. Scruggs has not yet been indicted in this case; along with Delaughter, former Hinds County (Jackson) District Attorney Ed Peters has been implicated. Delaughter allegedly sought nomination to a federal judgeship by then-US Senator Trent Lott, who is Scruggs’ brother-in-law. Lott has denied involvement and has denied that his sudden resignation has anything to do with these recent legal developments. Oxford Eagle here, Northeast Mississippi Journal here, and a two-part look at Langston’s importance by Walter Olson at Overlawyered here and here.

The name of P. L. Blake has come up in connection with both cases. Blake is a mysterious political operative who has received $50 million in tobacco settlement money from Scruggs, for purposes yet to be revealed.

Merck/Schering-Plough’s Vytorin is a combination of Merck’s Zocor and Schering’s Zetia. Zocor’s patent has expired and Zetia has never been proven effective in improving clinical outcomes. The pharmaceutical joint venture company has been under fire for repeatedly refusing to release the results of clinical trials which examined the effectiveness of Vytorin over Zocor alone. The trials ended in early 2006 . After announced delays in November 2006 and April 2007, the company issued a press release in November 2007 (here) in which it attempted to change the endpoints of the study. After a storm of protest, the company released the results Monday (here): Vytorin is no more effective than Zocor alone.  A Bloomberg story here has further details, including calls by two Congressmen for further investigation of the ad campaign for Vytorin. Sandy Szwarc at Junkfood Science has analyzed the developing story here and previously here.

Now it has been reported (Brandweek NRx via Junkfood Science) that Schering President Carrie Smith Cox sold 900,000 shares of company stock worth $28 million last spring, after the clinical trials ended but long before the results were released. 

Whatever comes next, we can only hope for the demise of the obnoxious and misleading Vytorin commercials.

A Presidential Administration is winding down and the quadrennial drum-roll for the release of convicted spy Jonathan Pollard is upon us. Yesterday’s Washington Post detailed the latest efforts of Pollard’s friends, including the Israeli government, to secure Pollard’s freedom. The short story carried the usual abbreviated rehash of the Pollard case, noting the severe harm he caused to U.S. intelligence and the lame-ass excuses of his supporters. What I found interesting was the detail that President Bush, on his trip to Israel, dined with, among others, Rafi Eitan, Pollard’s one-time Israeli intellligence handler in Washington and an un-indicted co-conspirator in the case. Eitan left Washington in a hurry at the time of Pollard’s arrest and is barred from entering our country. Although Eitan was never tried, and is innocent until proven guilty, the Israeli government admitted in 1998 that Pollard was its spy and there is really no dispute that Eitan aided and abetted Pollard’s espionage. Yes, I know, Eitan is an Israeli Cabinet Minister. In that sense it was perfectly normal for him to have been at what I assume was a state dinner. But it stills sticks in my craw that the President of the United States was seated at the table with somebody identified by our own government as a co-conspirator in one of the major spy scandals of recent history.

Jury selection began Monday in Ocala, Florida in the tax fraud trial of actor Wesley Snipes and two co-defendants, known tax protesters Eddie Ray Kahn and Douglas P. Rosile. Snipes is charged with one count of conspiracy to defraud in connection with an attempt to collect $11.7 million in refunds for 1996 and 1997 and one count of making a fraudulent claim of payment for allegedly offering $13 million in fake checks in payment of taxes for those years. In addition, he faces six counts of failure to file tax returns for 1999 through 2004. The AP story is here.

An insurance executive files a lawsuit against the GOP Governor of Alabama, the former Lieutenant Governor, the Insurance Commissioner, and other state officials. The plaintiff subpoenas a political consultant, who served as a strategist or advisor to several of the defendants. The political consultant’s wife is the United States Attorney for the Middle District of Alabama. After the lawsuit is filed, the U.S. Attorney’s Office begins a grand jury investigation of the plaintiff.

Okay, class. That would never happen in the U.S. Department of Justice, right? No U.S. Attorney would allow such an investigation to go forward without first recusing herself and probably her entire office, correct? And if the U.S. Attorney in question was colossally stupid and imprudent enough to initiate such an investigation, without recusing herself, the professionals at Main Justice would not tolerate it for one moment, would they? The U.S. Attorney would immediately be ordered to recuse herself and would probably be fired. Then someone from outside the U.S. Attorney’s Office, someone with an impeccable reputation for non-partisanship, would be brought in to review the investigation and determine whether it should go forward.

That’s how it would have happened in the old days, but, amazingly, not anymore. The insurance executive in question is John W. Goff. The Republican Governor is Bob Riley. The political consultant is William Canary, and the U.S. Attorney is Leura Canary. When Goff complained to the Department of Justice, his concerns were downplayed by Associate Deputy A.G.David Margolis, a DOJ careerist who has served through several administrations in a non-political slot. Margolis denied that a conflict existed, but stated that Leura Canary had decided to voluntarily recuse herself from involvement in the investigation. Of course, Ms. Canary did not recuse her assistants.

This remarkable, and very troubling, story is the subject of Scott Horton’s No Comment column in Harper’s. Here is Horton’s excellent post, which is highly critical of Margolis. Full disclosure: I had some very unfriendly interaction with Margolis when I served as Deputy Independent Counsel for Ken Starr during the Whitewater-Lewinsky investigation.