February 2008

US District Judge Roger Vinson on Friday afternoon dismissed with prejudice the US v. Scruggs Alabama case. In this case, Dickie Scruggs was being prosecuted for criminal contempt of court for violating the injunction of US District Judge William Acker in the civil case Renfroe v. Rigsby to return the files taken by the “whistleblower” Rigsby sisters to State Farm contractor E. A. Renfroe. Scruggs gave the files to Mississippi AG Jim Hood even though Hood already had copies of the files.

It is quite clear that Judge Vinson did not believe the ludicrous explanations of Scruggs and Mississippi AG Hood to account for their actions, writing that “there is a cloud of impropriety surrounding what Scruggs did and the nature of his eleventh hour arrangement with Hood.” But, he wrote, “the question is not whether Scruggs acted ethically; the question is whether he can be held criminally responsible in a contempt proceeding.” He ruled that the court has no personal jurisdiction over Scruggs in this case, noting that he was not a party or attorney-of-record in Renfroe v. Rigsby; and that his actions could not be construed as aiding and abetting the Rigsbys because they were not in violation of the injunction, having given the documents to Scruggs five months before the injunction: “It is legally and logically impossible for Scruggs to have aided and abetted the contempt of parties who committed no contempt.” He further ruled that even if the court had jurisdiction, Scruggs did not violate the clear “law enforcement exception” language of the injunction despite the suspicious timing of Hood’s request for the documents and other suspect actions by Scruggs and Hood: “Again, as then-Judge (now Justice) Stephen Breyer has observed, courts must read injunctions ‘to mean rather precisely what they say’.”

Dismissal of US v. Scruggs Alabama Contempt Case

A three-judge panel of the Seventh US Circuit Court of Appeals on Thursday denied Conrad Black’s request to remain free on bond during his appeal of his convictions. Black, former CEO and chairman of Hollinger Inc., was convicted last July on three counts of mail fraud and one count of obstruction of justice; he and three other defendants were accused of defrauding  Hollinger and its  shareholders of $60 million. He was sentenced in December to 78 months in prison. Thursday’s ruling means that barring further appeal, Black must report to prison by March 3, as previously ordered by US District Judge Amy St. Eve. Reuters has the story here.

John Torkelsen of Princeton, New Jersey, a former expert witness in numerous class action securities cases for Milberg Weiss and other firms, has agreed to plead guilty to a one count criminal information charging him with perjury, according to a plea agreement filed on Thursday in US District Court in Philadelphia. Torkelsen offered expert witness testimony on plaintiff class damages and the value of settlements. According to the DOJ press release and the criminal information, the firms who hired Torkelsen, including one identified as “the New York Law Firm”, represented to various federal courts that he was an independent expert, which should have precluded them from paying him on a contingency basis; however, the firms allegedly entered into secret arrangements to pay him contingency fees. According to DOJ, the law firms submitted reimbursement requests to courts for contingent fees that Torkelsen had already been paid, and when he had to write off expenses for cases they lost, he submitted fraudulent bills on other cases for work he did not perform, which were then submitted to the courts by the firms. The one perjury count referenced in the guilty plea involved a 1999 case in San Jose, California, in which Torkelsen allegedly attested to a “non-contingent engagement by plaintiff’s counsel” when he was actually paid, according to the criminal information, by “the New York Law firm” on a contingent basis. Lawfuel has the DOJ press release here. No sentencing date has been announced. The DOJ press release was posted on the site of the U.S. Attorney’s Office for the Central District of California, which is prosecuting the Milberg Weiss case. Milberg Weiss’ principal office was in New York during the time periods covered in the information. In the press release, the U.S. Attorney for the Central District of California thanked the U.S. Attorney for the Eastern District of Pennsylvania for his assistance. The plea also disposed of tax-related issues in the Eastern District of Pennsylvania.

Torkelsen is currently serving a 70 month prison sentence for stealing SBA funds in an unrelated case. His ex-wife Pamela was also indicted in that case and became a cooperating witness, not only against her ex-husband but against Milberg Weiss. A 2006 Law.com story here provides some interesting background.

A story here by Russell Hubbard in the Birmingham Daily News describes the ordeal of Iranian-born US citizen Alex Latifi and his Huntsville, Alabama defense contracting firm, Axion Corporation. After four years of investigations and raids, Latifi and his firm were indicted in 2007 by the US Attorney for the Northern District of Alabama on multiple counts including violating the Arms Export Control Act, despite what appeared to be convincing evidence that his actions did not require federal approval. After seven days of trial last October, US District Judge Inge Johnson dismissed all counts. But the business which once employed 60 is in ruins. Now Latifi has filed a Hyde Amendment claim for compensation; a hearing is scheduled for April 15 and his attorney plans to put USA Alice Martin on the stand.

The government’s notice of Latifi’s aquittal, which Judge Johnson ordered it to post, is here and Martin’s original indictment press release has disappeared from the website. It can still be viewed here.

US District Judge Stephen Wilson in Los Angeles on Monday sentenced two men to prison in connection with a hedge fund fraud scheme that caused investor losses of $6 million. Keith Gilabert of Valencia, California, who operated a company called Capital Management Group, was sentenced to 60 months in prison; he had pleaded guilty in June 2006 to conspiracy to commit mail fraud, wire fraud and securities fraud. He collected about $6 million from 2000 to 2005 from 40 clients who invested in a hedge fund called the GLT Venture Fund, with the promise of high rates of return; but Gilabert admitted losing most of the money and misappropriating the rest. Justin Paperny of Studio City, a former account VP at UBS Financial Services, was sentenced to 18 months in prison; he also had pleaded guilty to the same charges and admitted conspiring with Gilabert to mislead hedge fund investors by telling them the fund was fully backed by UBS. Lawfuel has the DOJ Press Release here.

It was not Gilabert’s first brush with Judge Wilson. He and his mother-in-law had been indicted for obstruction of justice for allegedly telling a mortgage broker to lie to FBI agents investigating the sale of two plots of land in Valencia. That case went to trial this past December, but Wilson acquitted them after calling the broker’s testimony “an abomination … maybe the worst I’ve ever seen.” (story here).

Reuters has the obituary here.

The U.S. Court of Appeals for the Fifth Circuit has scheduled arguments for April 2 in New Orleans in former Enron CEO Jeff Skilling’s appeal of his convictions. Skilling was convicted in May 2006 on 19 of 28 counts including conspiracy, securities fraud and insider trading; he is currently serving a 24 year prison sentence. Skilling’s appeal contends that the government’s “honest services fraud” theory used to convict him is fatally flawed; the Fifth Court has already vacated convictions in the Enron Nigerian Barge case which were based on the same prosecution strategy. Kristen Hays’ Houston Chronicle story is here.

US District Judge Neal Biggers on Tuesday denied three more major defense motions in US v.Scruggs et al. Biggers refused to suppress wiretap evidence, to prohibit introduction of similar bad acts evidence under federal rule 404(b), and to sever the trials of Zach Scruggs and Sidney Backstrom from the trial of Dickie Scruggs. Last week he denied defense motions for dismissal and for change of venue (earlier here and here). The Daily Journal story is here; Rossmiller has links to all the orders here.

Still pending is the prosecution’s Friday motion requesting an anonymous jury, or alternatively a sequestered district-wide jury. The defense response late Monday opposes an anonymous jury but does not take a position on a sequestered jury.

In other Scruggs-related news:

• The AP has picked up the story (here) on the FBI Balducci memo bombshell; while in the Yeah, Right department, AG Hood tells WLBT that his decision not to prosecute State Farm was not influenced by outside forces.
• In an interview with Anita Lee, former Sen. Trent Lott tells the Sun Herald that he is not a target of any judicial bribery investigation, only a possible witness.
• In the Jones v. Scruggs civil case, the Katrina legal fee dispute that gave rise to the bribery case, Mississippi state Circuit Judge R. Kenneth Coleman on Tuesday postponed further action until the criminal case is completed. He made two other significant rulings: that the court has authority to impose sanctions on the members of the former Scruggs Katrina Group (now the Katrina Litigation Group, sans Scruggs), and that Scruggs’ actions would affect all the member firms (Legal Newsline here).
• The role of former Hinds County DA Ed Peters in a trade secrets lawsuit will be investigated. The case, Eaton v. Frisby (earlier), does not involve Dickie Scruggs, but like the Scruggs-related US v. Langston proceeding, it involves alleged improprieties by Peters and Hinds Circuit Judge Bobby DeLaughter (Clarion-Ledger).

DOJ Fraud Section Principal Deputy Chief Paul Pelletier took a page from Karen and Richard Carpenter after yesterday’s guilty verdicts against former Gen Re and AIG executives, telling reporters, in effect, “We’ve Only Just Begun.” The trial was notable in a number of respects: spotty and superficial news coverage, the inclusion of the high-ranking Pelletier on the trial team, and the naming of the current and former AIG CEOs as unindicted co-conspirators. “The investigation continues,” Pelletier said. “We’ve got a lot of work to do to work up the ladder.” This is the kind of tough, classic, old-fashioned prosecutor-speak we haven’t heard in a long time, sending a clear message to the just-convicted defendants and to AIG itself. Not surprisingly, it comes out of the Fraud Section, the most aggressive, mad-dog white-collar unit within all of DOJ. Today’s WSJ($$) has an excellent story on the trial, the verdict and the larger implications.

The government on Monday released more transcripts in connection with the US v.Scruggs bribery case, and thanks to NMC at folo, we can take a look at the FBI’s November 2, 2007 interview with Timothy Balducci, right after he began cooperating. The most surprising new information:

Balducci further explained, prior to this March 2007 meeting [with Scruggs], the Scruggs Law Firm (SLF) was trying to settle some Katrina Insurance cases with the State Farm Insurance Company (SFIC). SLF and SFIC were near a settlement, however, Dickie Scruggs (DS) learned that the Mississippi State Attorney Generals office had threatened to indict SFIC due to some impasses between the Attorney General’s office and SFIC. SFIC was not going to settle the civil cases with SLF, if the company was going to be indicted by the Attorney Generals office. DS asked Steve Patterson (SP) to speak with Attorney General Jim Hood since SP and Hood had a long standing relationship. DS offered to pay Patterson Balducci $500,000 if they could get Hood to relent on indicting SFIC. Balducci accompanied SP to a meeting with Hood and Hood later agreed not to indict SFIC. SLF eventually settled with SFIC and that settlement yielded approximately $26 millions in attorneys fees….

So instead of the view that Hood threatened State Farm with criminal prosecution to benefit Scruggs’ civil cases, this scenario has Hood nearly screwing up Scruggs’ settlement with State Farm and has Scruggs (via Patterson) pressuring Hood to call off any criminal prosecution. If true, it certainly makes Hood look less competent than ever, if that’s possible.

A federal trial jury in Hartford on Monday convicted five former insurance executives on all counts including conspiracy, securities fraud, mail fraud and making false statements to the SEC. The defendants were four former executives of Berkshire Hathaway’s General Re and one former executive from American International Group (AIG): former Gen Re CEO Ronald Ferguson, former CFO Elizabeth Monrad, former senior VP and assistant general counsel Robert Graham, former senior VP head of US reinsurance operations Christopher Garand, and AIG’s former VP of reinsurance Christian Milton. The five had been charged in connection with two reinsurance transactions in 2000 and 2001; Gen Re appeared to assume $500 million in reinsurance risk, which allowed AIG to increase its loss reserves by $500 million. The government contended that the transactions were fraudulent because Gen Re did not actually assume the risk; the transactions misled investors about AIG’s financial condition, which artificially boosted its stock price. Sentencing has been scheduled for May 15, 2008 before US District Judge Christopher Droney. Bloomberg here, Reuters here.

Bexar County, Texas DA Susan Reed has sent a letter to USA Johnny Sutton (Western District of Texas) with a copy to Texas AG Greg Abbott, offering to allow an independent investigation of her office’s role in the purchase and use of stolen tickets from Southwest Airlines. The tickets were stolen and resold by Althea and James Jackson, who pleaded guilty on February 12 to federal wire fraud charges (earlier). Reed’s letter repeats her previous public assertion that she and other buyers were not aware the tickets were stolen. The San Antonio Express-News has the story here.

Prosecutors filed motions last week in the Northern District of Mississippi asking the court to delay the sentencings of Joey Langston and Timothy Balducci until the full extent of their cooperation can be determined. Both have pleaded guilty to bribery charges in two separate cases involving Dickie Scruggs. Balducci is scheduled to testify against Scruggs and associates in their bribery trial scheduled to begin on March 31. US District Judge Michael T. Mills on Friday granted the Langston motion; there was no word as of late Friday on the Balducci motion. Patsy Brumfield’s Daily Journal story is here.

The 60 Minutes feature on the prosecution and conviction of former Alabama Governor Don Siegelman can be found here. While it undoubtedly brought Siegelman’s sad situation to a much wider audience, as a piece of investigative journalism it was a disappointment. It was fine to have former Arizona AG Grant Woods (a Republican) opine that the prosecution was politically motivated, and to have a former Republican operative describe how she was allegedly told by Karl Rove to find evidence of wrongdoing by Siegelman. But scant attention was paid to the heart of the matter: the absence of evidence of a quid pro quo. AP and even the allegedly biased local coverage at the time of the trial made repeated and detailed mention of the defense contention that neither Siegelman nor former HealthSouth CEO Richard Scrushy received any personal benefit from HealthSouth’s contribution to Siegelman’s campaign for a state lottery to fund education. The 60 Minutes story only mentioned this in passing. Evidence that the government knew there was no quid pro quo and prosecuted anyway would have been more convincing.

From the editorial page of the Wall Street Journal: Mississippi AG Jim Hood’s outsourcing of legal work to for-profit tort lawyers brought him nearly $800,000 in campaign contributions in 2007 alone.

• This kind of quid pro quo is legal in Mississippi and most other
  states. However, if this kind of sweetheart arrangement existed between
  a public official and business interests, you can bet Mr. Hood would be
  screaming about corruption. Yet Mr. Hood and his trial bar partners are
  fighting even Mississippi’s modest attempt to require more transparency
  in their contracts.

Read more here: Lawsuit Inc. (h/t PointofLaw.com).

Here is a copy of the indictment handed down in Congressman Rick Renzi’s case. Renzi Indictment. The indictment is a veritable kitchen sink of charges: conspiracy, wire fraud, Hobbs Act extortion, money laundering, and insurance fraud. At first blush, it is unclear to me why the insurance fraud charges, which also involve attorney Andrew Beardall, were included in the indictment. They appear to allege a wholly separate conspiracy.

Also, here is Bloomberg.com’s updated story. Renzi’s DC attorneys, Reid Weingarten and Kelly Kramer, adamantly deny the charges against their client and vow to fight them vigorously.

Scott Horton at Harper’s has previously alleged DOJ misconduct in the prosecution of former Alabama Governor Don Siegelman; he has charged that Karl Rove was personally involved in this and other politically motivated investigations by US Attorneys in Alabama. But when Dickie Scruggs openly defied a federal judge’s order in Renfroe v. Rigsby (a matter still very much pending), why did other judges recuse themselves and why did USA Alice Martin of the Northern District of Alabama decline to pursue the matter? Horton thinks he may have the answer: Trent Lott’s influence. It’s speculative at this point, but certainly interesting speculation. Read his Thursday article here, which also has more on the other Alabama investigations; note that 60 Minutes has a Siegelman story scheduled for tomorrow night.

David Bermingham, Giles Darby and Gary Mulgrew, three British investment bankers known as the NatWest 3, were each sentenced to 37 months in prison on Friday by US District Judge Ewing Werlein in Houston. In accordance with their plea agreements, they will also have to pay $7.3 million restitution to Royal Bank of Scotland, parent of their former employer Greenwich NatWest. The plea agreements also allow the men to be eligible for transfer to
the UK in several months, and under the UK system they will be eligible
for parole after serving half of their sentences.

The three men were charged with seven counts of wire fraud in a 2002 indictment in connection with a scheme devised by former Enron CFO Andrew Fastow and his right-hand man Michael Kopper, Enron’s former global finance manager. In a complex series of transactions, Enron paid $20 million for Greenwich NatWest’s interest in a Fastow-controlled partnership, but Greenwich NatWest only received $1 million, while Fastow and Kopper siphoned off the difference and paid $7.3 million to Bermingham, Darby and Mulgrew. However, although the three men agreed to repay the money, they actually only pleaded guilty to one count of wire fraud and that was not the count involving the $7.3 million wire transfer. Tom Kirkendall at Houston’s Clear Thinkers had an excellent analysis of the plea deal here. Kristen Hays has the Houston Chronicle’s story on the sentencing here.

Remember Travis County D.A. Ronnie Earle’s extortion of money from four corporations charged in the TRMPAC investigation? He demanded that the companies, among other things, donate money to the LBJ School of Public Affairs in exchange for the State of Texas dropping campaign finance-related charges against them–charges that never should have been brought in the first place. Now it turns out that the money has never been spent, because Earle hasn’t “followed up.” Even worse, Earle forced the companies to pony up the cash in the face of warnings from one of his key aides that such an arrangement: didn’t pass the smell test; probably ran afoul of a Texas Attorney General’s opinion; and, might violate federal law. The Austin-American Statesman has the story here.  

Bloomberg.com has the story here. No comment as yet from Renzi’s attorney, Reid Weingarten. Indicted along with Renzi are James Sandlin, one of Renzi’s political backers, and attorney Andrew Beardall. According to the story, Renzi attempted to tie his sponsorhip of a bill sought by a private company to that company’s purchase of land owned by Sandlin.

In the third week of the healthcare finance fraud trial of five former executives of National Century Financial Enterprises (earlier), the prosecution’s star witness testified on Thursday that the deception by management began years before the company collapsed in 2002, resulting in a $1.9 billion loss to investors. Sherry Gibson, National Century’s former Executive VP for compliance, testified that the complex scheme to falsify records and lie to investors and auditors dated back to 1995 and involved all the firm’s principals and senior executives. Gibson pleaded guilty in 2003 to one count of conspiracy to commit securities fraud and agreed to cooperate with prosecutors; she was sentenced to 48 months in prison in June 2004. The trial continues before US District Judge Algenon Marbley in Columbus, Ohio. Bizjournals story here.

In the continuing pre-trial motions hearings in US v. Scruggs et al, the bribery case against Dickie Scruggs, Zach Scruggs and Sidney Backstrom, US
District Judge Neal Biggers on Thursday denied the defense motion for change of venue and also denied the motion to dismiss counts 2, 3 and 4 of the indictment. Further testimony was heard on the motions to sever the trials of Zach Scruggs and Backstrom from the trial of Dickie Scruggs but Judge Biggers has yet to rule on them; also pending are the motion to suppress wiretap evidence  and a decision on whether to allow evidence of similar acts by Dickie Scruggs in the case of Wilson v. Scruggs, in which he allegedly paid a bribe to induce Hinds Circuit Judge Bobby DeLaughter to issue a favorable ruling in an asbestos fee dispute case. Joey Langston has pleaded guilty in connection with the DeLaughter allegations and is cooperating with federal investigators, but Scruggs has not been charged in that case. Two surprising developments: first, both sides intend to call former Sen. Trent Lott to testify if the court allows the similar acts evidence from the DeLaughter investigation; second, prosecutors filed a motion requesting an anonymous jury or alternatively a sequestered district-wide jury. Clarion-Ledger, Daily Journal, AP/ Sun-Herald.

The Wall Street Journal has reported (here) that Lott’s role is being investigated, but there is no official word. However, the Daily Journal story cites AUSA Tom Dawson as being unaware of any investigation of Lott but confirming that the DOJ is investigating the DeLaughter matter.

Word reached me last week, by way of the Texas Bar Journal, that Bob Huttash died in November of last year. Bob will be remembered by generations of Texas judges, prosecutors and defense attorneys as an able and gifted State Prosecuting Attorney, a position he held with great distinction from 1979 to 1996. Texas has a split criminal and civil jurisdiction. The Texas Supreme Court hears no criminal cases. That job falls to the Texas Court of Criminal Appeals, the court of last resort in Texas for all criminal matters. The State Prosecuting Attorney is similar to the U.S. Solicitor General, at least for criminal cases coming before the Court of Criminal Appeals. When district attorney’s offices are unable to brief or argue appeals in front of the Court of Criminal Appeals, the State Prosecuting Attorney steps in and fills that function. 

I first met Bob Huttash while I was clerking for Judge Tom G. Davis on the Court of Criminal Appeals. Although he was many years my senior, and already quite accomplished, Bob was unfailingly generous with his time in discussing the arcane world of Texas criminal law, particularly fundamental errors in charging instruments, with me. Every young lawyer needs a mentor and Bob Huttash was that and more for me. He was a true friend and a consummate professional. He had me over to his house on several occasions where he grilled a mean steak and played Justin Wilson records. His legal hero was Justice Hugo Black, who revered the plain words of the Constitution.

I remember all of these things about Bob Huttash, although I moved away from Austin in 1985 and, much to my regret, gradually lost touch with him. But what I remember most is Bob Huttash playing ping-pong. Back then, there was a ping-pong table in the basement of the Texas Supreme Court Building. Every day, after a lunch of Texas Barbecue, Mexican Food, or Chicken Fried Steak,  you would find a group of us down in that basement, sweating up a storm at the ping-pong table. You needed excellent skills, and a very thick skin, to play at that table. I would not characterize it as a politically correct place. Judge Mike (”The Short Judge”) McCormick, Chief Clerk Tommy (”The Stud Duck”) Lowe, Judge Chuck Campbell, Sol “Menachem” Wisenberg, Michael Hutson, Bill Delmore, Jeff Jones, Joe Porto, and a host of briefing attorneys passed through that room. Huttash towered above them all. He didn’t have a nickname. He was just Huttash–the best ping-ponger I ever played against. He used a red Harvard paddle–retail value, $45.00. One time I went to Houston and purchased custom made paddles for Mike Huston and me, in an effort to knock Bob off his perch. It didn’t work.

We had great fun at that table. I can still see Huttash standing at one of its corners–sweat dripping down his shirt, or under-shirt, a cigarette dangling from his mouth–calmly returning the ball, slam for slam. He’d get tired occasionally. (He was never in great shape.) If he had to work real hard to get a point, he’d look out and say, to no one in particular, “You’re gonna send me to King-Tears.” 

In the first day of the pre-trial motions hearings in the federal bribery trial of Dickie Scruggs, Zach Scruggs and Sidney Backstrom, US District Judge Neal Biggers on Wednesday denied defense motions to dismiss the indictments, ruling that the defendants played an active role in the case. The highlight of the hearing was testimony by cooperating witness Timothy Balducci, who has pleaded guilty. Balducci not only testified about his interaction with the defendants in connection with the attempted bribery of state Circuit Judge Henry Lackey, he also testified about his knowledge of Dickie Scruggs’ alleged similar acts in the Ed Peters/Bobby DeLaughter bribery case in which former Scruggs associate Joey Langston has pleaded guilty. In that exchange with Dickie Scruggs’ defense attorney John Keker, Balducci said he saw draft copies in Scruggs’ office of the order Judge DeLaughter later issued, and that Scruggs offered to use the influence of his brother-in-law, former US Sen. Trent Lott, to obtain consideration of a federal judgeship for DeLaughter.

The hearing continues today with consideration of the motions to sever the trials of Zach Scruggs and Sidney Backstrom and the change of venue motion; Judge Biggers asked for briefs from both sides before ruling on the motion to suppress wiretap evidence. The trial is scheduled to begin on March 31. Daily Journal here, Clarion-Ledger here.

In a hearing on Wednesday before US District Judge Naomi Reice Buchwald in
Manhattan, former Refco inc. CFO Robert Trosten pleaded guilty to charges of conspiracy, securities fraud, bank fraud, wire fraud and money laundering in connection with the October 2005 collapse of the company which caused investor and partner losses estimated at $2.4 billion. Trosten’s guilty plea follows the February 15, 2008 guilty plea of former Refco CEO Phillip Bennett (earlier); both had been scheduled for trial on March 17, 2008 along with the company’s former president Tone Grant. Trosten’s plea agreement calls for cooperation with prosecutors as well as asset forfeiture; he will apparently testify against Grant and against former outside counsel Joseph Collins, who has been charged with fraud and conspiracy in a separate but related case. Judge Buchwald scheduled Trosten’s sentencing for February 20, 2009. Bloomberg here, Reuters here.

Given his track record, it is unsurprising that Mississippi AG Jim Hood would try to spin State Farm’s victory into a defeat. First he sent a stooge going by the name “bellesouth” to troll blogs that had been critical of him, trying to claim that Hood had prevailed. Then on Monday in a Clarion-Ledger op-ed (here) Hood stated, “In fact, allegations lodged against me by this insurer were shown to be false when a federal judge recently threw out a lawsuit it had filed against my office;” and on Tuesday his media spokeswoman Jan Schaefer claimed in an emailed press release that “There is no ’settlement’” and repeated Hood’s outrageous claim that State Farm’s allegations were false. This despite the fact that US District Judge David Bramlette’s order clearly refers to a settlement, and equally important, that he dismissed the case after specifically ruling that the previous non-prosecution agreement between State Farm and Hood “is a standalone agreement, unambiguous and enforceable between the Mississippi Attorney General on behalf of the State of Mississippi and State Farm…” (Judge Bramlette’s Order) — which is exactly the ruling that State Farm sought and Hood opposed.

Late Tuesday, an attorney for State Farm — Sheila L. Birnbaum, a partner at Skadden, Arps, Slate, Meagher & Flom — sent an email to colleagues in response to Schaefer’s email, writing “This is so over the top. Can we ask that he be held in contempt of court for misrepresenting a settlement agreement and order of the court.” However, Ms. Birnbaum “accidentally” sent copies of the email to Schaefer and more than a dozen reporters who had received the original press release. Judge Bramlette declined immediate comment. Forbes/AP story here.

Hood also addressed the Clarion-Ledger editorial board (video, text published on Monday) and offered excuses for not prosecuting his cronies who are now under federal indictment or have pleaded guilty.

The federal government on Tuesday responded to defense pre-trial motions submitted on February 11 (here) in the bribery trial of Dickie Scruggs, Zach Scruggs and Sidney Backstrom. In support of its opposition to defense motions, prosecutors released three transcripts of conversations between the defendants and Timothy Balducci, who has pleaded guilty and had been wired by the FBI. Y’all Politics has links to the replies and transcripts here. US District Judge Neal Biggers will hold a hearing on the motions today; trial is scheduled for March 31. The Sun-Herald’s story is here.

Brent Wilkes, owner and founder of defense contractor ADCS Inc., was sentenced on Tuesday to 12 years in prison by US District Judge Larry A. Burns in San Diego. Wilkes was convicted by jury trial in November, 2007 on 13 counts including conspiracy, bribery, money laundering and wire fraud in connection with the Duke Cunningham bribery scandal. The sentence was far less than the 25 years sought by prosecutors and the 60 year sentence recommended by the federal probation office, but Judge Burns specifically rejected the government’s assertion that Wilkes was the mastermind of the bribery scheme. Wilkes maintained his innocence and refused to admit any wrongdoing at the hearing; his attorneys had sought a sentence no longer than the 8 year, 4 month sentence that Cunningham is currently serving. In a related case, Judge Burns approved an agreement to drop conspiracy, wire fraud and money laundering charges against Wilkes in the corruption case of former CIA official Dusty Foggo, and to move the prosecution of Foggo on the same counts to US District Court in Alexandria, Virginia. San Diego Union-Tribune here, AP here.

Isidro Garza, Jr., the former manager of the Kickapoo Traditional Tribe of Texas, was sentenced last week to 235 months in prison by US District Judge Walter Smith in Waco for his role in the embezzlement of over $2 million from tribal funds, including over $1.7 million from tribal community health services and more than $200,000 from the tribal casino. Also sentenced were his son, former state Rep. Timoteo Garza, who received a 78 month prison sentence; his wife Martha Garza, sentenced to 24 months in prison; and former tribal casino manager Lee Martin, sentenced to 60 moths in prison. All four are non-Indians. In October 2007 they were convicted after a jury trial on multiple counts of substantive theft from an Indian gaming establishment and other charges including conspiracy and tax evasion. AP here, San Antonio Express-News here.

Althea Jackson and her husband James Jackson soon will no longer be free to move about the country. The Jacksons pleaded guilty to wire fraud last Tuesday in US District Court in San Antonio in connection with the theft and resale of more than 5,600 ticket vouchers from Southwest Airlines. Althea Jackson, formerly an administrative aide at Southwest Airlines’ Dallas headquarters, admitted taking the “Non Revenue Must Ride” ticket vouchers over a three year period. The vouchers are normally reserved for inconvenienced passengers, but James Jackson resold them for far less than market value, mainly in the San Antonio area. The loss to Southwest was estimated by prosecutors to be at least $1.8 million.

The unusual aspect of this case is that James Jackson was a bailiff for Bexar County Court-at-Law Judge Monica Guerrero in San Antonio, and many of the stolen ticket vouchers wound up in the hands of several Bexar County public officials including Judge Guerrero and District Attorney Susan Reed and their staffs, as well as some local attorneys.

Sentencing is scheduled for May 8, 2008. The Jacksons are expected to serve 24 to 30 months in prison under the plea agreement. The San Antonio Express-News has the story here and further details of county employees’ involvement here.

Former Refco Inc. Chairman and CEO Phillip Bennett pled guilty on Friday, before US District Judge Naomi Reice Buchwald in Manhattan, to all 20 counts on which he had been indicted, including conspiracy, wire fraud, bank fraud, money laundering and making false SEC filings. The charges carry a possible maximum of 315 years in prison. Refco, at one time the largest futures broker on the Chicago Mercantile Exchange, collapsed into bankruptcy in October 2005, just two months after its IPO. Auditors discovered $430 million in losses from the mid 1990s onward; Bennett allegedly concealed the losses from his auditors, investors and Thomas H. Lee Partners, which had purchased a majority interest in Refco in August 2004; the losses were assumed by a company Bennett controlled, in an elaborate transfer scheme. Investors purportedly lost $2.4 billion in the collapse.

Bennett’s guilty plea follows the guilty plea by Santo Maggio, the former CEO of Refco’s offshore unit; Maggio pled guilty to fraud and conspiracy on December 19, 2007 and agreed to cooperate with prosecutors. Judge Buchwald set Bennett’s sentencing for May 20,2008. Bennett had been scheduled to go to trial on March 17, 2008 along with company’s former president Tone Grant and former CFO Robert Trosten; both have pleaded not guilty and maintain their innocence. Bloomberg here, AP here.

A US District Court jury in Atlanta on Monday convicted four defendants on charges of conspiracy to commit mortgage fraud and wire fraud, arising from a scheme whereby they obtained $6 million in fraudulent mortgage loans from SunTrust Mortgage over a ten-week period in 2006. Convicted were Keith Garner, his daughter Latesha Garner, Gregg Savage and Shalonda Harris. A fifth defendant, Susan Khodadad, had previously pleaded guilty to one conspiracy count and testified against her co-defendants. Latesha Garner was a loan processor with SunTrust Mortgage and was responsible for verifying borrower employment and asset information and approving closing documentation. According to evidence presented at trial, Keith Garner recruited his daughter and paid her to handle fraudulent loan applications submitted on behalf of straw borrowers he recruited with Savage and Harris to buy houses in high end Atlanta area subdivisions. Savage was the seller of some of the properties and Harris was a realtor who located straw buyers. Khodadad was a closing paralegal working with several Atlanta realtors and worked to include payoffs out of the loan proceeds to the co-conspirators from the spread between the market value and the inflated appraisal value. Each defendant faces up to 20 years on the conspiracy count and up to 20 years on each wire fraud count. A sentencing date has not been set. Atlanta Business Chronicle here, DOJ here.

A US District court jury in Tampa on Monday convicted former Bartow, Florida auto dealer John Giovanetti on 11 counts of wire fraud, 11 counts of bank fraud and one count of conspiracy in connection with $2.5 million in car loan proceeds obtained fraudulently from SunTrust Bank. Giovanetti formerly owned Big Oaks Pontiac Buick GMC in Bartow. Evidence presented at trial showed that on at least 11 different occasions, he had employees fax loan funding requests to SunTrust Bank for cars no longer in his dealership’s possession, “resulting in the unlawful receipt by Big Oaks of over $2.5 million.” Giovanetti faces up to 30 years on each wire fraud and bank fraud count and up to 5 years on the conspiracy count. Sentencing is scheduled for May 12, 2008 before U.S. District Judge James Whittemore. Tampa Bay Business Journal here, DOJ here.

Former Fairbanks, Alaska Mayor Jim Hayes was convicted on Monday by a federal trial jury on 16 counts including conspiracy, theft, fraud, misapplication of federal funds, money laundering and tax fraud.; he was acquitted on four counts and the jury was hung on seven more counts. Hayes had been charged with embezzling over $450,000 in funds from the LOVE Social Services tutoring and mentoring center, a nonprofit whose executive director was his wife Murilda “Chris“ Hayes. The funds were used for personal items and to finish construction of the church where he is pastor. The nonprofit agency exists only because it was founded and funded with five earmark grants totaling about $2.9 million directed to it by prince of pork US Senator Ted Stevens. Jim Hayes’ sentencing has been scheduled for May 2 by US District Court Judge Ralph Beistline. Chris Hayes was also indicted; she pleaded guilty in December to illegally diverting federal funds and money laundering and awaits sentencing. AP story here; the Alaska Report story here has more about the relationship between Stevens and the Hayes family.

US District Judge Vanessa Gilmore on January 31, 2007 dismissed the five-count conviction of former Enron Broadband CFO Kevin Howard (Houston Chronicle story here) after a ruling by the US Circuit Court of Appeals for the Fifth Circuit, in a separate Enron case, that the government’s “honest services fraud” theory was improper. Prosecutors had conceded that four of the counts of conviction should be vacated but appealed the dismissal of the fifth. Now in a decision filed on Tuesday, the Fifth Circuit has rejected the DOJ appeal (Howard Decision). Prosecutors have not indicated if they will seek to retry Howard (h/t Houston’s Clear Thinkers).

The Washington Post reports here (story by Barry Svrluga and Amy Shipley) on today’s showdown in Congress between pitching great Roger Clemens and his accuser Brian McNamee. The Wall Street Journal also has a good piece here by Allen Barra which helps set the stage, and includes some insightful analysis from Bob Costas, who was interviewed by phone for the piece. Costas looks at Clemens’ career pitching stats, noting that they don’t corroborate McNamee’s allegations. One thing is fairly clear from all the hoopla. Representative Henry Waxman’s goal of using the proceedings to browbeat Clemens is likely to backfire. The House Committee on Oversight and Government Reform’s decision to excuse Andy Pettite and Chuck Knoblauch from testifying live also seems dubious to me. I suspect that Waxman wants a rigged game, and that Pettite’s and Knoblauch’s testimony would not have damaged Clemens enough to suit Waxman. Waxman is infamous, even in Washington circles, for his publicity hound stunts. This just in. The Journal runs its first report of McNamee’s actual testimony. The Washington Post is also streaming the testimony live on its website.

Brent Crosson of Salem, Oregon, a former accountant with the Oregon Department of Education, has been charged by federal prosecutors with diverting $925,000 in federal education funds from the state to the accounts of an online guns and ammunition dealership he had started, and then to his personal accounts. The missing funds were federal grants for charter schools, anti-drug programs and health programs. The alleged transfers took place between June 2006 and June 2007; $750,000 has been recovered. The US Attorney charged him by filing an information rather than seeking an indictment, an indication that a plea agreement will follow. AP here, Oregonian here.

US District Judge Neal Biggers on Tuesday set a deadline of February 19 for prosecutors to respond to defense pre-trial motions (earlier) in the bribery trial of Dickie Scruggs, Zach Scruggs and Sidney Backstrom. He set the motions hearing for February 20 (Daily Journal). The trial is scheduled to begin March 31.

Tax accountant Kalil Khalil of Dearborn Heights, Michigan was sentenced to 60 months in prison on Thursday by US District Judge David Lawson in Detroit. Khalil had pleaded guilty in May 2007 to one count of wire fraud for his part in a mortgage fraud scheme he operated with co-defendant Tariq Hamad which caused lenders to suffer $21 million in losses from 2001 to 2003. He admitted preparing fraudulent loan applications and loan documents with fake borrowers, fake employment histories and forged or inflated appraisals, and not using loan proceeds for their intended purposes. Hamad was sentenced in September 2007 to nine years in prison; Khalil’s sentence was reduced for cooperation. The Detroit Free Press story is here.

Attorneys for Sidney Backstrom and Zach Scruggs on Monday filed motions to sever their bribery trials from that of co-defendant Dickie Scruggs (Zach’s father). The motions were based in part on claims that they had no part in alleged similar prior acts by Dickie Scruggs (earlier here and here). Y’all Politics has all the Monday deadline motions here. A joint trial is currently scheduled to begin on March 31 before US District Judge Neal Biggers in Oxford. Biggers had previously set aside two weeks after Monday’s deadline for any necessary hearings on the filed motions.

The Los Angeles Times has the story here on Lerach’s sentence, handed down today in federal court. After his release from prison, Lerach will be subject to supervised release for a period of two years. Lerach’s lawyers, arguing for leniency, asked for 6 months in prison and 6 in home confinement. The judge was having none of it, noting that Lerach “got a lot of forgiveness in the plea agreement.” The government had recommended 1 to 2 years in prison. The charges stem from Lerach’s payment of kickbacks to plaintiffs in class action suits.

A Forbes/AFX story here about a Friday hearing in the Alabama US v. Scruggs contempt of court proceeding contains this intriguing sentence: “Special prosecutors said the contempt case in Alabama could be resolved in any possible plea deal in the bribery and conspiracy case in Mississippi, but there has been no word of an agreement.” This is the first public indication that talks may be underway.

In other Scruggs-related news:

• Roger Parloff at Fortune looks at the State Farm v. Hood hearing last Wednesday and compares Mississippi AG Jim Hood with Roberto (no más) Duran.
• NMC at folo has a nice summary of all the Scruggs cases.
• Today is the deadline for pre-trial motions in US v. Scruggs Mississippi bribery trial (Daily Journal).
• The Mississippi  Commission on Judicial Performance has ordered a full investigation of  Hinds County Circuit Judge Bobby DeLaughter’s actions in Wilson v. Scruggs (Clarion-Ledger).

Two brothers from the Vineland, New Jersey area were sentenced to prison on Friday by US District Judge Freda Wolfson in Trenton for submitting $5.5 million in false claims to Medicaid for medical services never rendered at their two adult day care centers. Ernest Galletta, vice president of Horizon National Healthcare LLC, was sentenced to 55 months in prison. His brother George Galletta, the owner of Horizon, was sentenced to six months in prison and six months home confinement; he received a lesser sentence because his brother had hidden the fraud from him for more than two years. They had each pleaded guilty on November 2, 2007 to single count informations of conspiracy to commit healthcare fraud. AP here, DOJ Press Release (.pdf) here.

A federal jury in Houston on Thursday convicted three former natural gas traders from Houston-based El Paso Corporation on one count each of conspiracy and multiple counts of false reporting and wire fraud. The charges arose from the reporting of non-existent natural gas trades sent to industry publications Inside FERC and Natural Gas Intelligence from 2000 to 2002 for the alleged purpose of influencing natural gas prices in El Paso’s favor. James Brooks, former head of gas trading at El Paso and managing director of a wholly owned subsidiary, was convicted on 45 total counts; gas trader Wesley C. Walton was convicted on 23 counts; and gas trader James Patrick Phillips was convicted on 21 counts. US District Judge Melinda Harmon has scheduled sentencing for May 23, 2008; each count carries a possible five year sentence. Houston Chronicle here; AP here.

Dow Jones’ marketwatch.com looks here at the SEC’s and DOJ’s widening inquiries into possible wrongdoing at Merrill Lynch–in connection with the sub-prime mess. Yours truly is quoted in the piece, and quoted out of context. Reporter Riley McDermid called me on Friday and asked how likely it was that Merrill Lynch would be indicted. I responded that this was a very unlikely scenario in light of the debacle created by the government’s indictment of Arthur Anderson & Co. (If you recall, the government’s indictment of Anderson effectively shut the company down, throwing thousands of totally innocent people out of work. Anderson’s subsequent conviction was later overturned by the U.S. Supreme Court.) I also told McDermid that Merrill Lynch would gladly cooperate with the government, if necessary by throwing former top officers to the wolves, in order to avoid indictment. In McDermid’s article, co-authored by Greg Morcroft, I am quoted as suggesting that Merrill Lynch’s employees won’t be indicted.  That is a different question altogether. If  the DOJ thinks it has found fraud in connection with Merrill Lynch’s marketing or accounting for sub-prime mortgages, it is in fact quite likely that employees will be indicted, although they will probably be former employees by the time charges are filed.

Those who argue that Roger Clemens set himself up for a perjury charge by agreeing to testify under oath before a Congressional Committee do not know his lawyer, Rusty Hardin, very well. To put it simply, Hardin is one of the best criminal defense attorneys in the country. I can guarantee you that Hardin warned Clemens, in excruciating detail, about the potential criminal exposure the pitching great faced if Clemens testified before Congress and there was ANY truth to Brian McNamee’s charges. I am struck by the self-confidence evident in the Clemens camp, even in the face of the box of “evidence” disclosed on Thursday by McNamee’s lawyers and their contemptible revelation on Friday that McNamee injected Clemens’ wife with a human growth hormone. The St. Louis Post-Dispatch has the latest details here.

Here is the full transcript of the State Farm v. Hood hearing which began Wednesday and concluded with the Thursday morning settlement and dismissal announcement.

UPDATE/COMMENT: Even considering AG Hood’s evasiveness, his collusion with Dickie Scruggs and associates is written all over this transcript. Also, note the questions and answers on pages 157-159 of the transcript (pages 40 and 41 of the .pdf) concerning a particular dinner meeting alleged to have taken place in Jackson between Hood, Scruggs, Timothy Balducci and Steve Patterson. While Hood denied anything improper happened, State Farm must have had some very specific inside information to even pose the question.

All defendants have rested in the Gen Re fraud trial in Connecticut. No defendants took the stand and no side called Warren Buffett to testify. The entire defense case took two days to put on. Douglas McLeod of businessinsurance.com has the story here.

A settlement has been reached in State Farm v. Hood which puts and end to Mississippi AG Jim Hood’s attempt to criminally prosecute State Farm to extort a civil settlement in Katrina cases for the benefit of his tag-team partner Dickie Scruggs. In Natchez today, US District Judge David Bramlette ruled that the January 23, 2007 agreement between State Farm and Hood is “a standalone agreement, unambiguous and enforceable”; that under a settlement agreement to remain under seal, the current case is dismissed with prejudice; and that the court will retain jurisdiction to enforce the settlement (Judge Bramlette’s Order). The referenced January 2007 agreement ended Hood’s original criminal investigation of State Farm in exchange for a civil settlement which benefited Scruggs and his partners as well as Hood’s office.

From David Rossmiller’s report on yesterday’s appearance by Hood, the AG seems to have taken a beating on the stand. He faced the prospect of testimony today by his associate Courtney Schloemer, who has already publicly admitted collusion between the AG’s office and Dickie Scruggs, plus the possibility that Scruggs’ deposition would become public. However he spins it, it’s no wonder he settled.

Best observation of the day, from a commenter at folo: “If you do DNA from the fleas on Scruggs and Hood it would be 100% match.”

Negotiations following the first day of testimony in the State Farm v. Hood hearing before US District Judge David Bramlette in Natchez may have resulted in a se