Last month we posted here concerning a 5-part series at folo about Keith Shelton, an attorney in Mississippi who was framed and disbarred in what can best be characterized as an outrageous miscarriage of justice by a former district attorney and a corrupt judge. We are pleased to note that the Mississippi Supreme Court on Friday reinstated Keith Shelton (.pdf) to the Mississippi Bar. The decision is well worth reading as an official confirmation of the underlying facts; note especially the concurring opinion of Justice Dickerson. The Clarion-Ledger story here fails to accurately report the background of the case. Congratulations to Mr. Shelton, and a hat tip to folo.
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A two paragraph addendum to this Sun Herald story about the suspension of Judge Bobby DeLaughter indicates that Dickie Scruggs has asked the Mississippi Supreme Court to dismiss disbarment proceedings against him subsequent to his guilty plea “because U.S. District Judge Neal B. Biggers Jr. has not yet accepted his plea.”
However, on page 16 of the transcript of Scruggs’ March 14 plea hearing, Judge Biggers says [emphasis added] “the Court will accept your guilty plea and enter a judgment of guilty on your plea.”
Despite signing a plea agreement, Scruggs had to be prodded by his attorney John Keker into admitting his guilt in open court. Now this. It’s hard to figure out what he hopes to accomplish by this move, but once Judge Biggers learns of it, we shall probably hear more in short order.
Andrea Batronie, a licensed title agent from Land O’Lakes, Florida, was sentenced on Friday to 30 months in prison by US District Judge Richard Lazzara in Tampa for her part in a $6 million “equity stripping” mortgage fraud scheme that included identity theft. Batronie was found guilty of conspiring to commit mail, bank and wire fraud last October. A day earlier, licensed mortgage broker Luis Uribe pleaded guilty to single counts of wire fraud and aggravated identity theft in the same scheme. Uribe is said to have obtained 32 mortgage loans under false pretenses through a shell contracting company using stolen identities, apparently on the premise of additional construction work to be done. However, no work was ever performed by the contracting company. At closing Batronie would divert the funds into bank accounts under their control. Tampa Tribune, Tampa Bay Business Journal.
A March 19 ruling in the case of former Bristol-Myers Squibb CFO and senior VP Frederick Schiff has limited the scope of the prosecution’s case and delayed the trial which was to have begun last week in US District Court in Newark, New Jersey while the government appeals the ruling. Schiff and former Bristol-Myers executive VP Richard Lane were indicted in 2005 on charges of conspiracy and securities fraud in connection with a “channel stuffing” scheme to inflate sales. US District Judge Faith Hochberg’s ruling prevents prosecutors from tying Schiff’s alleged activities to investor losses when Bristol-Myers Squibb’s stock price dropped when the practice was disclosed. Judge Hochberg also criticized prosecutors for repeatedly changing the theory of the crime, saying “the court will permit no further ‘legal theory morphs’ in this case.” Lane’s trial will also be delayed. NY Times, Newark Star-Ledger.
In Columbus, Ohio on Thursday evening, US District Judge Gregory Frost issued a bench warrant for the arrest of Rebecca Parrett, one of the five executives of National Century Financial Enterprises convicted on March 13 on fraud charges in connection with the company’s 2002 collapse (here and earlier). Parrett, a co-founder of the company and vice chairwoman, secretary, treasurer and director, was found guilty of one count of conspiracy, six counts of securities fraud, one count of wire fraud and one count of money laundering. After the verdicts were announced, US District Judge Algenon Marbley allowed all five convicted executives to remain under house arrest with electronic monitoring pending sentencing. Parrett was supposed to report to the Pretrial Services Office near her home in Carefree, Arizona, for installation of an electronic ankle bracelet but she failed to show up and her whereabouts are unknown. The US Marshal’s Office has begun a search. Columbus Business First, Bloomberg.
In response to the petition by the Mississippi Commission on Judicial Performance for an interim suspension of Circuit Judge Bobby DeLaughter (earlier here and here), the Mississippi Supreme Court on Friday suspended DeLaughter indefinitely. The commission has charged DeLaughter with willful misconduct in two cases, Wilson v. Scruggs and Kirk v. Pope. In the former case, Joey Langston has pleaded guilty to bribing DeLaughter via former Hinds County DA Ed Peters on behalf of Dickie Scruggs. No one else has yet been indicted but DeLaughter is known to be under federal investigation in the case (Clarion-Ledger, Sun Herald).
Just hours after the House Judiciary Committee asked the DOJ to release former Alabama Governor Don Siegelman under guard to allow him to testify before Congress in May (Montgomery Advertiser, AP) — a move brought about by the DOJ’s refusal to cooperate with the HJC — the US Court of Appeals for the Eleventh Circuit on Thursday granted Siegelman’s motion for release on bond pending appeal, finding that his appeal raises substantial questions of law or fact. Since this issue had twice before been remanded to district court, the decision can be viewed as a direct repudiation of US District Court Judge Mark Fuller’s actions. Siegelman may be released as early as today (NYT (with link to order), AP). Scott Horton at Harper’s has editorial commentary here. In related news, the 11th Circuit has has given attorneys for Siegelman and HealthSouth founder Richard Scrushy until May 23 to file appellate briefs. Siegelman’s attorney Vince Kilborn estimated oral arguments on the case could be heard in late 2008 (AP).
In Newark, New Jersey on Thursday, US District Judge Stanley Chesler sentenced former Suprema Specialties Inc. President and CEO Mark Cocchiola to 15 years in prison for his role in a fraud that caused the Paterson, New Jersey cheesemaker to collapse in 2002. He was also ordered to pay $115 million restitution to investors and banks; the total loss has been estimated at more than $177 million. Cocchiola and Suprema Specialties CFO Steve Venechanos were convicted in April 2007 on 38 counts including conspiracy, bank fraud, making false statements to the SEC,wire fraud and mail fraud. The charges arose from a complex and long-running scheme to increase the company’s stock price by fraudulently inflating inventories and by billing $400 million in non-existent sales. Venechanos is scheduled for sentencing on April 7. New Jersey Star-Ledger, AP.
The US Court of Appeals for the Eleventh Circuit on Thursday granted former Alabama Governor Don Siegelman’s request to be released from prison pending the outcome of his appeal (Birmingham News).
KPMG either initiated or tolerated accounting fraud at New Century Financial Corp., according to a 581 page report by Michael Missal, the bankruptcy court’s independent examiner appointed at the request of the Department of Justice to investigate New Century’s 2007 plunge into bankruptcy. The report also blames New Century’s management, and details significant departures from generally accepted accounting practice. New Century was once the nation’s second largest subprime lender. Reuters has an excellent piece here by Amanda Beck. The Washington Post’s Carrie Johnson has a story as well. KPMG, the financial industry’s poster child for abandoning your employees in the face of a federal investigation, vigorously denies the report’s conclusions.
A three-judge panel from the US Court of Appeals for the Second Circuit on Tuesday heard arguments in the government’s attempt to reinstate the indictments of 13 former KPMG LLC executives in what was once the largest criminal tax shelter prosecution in US history. In July 2007 US District Judge Lewis Kaplan dismissed the indictments of 13 out of an original 19 defendants in US v. Stein et al because the government threatened to indict KPMG if the company did not stop paying the defendants’ legal costs despite contractual obligations to do so. The Bloomberg News story indicates that the judges were highly critical of the government’s arguments. While AUSA Karl Metzner contended that a fair trial was still possible and that dismissal of the indictments was “too drastic a sanction” despite Kaplan’s ruling that the government’s actions violated the defendants’ rights, Chief Circuit Judge Dennis Jacobs noted that “time has moved forward” and Judge Peter Hall likened a reinstatement to “putting toothpaste back in the tube”.
Predictably, the government response to Jeff Skilling’s supplementary appellate brief denies that the Enron Task force withheld material exculpatory information from the former Enron CEO’s defense team. The government’s brief, filed on Tuesday, asserts, “Skilling’s claims rely on isolated snippets culled from 420 pages of handwritten notes and stripped of their context.” It accuses Skilling of using “hyperbolic rhetoric” and says that the Andrew Fastow interview notes that Skilling cites in his supplemental brief either contain information that Skilling had prior to the trial in the summaries of the notes “or would have had minimal value in impeaching Fastow.” Houston Chronicle here (with link to the brief), our earlier posts here, here and here. The US Court of Appeals for the Fifth Circuit has scheduled arguments in the appeal for April 2.
Six days after the Mississippi Commission on Judicial Performance filed a petition with the Mississippi Supreme Court asking for an interim suspension of Judge Bobby DeLaughter for judicial misconduct in two cases, one of them involving Dickie Scruggs (earlier), DeLaughter delivered a letter to the Commission stating that he will not challenge a temporary suspension pending a decision after a hearing if it is so ordered. SunHerald, DeLaughter letter.
After about 6 hours of deliberation yesterday and today, a federal jury in Columbus, Ohio has convicted former National Century Financial Enterprises CEO and co-founder Lance Poulsen and his associate Karl Demmler on one count each of conspiracy to obstruct justice, witness tampering, witness tampering by influencing testimony and corruptly persuading a federal witness. They face a possible maximum of 55 years in prison. The charges arose from their attempt to pay former National Century Executive VP for compliance Sherry Gibson $500,000 to $1 million to have a “memory lapse” when called to testify against Poulsen in his fraud trial in connection with National Century’s 2002 collapse. Poulsen’s trial on 47 counts including conspiracy, wire fraud, securities fraud and money laundering is now scheduled to begin August 4.
US District Judge Algenon Marbley has not set a date for sentencing but ordered Demmler held without bond because of threats he made against two local judges and an attorney in the taped conversations which were entered into evidence at the trial. Poulsen is already in custody because his bond on the original fraud charges was revoked after he was indicted on the witness tampering charges. Columbus Business First, Bloomberg, our earlier trial coverage here, here and here.
Charles Head of La Habra, California, alleged leader of a nationwide mortgage fraud scheme, and 18 others have been charged in two separate indictments unsealed on Monday by the US Attorney’s Office in Sacramento; charges include mail fraud, conspiracy to commit mail fraud, conspiracy to commit money laundering, bank fraud and identity theft. In the first, Head and 15 others were indicted on 13 counts These charges arise from an alleged “foreclosure rescue” scam involving $6.7 million taken from 47 homeowners, mostly in California. Homeowners in distress were convinced to add the name of an investor to their titles for purposes of repairing their credit while paying less than their mortgage amounts in rent to the investor, but Head and his associates allegedly switched the titles to their own names, refinanced and took the equity. In the second, Head and 6 others (including two also charged in the first scheme) were indicted on 5 counts in connection with a similar “equity stripping” scheme in which $5.9 million in equity was allegedly stolen from 68 homeowners nationally, recruited with the help of mortgage brokers. Prosecutors indicated that more indictments are likely. San Francisco Chronicle, DOJ.
A mother and daughter who formerly operated a travel agency in McKinney, Texas were sentenced to federal prison on Monday by US District Judge Richard Schell in Sherman, Texas. Carol Ribaudo of Clearwater, Florida received a 57 month prison sentence; her daughter Sonia Ritz, also of Clearwater, received 37 months in prison. Both were convicted by a jury last August on one count of conspiracy, five counts of mail fraud and nine counts of wire fraud in connection with a scheme to sell bookings for a cruise that never existed. The travel agency they operated between July 2003 and January 2004 sold at least $210,000 in bookings to about 50 people for a charter cruise that was to sail in February 2004 out of Miami, but they never actually planned a trip or contracted with any cruise line.
The KTVT-CBS 11 Dallas story states that Judge Schell “announced in court on Monday that Ribaudo told a probation officer that she and her daughter had no intention of serving any time in prison” and ordered both women taken into immediate custody as flight risks. DOJ Press Release.
Following the news that the three former Merrill Lynch executives still possibly facing retrial in the Enron Nigerian Barge case have filed a motion asking US District Judge Ewing Werlein to order the government to give them the Andrew Fastow notes (earlier here; Chronicle here), Tom Kirkendall at Houston’s Clear Thinkers posts here on the motion filed by Sidney Powell, attorney for defendant James A. Brown, to dismiss the indictment on grounds of egregious prosecutorial misconduct, Brady violations and double jeopardy, and links here to the motion, which he has bookmarked. It’s a stunning motion which goes well beyond the Fastow notes in its allegations.
The defense rested on Monday in the in the witness tampering trial of former National Century Financial Enterprises CEO and co-founder Lance Poulsen and his associate Karl Demmler (earlier here and here). The government rested on Friday after playing tapes of conversations between Poulsen and Demmler which appear to confirm that Poulsen suggested to Demmler that former Executive VP for compliance Sherry Gibson should plead unfamiliarity with the fraud charges against Poulson and other executives (AP here). The defense had contended that it was all a misunderstanding and that Poulson was merely seeking to help Gibson; however, when Poulson took the stand in his own defense Monday, he alleged that Gibson was an abusive employee “both sexually and physically” and that she had stabbed him in the back by agreeing to become a government witness. The case is expected to go to the jury today Columbus Business First here.
Two Miami-Dade county men, Rodrigo Molina and Marcos Macchione, were indicted on Thursday by a federal grand jury in Miami on 16 counts including conspiracy and money laundering. The charges stem from their alleged involvement as money launderers in an international stock fraud scheme headquartered in Brazil. They were arrested February 25 along with 18 others in Brazil. The alleged scheme was an “advance fee” fraud which caused investor losses estimated at more than $50 million, mostly from investors in the UK. It involved a series of fictitious companies including Heritage Financial of Trenton, New Jersey, which offered to buy low value stock at above market value; fictitious brokers — actually “boiler room” telemarketers located in Brazil — would require advance fees from the investors and then would abandon the transactions after the fees were paid. Funds were allegedly wired to Florida accounts controlled by the defendants. The Brazilian suspects allegedly stole identities of real US brokers and created well-designed websites to convince investors they were legitimate US securities dealers. AP, DOJ (via PR Newswire).
Lotus and NMC at folo have put together a remarkable narrative here, here and here, going back more than a decade to examine the trail of machinations and alleged public corruption attempted and sometimes achieved by Dickie Scruggs and associates. The winding tale concerns the asbestos litigation legal fees suits filed by attorneys Alwyn Luckey and William Roberts Wilson against their former partner Scruggs, and the actions taken by Scruggs over the years to thwart them and prevent the cases from ever being heard. While Luckey did eventually prevail, the Wilson case has resulted in the federal guilty plea by Joey Langston for bribing state Circuit Judge Bobby DeLaughter on behalf of Scruggs, a matter which will almost surely result in more indictments shortly. DeLaughter’s actions (as described in the second installment) are nothing less than shocking. DeLaughter continues to assert his innocence.
Reed Kyle Diehl of Coto de Caza,California was arrested last Tuesday after a complaint was filed in US District Court in Santa Ana charging him with wire fraud. The charge arises from an alleged offer to secure a $24 million line of credit for a developer who was planning to build a resort project in Mexico. The complaint alleges that the developer was required to deposit $2.5 million in a designated account for collateral, but that Diehl withdrew the money, used it to pay off others who had invested with him and never obtained a line of credit. Diehl is also being investigated in connection with a number of earlier schemes dating back several years.
The DOJ Press Release describes Diehl as a former Tennessee Titan but according to the KNBC Los Angeles story he was signed as an undrafted free agent in 2001 and released before the season started; he played football at University of California and is currently a high school football coach in Santa Ana. Could this be the first confirmed instance of Titans’ owner Bud Adams exercising good judgment?
Two Dallas-area men were sentenced to prison last week by US District Judge Sam A. Lindsay for their roles in a scheme involving submission of fraudulent claims to Medicare for power wheelchairs and accessories. Friday Udo Johnny, the owner of Metropolitan Home Medical Equipment in Grand Prairie, was sentenced to 37 months in prison, and Emmanuel “Bob” Edet of Mesquite was sentenced to 30 months in prison; both were ordered to pay restitution. Both men pleaded guilty last year to conspiracy to commit health care fraud and pay illegal remunerations. They admitted to conspiring to pay illegal kickbacks to Lloyd McGriff, M.D., a Dallas physician currently serving a 16 month federal prison sentence. McGriff executed 257 fraudulent Certificates of Medical Necessity (CMNs) for which Johnny and Edet paid $200 each. Over an 11 month period in 2002 and 2003, they submitted more than $1.7 million in claims to Medicare, and Medicare paid the two men $905,000 based on the fraudulent CMNs and claims. Dallas Morning News, DOJ.
Friday’s Miami Herald reports here that longtime GOP operative Roger Stone alerted the FBI to Eliot Spitzer’s call girl habit last year. In November of 2007, Stone’s Cosa Mesa, CA attorney sent a letter to the FBI declining an interview request but reporting Stone’s admittedly second-hand information about New York’s then-Governor. Stone had learned from Miami Velvet, an acquaintance, that Spitzer once used the services of a high-priced call girl in Miami. Stone, in the letter, reported what he knew and stressed that the information was second hand. Stone’s Florida lawyer released the letter last week in an effort to counter Internet-based conspiracy theories about his purported role in bringing down Spitzer, a long-time nemesis. Hat tip to TalkLeft for alerting us to this story.
File this one under Department of Ho-Hum. Even if the snoopers revealed passport contents to outsiders, they have only committed misdemeanors. The Washington Post story, here, does suggest, somehwat murkily, that State Department employees and contractors accessing passport files must first represent (by touching a “Yes” button on a computer monitor) that they are authorized to view the contents. Will a zealous prosecutor claim that such a representation by an unauthorized person constitutes a false statement to the government under 18 U.S.C. Section 1001? Your guess is as good as mine. The Post says that the State Department’s OIG will investigate, but may ask for assistance from DOJ.
Zach Scruggs has pleaded guilty to a one-count information for misprision of a felony, in exchange for dismissal of the original indictment. There is no requirement for cooperation. He admitted to improper ex parte contact, knowing about improper ex parte contact by others and doing nothing to prevent or report it. He denied knowing about the bribe to Judge Lackey.
The charge carries a maximum penalty of three years in prison but the government has recommended probation. However, US District Judge Neal Biggers pointed out, per customary practice, that the court does not have to accept that recommendation. This report comes from David Rossmiller’s contact in the courtroom. More to come.
UPDATE:
Sun Herald story by Anita Lee, Zach Scruggs Plea Agreement, Zach Scruggs Factual Basis, Zach Scruggs Plea Hearing Transcript.
The transcript confirms the earlier report above. There will be no further charges arising out of this case, but the agreement does not preclude any prosecution in any other case. However, the government has “no knowledge that he has any information on other cases at this time,” which indicates he is not currently a target in the investigation related to the Joey Langston plea; Dickie Scruggs is under investigation in that case.
Judge Biggers made it quite clear, per standard federal plea bargain procedure, that the court is not bound by the recommendation of probation contained in the plea agreement. He ordered a presentencing report and stated that sentencing would probably take place in six to eight weeks.
Melvyn Weiss has agreed to plead guilty to a single racketeering count, specifically that he engaged in a pattern of racketeering activity covering at least the period of 1979 to 2005. Weiss admits to multiple instances of kickbacks to plaintiffs and agrees to serve a sentence of 18 to 33 months in prison and to forfeit $10 million. He shortly will formally plead guilty before US District Judge John Walter in Los Angeles and prosecutors will ask for the 33-month maximum.
The firm, which will now be known as Milberg LLP, still faces criminal charges. The New York Times story here quotes from statements released by Weiss and the firm, and contains this observation from Stanford law professor Joseph Grundfest, a former SEC commissioner: “It’s a situation where it appears that there has been fraud in pursuit of fraud. And just like mom explained that two wrongs don’t make a right, it follows both that corporate executives shouldn’t lie and the lawyers suing them shouldn’t steal. What’s complicated about that?”
The US Court of Appeals for the District of Columbia Circuit on Thursday disbarred Scooter Libby from the practice of law in DC effective June 12, 2007, the date he filed an affidavit of voluntary compliance with the court’s rules on professional ethics for lawyers. The court wrote:
- When a member of the Bar is convicted of an offense involving moral turpitude, disbarment is mandatory. When convictions on more than one count are involved, disbarment is mandated if any one of them involves moral turpitude. This court has held that obstruction of justice (18 U.S.C. § 1503) and perjury (18 U.S.C. § 1623) are crimes of moral turpitude per se. Since respondent was convicted of each of these offenses, as the Board concluded, disbarment is mandatory under D.C. Code § 11-2503 (a) [citations omitted].
Libby had not contested the recommendation of the Board of Professional Responsibility. The disbarment will last at least five years and should affect his standing in other states where he is licensed. The Washington Post story is here.
That’s Melvyn Weiss, former name partner at Milberg Weiss, LLP, the securities class action powerhouse. WSJ.com has the story here. The WSJ.com Law Blog has more detailed info here. The LA Times reports here that Weiss’ lawyer says he is pleading to “limited participation in a criminal conspiracy.” The Indictment against Weiss alleged that he and former partners enaged in a scheme to pay illegal kickbacks to class-action plaintiffs.
In light of the revelations in Jeff Skilling’s recently unsealed brief regarding the Andrew Fastow notes (earlier here and here), attorneys for James A. Brown, Daniel Bayly and Robert Furst — the three former Merrill Lynch executives still possibly facing retrial in the Enron Nigerian Barge case — have now filed a motion asking US District Judge Ewing Werlein to order the government to give them the notes. The retrials are currently delayed while the defendants’ appeal of Werlein’s refusal to dismiss is pending before the Fifth Circuit (earlier). Kristen Hays’ Houston Chronicle story is here.
Zach Scruggs’ defense team filed three motions on Wednesday, which was the revised motions deadline. Zach Scruggs’ James Hearing Motion seeks to force the prosecution to prove its basis for allowing 404(b) evidence now that he is the sole defendant. Zach Scruggs’ Motion To Reconsider An Anonymous Jury is based primarily on his alleged lack of involvement in the judicial bribery referenced in Joey Langston’s plea. It asks alternatively for a change of venue or a revised supplemental jury questionnaire. Zach Scruggs’ Motion For Continuance asks for another 90-120 days in light of the changed circumstances brought about by the guilty pleas of Dickie Scruggs and Sid Backstrom.
Based on his prior statements, US District Judge Neal Biggers is not likely to countenance a delay in the scheduled March 31 trial date, whether or not he grants the James Hearing motion.
Two developments regarding corruption allegations against Judge Bobby DeLaughter in cases involving Dickie Scruggs:
First: In response to William Roberts Wilson’s recusal motion (earlier), DeLaughter and the two other circuit judges have recused themselves: Wilson v. Scruggs Recusal (h/t folo). But unlike Judges Kidd and Yerger, DeLaughter saw fit to editorialize and proclaim his innocence:
The undersigned judge of this Court has never, in this or any other case, issued a ruling in exchange or consideration of anything (money or otherwise) other than the applicable law, all allegations to the contrary being belied by the record.
The record? It is precisely because of what allegedly transpired off the record that he is under investigation.
Second: The Mississippi Commission on Judicial Performance on Wednesday filed a petition with the Mississippi Supreme Court to suspend DeLaughter based upon actions he took which were allegedly under the corrupt influence of Ed Peters on behalf of Dickie Scruggs in Wilson v. Scruggs, according to the guilty plea of Joey Langston; and also in the case of Kirk v. Pope, one of two other known cases which did not involve Scruggs but which did involve the intercession of Ed Peters. Commission v. DeLaughter. The petition contains specific details of the alleged violations. The Sun-Herald has an AP story here.
A three-judge panel of the 5th US Circuit Court of Appeals on Tuesday ruled that US District Judge Vanessa Gilmore was correct when she refused to dismiss most of the remaining charges against former Enron Broadband Services executives Joseph Hirko and Rex Shelby and all the remaining charges against Scott Yeager. The three men were tried in 2005 and acquitted on some charges while the jury deadlocked on others (Houston Chronicle trial verdict story here); Judge Gilmore declared a mistrial but would not dismiss the charges. In Tuesday’s ruling, the appeals court said that despite the acquittals it could not be concluded that the men could not be found guilty of some of the other charges against them. Hirko’s lawyer Per Ramfjord indicated that a motion for rehearing before the full appellate court was possible. The Mary Flood/Kristen Hays Houston Chronicle story is here.
A federal grand jury in Richmond, Virginia on Monday indicted Edward Okun of Miami on three counts in connection with a scheme which allegedly defrauded clients of $132 million. Okun was charged with one count of mail fraud, one count of bulk cash smuggling and one count of false statements and forfeiture. Okun operated 1031 Tax Group (1031TG), a qualified intermediary company which acted as a neutral party to hold transaction funds for property investors deferring taxes under IRS Section 1031. The indictment alleges that between 2005 and 2007, Okun misappropriated $132 million in client funds held in trust under agreements and converted it for his personal and business use. He was arrested in Miami and has waived extradition to Virginia. AP, DOJ (via PRNewswire).
In opening statements on Tuesday in the witness tampering trial of former National Century Financial Enterprises CEO and co-founder Lance Poulsen and his associate Karl Demmler (earlier), the defense sought to portray Poulson’s $500,000 offer to former Executive VP for compliance Sherry Gibson as a misunderstanding. According to defense attorney Peter Anderson, Poulsen only sought to “make her whole” because she had gone to prison and given up her assets in her plea deal. And according to Demmler’s attorney Darryl Parker, Demmler was the intermediary because he was a longtime friend of Gibson and was only urging her to use the money to get a new attorney. However, Gibson took the stand on Tuesday afternoon and testified that she construed the initial offer as a bribe, contacted the government and agreed to wear a wire at future meetings with Demmler. The jury heard tapes in which Demmler offered to set Gibson up with an offshore account for a 10% fee if she took Poulsen’s offer and told her ” “Money laundering is my business on private contracts.” And regarding the testimony she was to give in Poulsen’s now-delayed fraud trial, Demmler said “Don’t remember. You don’t have to lie. You’re not lying. He’s not asking you to lie” and referred to a scene in Godfather II where a witness forgets testimony. The government also has taped conversations between Poulsen and Demmler in which they allegedly used code words in case their phones were bugged. Poulson is expected to take the stand in his own defense. Gibson’s testimony in the recently completed fraud trial of five other National Century executives (earlier) also included testimony implicating Poulsen in the fraud. Columbus Business First here and here.
The US Court of Appeals for the Tenth Circuit in Denver on Monday reversed the convictions of former Qwest CEO Joe Nacchio and remanded the case for retrial before a different circuit court judge. Nacchio was convicted in April 2007 of 19 of 42 counts of insider trading after a jury trial before US District Judge Edward Nottingham in Denver. The charges arose from his sale of $101 million worth of Qwest stock in 2001 while allegedly knowing that Qwest’s outlook was deteriorating. He was sentenced to 72 months in prison in July but has remained free on bail pending appeal. Nacchio had appealed on grounds that the evidence was insufficient to convict him, that the jury instructions were improper and that Judge Nottingham improperly excluded exculpatory evidence: an expert witness and classified information. In overturning the convictions the majority opinion states:
- We agree that the improper exclusion of his expert witness merits a new trial, but we conclude that the evidence before the district court was sufficient for the government to try him again without violating the Double Jeopardy Clause.
Professor Daniel Fischel, an expert on corporate law and economics, was the excluded expert witness. Prosecutors had argued that the defense failed to establish the reliability of Fischel’s opinions. Nottingham excluded Fischel in part because he thought it would not be helpful to the jury. But the appeals court rejected that reasoning:
- This misunderstands the nature of economic expertise. An economic expert is permitted not only to tell the jury that an economic concept “is an issue” but to analyze the concept and offer informed opinions. In other words, expert testimony may “assist the trier of fact to understand the facts already in the record, even if all it does is put those facts in context. ….That is why expert economic testimony is routine when a materiality determination requires the jury to decide the effect of information on the market. ….Armchair economics is not the way to decide complex securities cases [citations omitted].
NYT/Reuters here.
US District Judge Neal Biggers on Monday entered an order based on Friday’s hearing, formally denying Zach Scruggs’ separate dismissal motion and granting 5 additional days from March 14 to amend current motions or file additional motions, but ruling that the extension “in no way affects any other deadlines previously set forth in this cause, including the change of plea deadline of March 17, 2008, or the trial date of March 31, 2008.” Zach Scruggs 3/17 Order. The big surprise of the day was former Mississippi AG Mike Moore’s Entry of Appearance on behalf of Zach Scruggs. Moore was a key player in Dickie Scruggs’ multi-billion dollar looting of the major tobacco companies. A Sun-Herald story here quotes Moore as saying Zach Scruggs “asked me to represent him should his case ever get to trial.” We should know by Wednesday if that plea deadline was set in stone or if this case will proceed to trial.
A jury was selected Monday in the witness tampering trial of former National Century Financial Enterprises CEO and co-founder Lance Poulsen, and opening arguments are to begin today in Columbus, Ohio before US District Judge Algenon Marbley. Poulsen had been indicted in 2006 on 47 counts including conspiracy, wire fraud, securities fraud and money laundering in connection with the same acts for which five former executives were convicted last week (earlier) and is scheduled for trial on August 4 in that case. But in this case, he and an associate, Karl Demmler were indicted on one count each of conspiracy to obstruct justice, witness tampering and witness tampering by influencing testimony. The indictment alleges that they attempted to bribe Sherry Gibson, National Century’s former Executive VP for compliance, with $500,000 to “develop amnesia” on the witness stand in the fraud case. 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. She was the government’s star witness in the case that concluded last week and is scheduled to testify in this case. Columbus Business First has the story here.
Jodi Andes in the Columbus Dispatch analyzes last week’s verdicts here.
Paul and Zibia Gunther, the father and daughter arrested last week in connection with a $70 million international stock fraud scheme involving fake shares in hijacked dormant companies (earlier), made their initial appearances Monday before US Magistrate Judge Thomas McCoun in Tampa. McCoun agreed to release Zibia Gunther on a $150,000 bond secured by property, but he denied release to Paul Gunter, who had offered a $500,000 property-secured bond. Calling Paul Gunter a flight risk, McCoun said he will require at least $1 million posted from his family and friends before he said he would consider his release, stating “I want people to come forward and say they have so much faith in him that they’ll put up their house.” Paul Gunter holds English citizenship. Further details of the government’s case emerged: a prosecutor alleged that financial transactions have been tracked to numerous accounts controlled by Paul Gunter in at least nine different countries. However, he is currently represented by a public defender. Attorneys for both defendants claim they are only escrow agents acting for others. Tampa Tribune, Tampa Bay Times.
The Journal story is here. The conviction was overturned because of the trial court’s limitations on the testimony of the defense’s expert and its limitations on the defense’s use of classsified data.
Thanks to David Rossmiller, the Friday transcripts are now available:
Dickie Scruggs Plea Transcript
Sid Backstrom Plea Transcript
Zach Scruggs Motion Hearing Transcript
Zach Scruggs’ motion to dismiss was denied, and his attorney Todd Graves indicated that he would be conferring with prosecutors on other pending motions. And despite Friday’s pleas, today is the actual deadline for plea agreements. The Clarion-Ledger first reported, then withdrew a report that Zach Scruggs would surrender his law license in exchange for deferred prosecution (earlier). In light of the way the hearing ended, a plea deal could still be in the works. Alan Lange at Y’all Politics thinks so, and explains why here.
The Backstrom transcript indicates a dispute over language in the plea agreement that was resolved, but Backstrom clearly admitted entering into a conspiracy, apologized and accepted full responsibility.
In contrast, during Dickie Scruggs’ response to Judge Biggers’ questioning, his attorney John Keker had to intervene and practically prod him into answering in manner that would be accepted by the court. See pp.15-16 of the transcript. Scruggs offered no apology.
Perhaps more significant to Dickie Scruggs’ future was this statement from AUSA Thomas Dawson: “…I want to make it painfully clear that the investigation with respect to the Wilson matter that is currently under investigation – - that this plea agreement and this plea has no affect with respect to any charging decision or subsequent prosecution with respect to that case.”
Weekend articles of interest include Patsy Brumfield’s Daily Journal story which takes a look at the courtroom drama and the LA Times staff story which provides a very good overall view.
The Associated Press and other news sources will not hesitate to take action against those who reuse their photos without permission. A Photo District News story here points out that Ashley Alexandra Dupré — Eliot Spitzer’s “Kristen” — owns the MySpace photos which the same news organizations apparently thought they could reuse without permission.
Mark Steyn at NRO’s The Corner expects legal action: “…it’s pretty clear from her general philosophy that ‘Kristen’ doesn’t give away much for free….You go, girl! It’s not often you get a case where there’s someone in the room with a higher hourly rate than the lawyers.”
Two Houston policemen, officer Tracie Bell and first-year probationary officer Kirshondra Richardson, were indicted last week by a Harris County grand jury on felony charges of theft of more than $100,000. The indictment alleges that they billed the Red Cross over $160,000 for a two-week basketball camp for 310 Hurricane Katrina refugees but the camp only lasted two days and had only 10 attendees. If convicted they could face up to 20 years in state prison. Houston Chronicle here, FoxHouston here.
This would never have happened if Herman Short were still chief of police.
Here, for our readers, is Jeff Skilling’s Supplemental Brief Regarding Andrew Fastow Interview Notes. Originally filed under seal, and now unsealed, the brief details the material withheld from Skilling and how this withholding affected Skilling’s trial defense. We breathlessly await the government’s response. Brady-Giglio claims seldom prevail on appeal. An appellant must prove, among other things, that the withheld information was material, non-cumulative, and unavailable to the defendant by other means. Nevertheless, my initial take on this issue, after coming to it late, is that Skilling has a decent chance to win. The government’s use of a composite 302, which allegedly masked Fastow’s changing stories, as well as the government’s failure to show all of its raw Fastow interview notes to the trial court, are, in my view, quite striking (troubling) factors–and highly unorthodox. Ideoblog discusses the matter further, here, as does the always informative Tom Kirkendall, in Houston’s Clear Thinkers.
The Houston Chronicle reports here on convicted former Enron CEO Jeff Skilling’s latest substantive, and fully unsealed, appellate brief, which publicly references for the first time all of the Fastow interview notes that Skilling claims were improperly withheld from the defense by the prosecution. According to Hays, “[a]fter the trial, jurors told reporters that they didn’t give Fastow’s testimony much weight.” This gratuitous information, whether true or false, will be utterly irrelevant to the Fifth Circuit’s ultimate analysis of whether there was a Brady violation, and, if so, whether it warrants reversal.
UPDATE: The revised C-L story here now says that Zach Scruggs’ status is not known. The Daily Journal story here and other sources state that Zach Scruggs is still scheduled to stand trial on March 31.
This seems to be confirmed by a related development: following the November 27 search of the Scruggs Law Firm offices, an FBI “taint team” turned over certain evidence to two AUSAs from the Western District of Tennessee. Today the two AUSAs filed a motion to allow disclosure of that evidence to prosecutors in the Northern District of Mississippi by no later than March 21 for use in this case. If granted, at this point the evidence would be used against Zach Scruggs and the motion header is worded US v. David Zachary Scruggs rather than US v. Scruggs et al. The evidence was turned over to Judge Biggers on yesterday. Did attorneys for Dickie Scruggs and Sid Backstrom know this? If so, it could have precipitated their pleas today. US v. Zach Scruggs Motion To Disclose Search Evidence
The Clarion-Ledger is reporting that the government will defer prosecution of Zach Scruggs in exchange for surrender of his law license, but there is no confirmation of that yet in any court documents.
Dickie Scruggs’ guilty plea to the single conspiracy count carries a maximum five year sentence; the actual sentence will be at the court’s discretion. The remaining five counts are dismissed. Dickie Scruggs’ plea does not include an agreement to cooperate, and the agreement specifically does not preclude the government from bringing charges in any other case, federal or state.
Sidney Backstrom’s guilty plea to the single conspiracy count includes the provision that his sentence will be no more than half of Dickie Scruggs’ sentence, and in any case no more than 30 months in prison. Backstrom does agree to cooperate fully in this case and “all other criminal offenses in any way.” So it appears that this saga is far from over.
(h/t Rossmiller)
Former National Republican Congressional Committee (”NRCC”)Treasurer Christopher J. Ward has been accused by GOP officials of diverting up to $1 million from various campaign coffers to his personal accounts. The Washington Post has Paul Kane’s story here.
An early report from this morning’s pretrial conference in US v. Scruggs by AP’s Holbrook Mohr indicates that Dickie Scruggs and Sidney Backstrom have each pleaded guilty to conspiracy counts in connection with the attempted bribe of Judge Henry Lackey. There is no word yet of a plea for Zach Scruggs; his second motion to dismiss is on today’s agenda.
They do things a little differently in Guam. Apparently without any advance notice to Greenberg Traurig LLP, the giant law firm was added to a Second Superseding Indictment in Guam, along with convicted lobbyist Jack Abramoff, who once worked for Greenberg Traurig. The ABA Journal story is here. Here is the Abramoff/Greenberg Traurig Indictment. The Pacific Daily News of Guam has coverage here. The charges were brought under Guam territorial law and essentially allege a conspiracy to evade the procedures and regulations, and misapproriate the funds of, the Superior Court of Guam, in an effort to hide lobbying activities undertaken by Abramoff and Greenberg Traurig on behalf of the Court. Greenberg Traurig has vowed to fight the Indictment, and has stated that it is a victim of Abramoff. From a quick view of the Second Superseding Indictment, it looks as if Greenberg Traurig may have simply been added because Abramoff worked for the firm at the time of the alleged events.
After two days of deliberations following the five week trial of five former executives of National Century Financial Enterprises, a federal jury in Columbus, Ohio on Thursday convicted all five defendants on all charges, which included conspiracy, wire fraud, securities fraud and money laundering. The defendants were National Century co-founders Rebecca Parrett and Donald Ayers and former executives Randolph Speer, Roger Faulkenberry and James Dierker. The Columbus Business First story here details the specific counts against each defendant. Investors, including many institutions and government bodies, lost $1.9 billion in the 2002 collapse of the health care provider financing company. US District Judge Algenon Marbley allowed the defendants to remain free but subject to electronic monitoring pending sentencing, which is expected in 60 to 90 days.
Former CEO and co-founder Lance Poulsen is scheduled for trial on
August 4, 2008 on the same charges but he first faces a March 17 trial for witness tampering in the case. The witness is said to be Sherry Gibson, National Century’s former Executive VP for compliance, who was the star prosecution witness in this case (earlier).
The US Attorney’s Office in Tampa on Thursday announced the filing of a criminal complaint against Paul Robert Gunter of Odessa, Florida and his daughter, Zibiah Joy Gunter of Oldsmar, Florida. The complaint alleges that they “conspired to commit, and committed substantive acts of, mail fraud, wire fraud, securities fraud, and money laundering” by engaging (with unnamed others) in a securities fraud scheme. They were arrested on Thursday morning and were scheduled to make an initial appearance later in the day. The alleged scheme involved hijacking the identities of about 54 dormant publicly held companies, issuing fake stock in the companies to conspirators and selling the shares to “victim-investors” in the UK. An estimated 15,000 people, mostly elderly, invested in excess of $70 million; the Gunters allegedly converted the funds for their personal use. Reuters here, DOJ press release here.
Kristen Hays’ Houston Chronicle story here discusses recent filings in the appeal of former Enron CEO Jeff Skilling. At issue are the notes from the FBI interviews of former Enron CFO Andrew Fastow, which the defense contends will reveal exculpatory evidence. Skilling’s lead attorney Daniel Petrocelli describes the content of the notes as “a sledgehammer that destroys Fastow’s testimony.” The defense filings seek to use the notes in the appeal and make the contents public.
The article misleadingly states that Skilling’s attorneys were given summaries of Fastow’s interviews before the trial; a chron.com reader comment to the story notes: “Standard procedure has the prosecution giving the defense ’summaries’ know[n] as Form 302s, made by FBI agents from their raw notes. The Task Force DID NOT do this. Instead, they summarized the FBI forms into a ‘composite draft’, and they destroyed all previous drafts of their summary. BIG difference.”
The US Court of Appeals for the Fifth Circuit has scheduled arguments in the appeal for April 2 (earlier coverage here).
Two new filings Wednesday in the US v. Scruggs bribery case seek reversal of prior rulings: Sidney Backstrom’s Renewed Motion for Severance, previously denied by US District Judge Neal Biggers on February 26 (here) and all three defendants’ Motion to Reconsider the Anonymous Jury Order, which was granted to the prosecution by Judge Biggers on March 6 (here). The Backstrom motion argues that the reason for the anonymous jury and the 404(b) evidence to be introduced against Dickie and Zach Scruggs are connected the US v. Wilson case and will prejudice Backstrom’s right to a fair trial by association. The joint motion argues that the decision to allow an anonymous jury is based on “mere allegations or inferences” — an argument already rejected by Biggers. h/t folo.
Kimberly Strassel, in WSJ’s Opinion Journal, analyzes Spitzer’s Media Enablers. WSJ’s Review & Outlook discusses the use and abuse of old statutes in prosecuting current crimes in Of Martin and Mann. The reference is to New York’s Martin Act, which Spitzer used as Attorney General as part of his effort to intimidate Wall Street, and the Mann Act, the old federal prostitution statute, which may be used against Spitzer himself. The Washington Post has the resignation story. One thing is clear as the fog begins to lift in this scandal; for the SDNY U.S. Attorney’s Office to be even contemplating charging Spitzer under the Mann Act is unprecedented and appalling. It is virtually unheard of for a call-girl customer to be prosecuted at the federal level. This would constitute a clear abuse of prosecutorial discretion.
The US Attorney’s Office in Alexandria, Virginia announced yesterday the March 6 indictments of Linda Woolf, of Sandy, Utah, and David Gengler, of Draper, Utah, on charges of wire fraud and conspiracy to commit wire and mail fraud. The SEC has also filed civil fraud charges against them. Woolf and Gengler star in the “Teach Me To Trade” infomercials and investor workshops which promote a get-rich-quick system for picking stocks. They represent themselves as highly successful stock trading experts, but the indictment alleges that they lied or omitted material information about their profits and that they actually are contract commission employees of Whitney Information Network, which owns the brand name and runs the seminars. The indictment also alleges that the actual purpose of the infomercials and free informational workshops is not to offer investment advice but to sell expensive advance training seminars. Business Week/AP story here.
With the March 17 plea deadline approaching, attorneys for Dickie Scruggs, Zach Scruggs and Sidney Backstrom on Tuesday filed a second motion to compel discovery. The motion seeks documents and further information referenced in the February 20-21 hearings but not released to the defense, and also seeks extensive material related to the similar bad acts evidence (the Wilson v. Scruggs bribery allegations) which the government plans to introduce under federal rule 404(b) . Scruggs Second Motion For Discovery. Daily Journal story here.
Defense attorneys for defendants Donald Ayers and James Dierker wrapped up the defense’s closing statements on Tuesday morning in the National Century fraud trial; Ayers’ attorney Brian Dickerson stressed the prosecution’s failure to call two cooperating witnesses — former company CFO John Snoble and compliance director Brian Stucke, who have pleaded guilty and were expected to provide key testimony. Following the prosecution rebuttal, Judge Marbley was scheduled to give jury instructions on Tuesday afternoon. Columbus Dispatch story here.
What others are saying about Eliot Spitzer’s attempt to clean up prostitution, one hooker at a time:
Scott Horton at Harper’s raises questions about prosecutorial motivation.
Walter Olson of Overlawyered presents a reader’s information about the “structuring” statute here, and in a NRO article here looks at the statute in the context of increased powers given to white collar prosecutors: “…the structuring statute was part of the ever more ferocious treatment of business and economic offenses in American law that might be termed, after its best-known practitioner, Spitzerization.”
At Houston’s Clear Thinkers, Tom Kirkendall bemoans the absence of media coverage of Spitzer’s abuses of power as a prosecutor, as well as the lack of coverage in the Jeff Skilling appeal.
Today’s AP story mentions that Spitzer is a Democrat exactly zero times. Have they done likewise with Republicans?
The Agitator presents Great Moments In Sex Scandal Press Conferences (from a running gag on BBC’s Little Britain series).
The Washington Post has the basic Elliot Spitzer story here. Dana Milbank’s Washington Sketch column reveals perhaps the most revolting aspect of the case: Client 9 would not even spring for the Amtrak Acela to transport Kristen down to DC from Manhattan. Egads! He forced her to take the regional! Meanwhile, the Wall Street Journal editorializes on it all, here, noting that there isn’t a “shred of nobleness” in Spitzer’s fall. The investigation of Spitzer apparently started with a Suspicious Activity Report filed by a bank in connection with the Governor’s transfer of funds to pay for call girls. We’ll see in coming days whether this turns out to be true and how the investigation grew from this kernel into the exposure of a sitting opposition-party Governor. Stay tuned.
Zach Scruggs rebuttal memorandum to government response to his separate motion to dismiss. It’s hard to see how this could succeed; it steps up an attack the government has already termed “gratuitously inflammatory” and splits hairs over matters of intent that would almost surely be left to a jury. At the same time it ignores the broader context of the transcripts–that Zach Scruggs was discussing an order that had been written by the firm for Judge Lackey, and that Zach Scruggs was discussing the order with Timothy Balducci, who was not the firm’s attorney in the case. Perhaps Zach Scruggs’ current intent is to discover any additional information, from taped conversations, that was not presented to the grand jury.
The deadline for pleas in this case is March 17, with the trial scheduled to begin March 31. Judge Biggers has scheduled a pre-trial conference for March 14 and will rule on any outstanding motions. It may be an eventful week.
The defense rested Monday and closing arguments began in the healthcare finance fraud trial of five former executives of National Century Financial Enterprises. Co-founders Rebecca Parrett and Donald Ayers and former executives Randolph Speer, Roger Faulkenberry and James Dierker face multiple charges of conspiracy, wire fraud, securities fraud and money laundering in the 2002 collapse of the company, once the country’s largest source of health care provider financing. AUSA Wes Porter placed the blame on the defendants, saying “Every company takes its course because of the actions of people.” Porter accused the company of loaning providers in poor financial shape more than the value of their accounts receivable and lying to investors and auditors about the value of of the future receivables. Attorneys for Faulkenberry, Speer and Parrett each argued that the government had not met its burden of proof that their clients intended to commit fraud or engaged in any conspiracy. Closing arguments continue today with attorneys for Ayers and Dierker and prosecution rebuttal. Columbus Business First story here.
Patricia Jacoby of Raleigh, North Carolina on Wednesday pleaded guilty in US District Court to a single count of wire fraud in connection with a pyramid scheme that cost investors an estimated $3 million. Jacoby owned a Raleigh shop called POSH! Fine Arts and Antiques; she allegedly lured investors with the promise of a 22% return in 30 days; the funds were said to finance the purchase of estate lots of antiques to be sold to waiting buyers. The scheme collapsed when investors wanted their money back. A sentencing date has not been announced. According to news reports here and here, Jacoby has been convicted twice before on similar charges, was still on probation from a 2006 conviction, and used some of the money from this scheme to pay restitution from the 2006 case.
Marble dealer John Byors of Williston, Vermont pleaded guilty on Tuesday in US District Court in Burlington to 16 counts including bank fraud, mail fraud, travel fraud, wire fraud and money laundering in connection with a scheme that cost investors an estimated $8 million. The plea was described as a surprise and came the day before his trial was scheduled to begin. A revised 42 count indictment alleged that Byors solicited about $10 million from 78 investors between 2000 and 2005 to finance the harvesting of a rare red marble, promising a high rate of return, but that he diverted most of the money for personal use and only repaid 16 investors. Byors was originally indicted in 2006 and had backed out of an earlier plea agreement. He has been incarcerated for two years. Sentencing has been scheduled for late September. Burlington Free Press story here.
Prosecutors announced last Monday that Beverly Ross and Donella Locke of Indianapolis had been indicted on January 30 by a federal grand jury on charges of wire fraud and conspiracy in connection with an alleged mortgage fraud scheme involving $23.5 million in loans on 36 high value homes in the greater Indianapolis area. Both women were taken into custody pending a hearing. The indictment alleges that Ross and Locke conspired in connection with mortgage brokers, title companies and appraisers to sell overvalued properties to straw buyers they had recruited to lend their names for credit purposes. Ross was also indicted separately on six counts of bankruptcy fraud. The Indianapolis Star has the story here.
The Washington Post reports here on the two year sentence handed down yesterday in Manhattan federal district court to Texas oilman David B. Chalmers. Chalmers pled guilty in August to conspiracy to commit wire fraud, based on kickbacks he and his company paid to Saddam Hussein’s regime during the pendency of the U.N. Oil-For-Food Program. U.S. District Judge Denny Chin also fined Chalmers $9 million dollars and sentenced his companies, Bayoil USA and Bayoil Supply & Trading, to three years probation.
US District Judge Neal Biggers on Thursday granted the government’s request for an anonymous jury in US v. Scruggs. He ruled that three elements existed which could justify granting the motion, and in particular whether there has been a past attempt by the defendant to interfere with the judicial process:
In this case, there is evidence before the court in sworn testimony in open court, uncontradicted at the time, of past attempts on the part of the defendants herein to interfere with the judicial process. Indeed, that is the charge involved in this case, and, in addition, the court has heard sworn testimony that an attempt at interference with the judicial process also has taken place in another court by some of the defendants herein. The court is not judging whether this evidence is true; however, there is sworn testimony, unrebutted at this point, sufficient to find at this time, based on more than “mere allegations and inferences,” that this element is applicable here for the purpose of ruling on this motion.
US v Scruggs Anonymous Jury Granted
In a related development, the government responded to Zach Scruggs’ separate dismissal motion (earlier), calling it gratuitously inflammatory and that it appearing “to be designed to influence the jury pool.” Response to Zach Scruggs Motion to Dismiss
Wilson v. Scruggs is the state asbestos fees case in which Joey Langston has pleaded guilty to a federal count of bribing Hinds Circuit Judge Bobby DeLaughter in 2006 to rule in favor of Dickie Scruggs despite his special master’s recommendation that $15 million be awarded to William Roberts Wilson. It had previously been reported that the case had been settled and that DeLaughter had recused himself in January from any cases involving Scruggs.
However, a motion for recusal made on Tuesday by attorneys for Wilson asserts that the case “has never had any final judgment or order filed closing same” and further, that DeLaughter has “failed to recuse himself in this matter, a failure which was more likely than not an oversight on his part.” The motion asks that DeLaughter and all other judges in the district recuse themselves and that the chief justice of the Mississippi Supreme Court appoint a judge to hear any future matters in the case. In support of the motion, two transcripts were attached in support of the motion: Langston’s guilty plea and Timothy Balducci’s testimony in the February 20 US v. Scruggs hearing. Wilson Recusal Motion. Clarion-Ledger story here.
Department of Uh-oh: Jon Bryant, a computer programmer testifying for the defense as an expert witness in the healthcare finance fraud trial of five former executives of National Century Financial Enterprises, was revealed by prosecutors to have been an FBI informant in the same case back in 2002. Bryant testified that crashes in nine of National Century’s computer hard drives would have made it impossible for anyone to draw conclusions about the data. But on cross examination, AUSA Doug Squires asked Bryant if he ever told the FBI there was fraud at the company, if he had ever told the FBI about improper funding, and if he had ever taken documents from the company showing wrongdoing. Bryant said he could not recall but said it was “possible”. And after leaving court, when asked if he had told defense attorneys he had given company documents to the FBI, he said “No. It kinda slipped my mind.” Columbus Dispatch here.
Lou Pearlman, the promoter responsible for foisting N’Sync and the Backstreet Boys on an unsuspecting public, on Thursday pleaded guilty to two counts of conspiracy, one count of money laundering and one count of making a false claim in a bankruptcy in connection with long-running fraud schemes which caused losses to 250 investors estimated at $200 million and losses to 10 financial institutions estimated at $100 million. The plea was entered before US District Judge G. Kendall Sharp in Orlando. Pearlman could face up to 25 years in prison but has agreed to cooperate with authorities investigating other unnamed parties in exchange for the possibility of a reduction in sentence. Pearlman is currently in custody and appeared in court wearing shackles. Full details of the schemes have not been revealed but in court Pearlman acknowledged a Ponzi scheme involving the sale of “employee investment savings accounts,” a bank fraud involving faked financial statements, and a plot to siphon frozen assets from a bankruptcy case. Sentencing has been scheduled for May 21, 2008. Orlando Sentinel here, AP here.
The sad ordeal of former Dynegy executive Jamie Olis is no longer news, but we learn via White Collar Crime Prof Blog that US District Judge Sim Lake on Tuesday denied three pending motions by or on behalf of Olis: Olis’ motion for release on bond pending appeal, Olis’ motion for discovery in connection with his §2255 motion to set aside the conviction, and Professor Robert Weisberg’s motion for leave to file an amicus brief in support of Olis’ motion to set aside the conviction. However, Lake did order the government to respond to Olis’ §2255 motion on or before April 4, 2008, and he set a May 5 deadline for Olis’ reply. Olis Motions Ruling
Jim Clark, former chief of staff for former Alaska Governor Frank Murkowski, pleaded guilty on Tuesday to a single count of conspiracy to commit fraud. The plea was entered before US District Judge John Sedwick in Anchorage. Clark admitted conspiring with former officials of VECO Corporation, the now-defunct oilfield services company that was once the state’s largest, to secretly channel $68,550 from VECO into Murkowski’s 2006 reelection campaign, which he lost. In exchange, according to his plea agreement, he agreed to work on VECO’s behalf to secure favorable tax legislation. The money was an illegal corporate donation and was not reported. Clark has asserted that Murkowski knew nothing about the arrangement. He faces a prison sentence of up to 5 years, but sentencing has been stayed pending his ongoing cooperation in the continuing investigation. Two former state lawmakers have been convicted to date in the widening scandal. A third has been indicted and two top VECO executives and one former lobbyist have already pleaded guilty. The VECO executives, former CEO Bill Allen and VP Rick Smith, are also cooperating and have implicated US Sen. Ted Stevens, his son (former Alaska state Senate President Ben Stevens) and a current state senator; none of them has yet been charged and all have denied wrongdoing. US Rep. Don Young is also under investigation. Reuters here, Anchorage Daily News here.
The prosecution rested on Monday as the healthcare finance fraud trial of five former executives of National Century Financial Enterprises entered its fifth week (earlier here and here). Former National Century CFO John Snoble and compliance director Brian Stucke, both cooperating witnesses who have pleaded guilty, were expected to testify but were not called. The twelfth and final prosecution witness was Terrence Glomski, former asset manager for Lincoln Capital, which was acquired by Lehman Brothers in late 2002 after the collapse of National Century. Glomski testified that his pension fund clients were only able to recover $2.9 million of the $49.8 million they had invested in National Century’s AAA rated bonds. US District Judge Algenon Marbley on Tuesday denied a defense motion for acquittal, and the defense called its first witness. Robert DeLuca, a healthcare accounting consultant, testified that the company’s broad definition of receivables meant that National Century’s governing documents allowed the advance of the unsecured loans to health care providers which ultimately brought down the company. Under cross examination he admitted that he had no expertise in securities law. Bizjournal here and here.
US Rep. Rick Renzi (R-Ariz.) on Tuesday made his initial appearance in US District Court in Tucson and pleaded not guilty all charges; Renzi was indicted on February 21 on 35 counts including conspiracy, wire fraud, extortion, money laundering, and insurance fraud. The indictment covers two separate alleged frauds; in one, Renzi and James Sandlin, a former business partner, are accused of using Renzi’s office to extort investors trying to obtain mineral rights; in the other, Renzi and Andrew Beardall are accused of embezzling funds from his Renzi’s wife’s insurance agency and using those funds to finance his congressional campaign for the 2002 election. Renzi had previously announced he would not seek reelection and has removed himself from three congressional committes, but he announced after his Tuesday appearance that he would not resign. US Magistrate Judge Bernardo Velasco set a trial date of April 29. Arizona Daily Star story here, AP/WSJ ($) here.
The US Supreme Court on Monday rejected without comment the appeals of Adelphia Communications founder and former CEO John Rigas and his son, former Adelphia CFO John Rigas. Both were convicted of securities fraud, bank fraud and conspiracy in 2004. The charges arose out of Adelphia’s 2002 collapse into bankruptcy after the company revealed $2.2 billion in previously unreported liabilities. John Rigas, now 83, was sentenced to 15 years in prison, while Timothy Rigas received a 20 year sentence. They appealed, claiming that accounting terms had not been properly explained to the jury and that they had followed generally accepted accounting principles; but the US Circuit Court of Appeals for the Second Circuit upheld their convictions last year and they began serving their sentences last August. AP/Washington Post story here.
Attorneys for Zach Scruggs on Monday filed a motion to dismiss the indictment against him “due to the government’s misconduct in knowingly and/or recklessly presenting false, misleading, and material testimony before the grand jury.” Although the filing deadline for pre-trial motions has passed, the filing arose from grand jury testimony delivered to the defense at the motions hearings. Zach Scruggs claims that the grand jury testimony shows no evidence that he participated in “the alleged unlawful conspiracy” and that the testimonies of Timothy Balducci and FBI agent William Delaney were false and misleading. While the motion is not likely to succeed, it appears to signal a change in defense strategy, with Zach distancing himself from anything allegedly done by his father and Sidney Backstrom. Press coverage has frequently mentioned Dickie Scruggs’ lead attorney John Keker, but it is worth noting that Zach Scruggs’ lead attorney is Todd Graves, one of the eight fired US attorneys. Daily Journal/AP story here; Zach Scruggs Motion To Dismiss.
Conrad Black reported to prison on Monday (earlier), but he defends himself in a well-reasoned opinion page feature in the New York Sun, explaining his actions and excoriating the prosecution for “insufficient respect for the Fifth, Sixth, and Eighth Amendment guarantees of due process, of the grand jury as an assurance against capricious prosecution, of no seizure of assets without just compensation, of speedy justice, access to counsel, and reasonable bail.” Read the full article here.
Former Reagan administration official and outspoken Bush administration critic Paul Craig Roberts pulls no punches in his new Counterpunch article about the Siegelman/Scrushy prosecution, blasting the DOJ in Alabama as a political tool of a corrupt administration. Expanding on Scott Horton’s earlier coverage, Roberts accuses prosecutors of withholding exculpatory evidence and knowingly allowing false testimony, and takes a critical look at the actions of political operatives and US District Judge Mark Fuller. Read the full story here.
The US Attorney’s office in Tampa on Friday announced that David Alan Smith of Wesley Chapel, Florida has pleaded guilty to three counts of wire fraud, three counts of mail fraud and two counts of aggravated identity theft. Smith was the facilities manager for the Tampa laboratory of Quest Diagnostics, Inc. Beginning in 2001, he created fake shell companies which he controlled, submitted fake invoices to Quest seeking reimbursement for expenses, and obtained approval for the payments by forging the names of two supervisors. He obtained almost $1.2 million in payments to his shell companies and over $100,000 in additional unauthorized expense payments. Smith could face a maximum of 124 years in prison; no sentencing date has been announced. Bizjournal here, DOJ press release (.pdf) here.
David Villongco of San Mateo, California was sentenced to 33 months in prison on Friday by US District Judge Richard W. Roberts for defrauding the US Export-Import Bank of $20 million. Villongco, former co-owner and manager of PBJ Venture International Corporation, pleaded guilty in March 2007 to one count of conspiracy and one count of mail fraud. He admitted that he and a co-conspirator borrowed $20 million from the bank from 2001 to 2004 under fraudulent pretenses. The funds were to be used to purchase goods for export to the Philippines, but he and co-conspirators in the US and the Philippines misappropriated about $16 million. Six others have pleaded guilty in the scheme and four more have been indicted. Bizjournal here, San Mateo County Times here.
In a plea agreement announced on Friday by US Attorney Michael Sullivan in Boston, McCourt Construction Company pleaded guilty to conspiracy to defraud the US government “with respect to claims on a federal highway project.” The company’s project manager Ryan McCourt, son of the owner, pleaded guilty to one count of conspiracy to submit false statements regarding a federal highway project. McCourt Construction was one of the main contractors on the project; the charges arose from overbilling on the I-93 Tip O’Neill Tunnel project. McCourt admitted participating in over 1500 instances of overbilling in which subcontractors charged journeyman labor rates for work actually done by apprentices. This scheme also increased McCourt’s profits because it was paid 10% of the billings as overhead and an additional 10% as allowable profit margin. The company has agreed to pay a $500,000 fine; Ryan McCourt could face up to 5 years in prison but prosecutors will recommend a sentence in the low end of the sentencing range. A DOJ press release here announces the filing of the information; an AP story on the plea agreement is here.
Today’s Washington Post reports here on Lyglenson Lemorin, one of the “Liberty City Seven.” Indicted in Miami federal court for plotting to blow up the Sears Tower, Lemorin was acquitted. (The jury deadlocked on the other defendants. ) Over two months after the acquittal, Lemorin is still incarcerated, because the government wants to deport him back to Haiti. Lemorin, age 33, is a permanent legal resident who has lived in the U.S. for over 20 years. The government is seeking to deport Lemorin based upon the same charges the jury acquitted him on. Yes, the standard of proof is lower in immigration cases. Yes, the government does this kind of thing all the time. Yes, the government has the right to do it. But that doesn’t make it the right thing to do–particularly here where the evidence against Lemorin was so thin. Come January, certain segments within DOJ are due a major housecleaning.