April 2008

Five jurors from the mistrial of former Allegheny County Coroner Cyril Wecht held a news conference on Monday to speak about the trial and its aftermath (WTAE-TV raw video here). The bottom line: they believe the prosecution was politically motivated; they were disturbed by the actions of lead FBI investigator Brad Orsini; they felt demeaned when prosecutors immediately requested and Judge Schwab granted a retrial without even polling them and before they were even dismissed; they were treated well during the trial by Judge Schwab but felt he was biased against the defense; and they are opposed to a retrial (WTAE-TV text), Pittsburgh Post-Gazette).

On Tuesday Judge Schwab denied the defense’s motion for dismissal on double jeopardy grounds and refused to delay the retrial, which is scheduled for May 27 (Post-Gazette). Wecht’s attorneys immediately appealed that ruling to the US Court of Appeals for the Third Circuit and filed another motion asking Schwab to delay the retrial until the Third Circuit rules (Philly Inquirer).

Angela Isley of Atlanta, former COO of medical supplier Orthoscript, Inc., was convicted on Monday by a federal trial jury in Atlanta on 52 counts including health care fraud, mail fraud and money laundering. Isley was indicted in February 2007 in connection with a three year scheme in which she allegedly submitted $600,000 in fraudulent claims to Medicare and embezzled $360,000 to pay her and her partner’s credit card bills. The Medicare billing fraud involved assigning incorrect product codes to certain products to obtain higher reimbursements.The embezzlement entailed coding company checks as legitimate business expenses while using them to pay her bills. Sentencing is scheduled for July 28 before US District Judge Charles Pannell (Atlanta Business Journal).

Developments in State Farm-related Katrina cases since US District Judge L.J. Senter’s momentous ruling earlier this month in McIntosh v. State Farm (here):

• Yes, he really meant it: If there were any doubt that his ruling applied to any attorneys even peripherally related to Scruggs Katrina Group/Katrina Litigation Group cases, it was dispelled on April 16 when Judge Senter disqualified the Taylor-Martino law firm from representing McIntosh because the firm had provided assistance to one of the KLG firms.

• Citing Judge Senter’s ruling, US District Judge Halil Ozerden on April 11 disqualified KLG, the Rigsby documents and the Rigsby sisters as witnesses from another Southern District of Mississippi case, Kreeger v. State Farm. US District Judge William Barbour on April 16 did likewise in Shows v. State Farm, the RICO case filed last year by SKG.

• State Farm moved to dismiss ex rel. Rigsby (the qui tam case) for lack of jurisdiction, to disqualify the Rigsbys’ lawyers, and for summary judgment. The two Kansas City law firms representing the Rigsby sisters (Graves, Bartle & Marcus and Bartimus, Frickleton, Robertson & Gorny) filed an emergency motion to stay proceedings pending a ruling on the motion to disqualify. State Farm fired back immediately, pointing out among other things that the Kansas City firms are already disqualified under Judge Senter‘s ruling.

• The motion to disqualify the Kansas City firms accuses several of the attorneys — including (fired US Attorney for Missouri) Todd Graves — of being present when the Rigsbys met with Dickie Scruggs in his trailer on the beach at Pascagoula in 2006 and illegally accessing password protected proprietary documents belonging to State Farm. This was based on Kerri Rigsby’s own deposition. Graves and Tony DeWitt (of BFR&G) went on the attack with a public hissy fit (here), specifically denying that they were ever on State Farm’s computer system. But that was a deliberate dodge, because that’s not what State Farm claims they did. They carefully avoided denying being present at the trailer meetings and accessing documents that the Rigsbys downloaded. Rossmiller has all the Rigsby depositions here.

• On Monday, the Kansas City lawyers responded to State Farm‘s disqualification motions, and both Graves and DeWitt filed affidavits. Graves acknowledges being present at one of the two trailer meetings, DeWitt at both. NMC at folo has an excellent analysis here.

• Rossmiller notes here that Don Barrett of the Barrett Law Office, one of the now-disqualified KLG firms, advised clients in an April 18 letter that the Provost-Umphrey law firm has agreed to take their cases. A commenter notes: “The address for the Nashville Provost-Umphrey office is the same as that on Barrett Law Office letterhead for the Nashville office. Remarkable.”

We’ll have more on the Rigsby sister act shortly.

Andrew Bodnar, a doctor and former senior vice president of Bristol Myers-Squibb, on Wednesday was indicted in US District Court in Washington on one count of violating of the Federal False Statements Act for allegedly lying to the FTC about a secret settlement of a challenge to the company’s Plavix patent. The indictment charges that in 2006, he negotiated a secret agreement between Bristol Myers-Squibb and the Canadian generic drug manufacturer Apotex Inc., failed to submit it to the FTC and later lied to the FTC by denying the existence of the agreement. Apotex had filed suit against Bristol Myers challenging the validity of its patent on Plavix and was threatening to market a generic equivalent. In the supposedly undisclosed deal, Bristol Myers allegedly agreed not launch a generic version of Plavix when its patent expires in 2011 if Apotex agreed not to launch its Plavix generic until 2011. The charge carries a maximum sentence of five years in prison. Bristol Myers pleaded guilty to related charges in the case last June and paid a $1 million fine (Reuters, NYT).

Federal prosecutors in Columbus, Ohio on Monday moved to recoup some of the funds lost in the 2002 collapse of National Century Financial Enterprises: the government is seeking to “attach a $1.7 billion IOU” to each of the five National Century executives who were convicted in March (here and earlier) on multiple counts including conspiracy, wire fraud, securities fraud and money laundering. US District Judge Algenon Marbley is expected to rule on the motion in June (Columbus Dispatch).

In Sacramento on Friday, US District Judge Garland Burrell sentenced Joel Nathan Ward of Turlock, California to nine years in prison in connection with a fraudulent foreign currency exchange trading scheme in which about 100 investors lost $11.3 million. He pleaded guilty in August 2007 to wire fraud, mail fraud and money laundering. Although he had no financial training, Ward lured investors through trade shows, online columns and infomercials in which he represented himself as a skilled trader. His Joel Nathan Forex Fund took in $15 million from early 2003 to late 2006. He paid back $3.7 million to early investors in what essentially was a Ponzi scheme but he diverted 85% of the rest for personal use. He actually invested only $2 million and lost almost all of that. After Ward revealed to investors in late 2006 that all their money was gone, his personal journal became public, thanks to his now ex-wife. In it, he described himself as a “financial serial killer” and “just another scumbag con artist bilking old people out of their retirement money” (Modesto Bee, DOJ).

Proscutors got what they wanted: In Ocala, Florida on Thursday, US District Judge William Terrell Hodges sentenced actor Wesley Snipes to three years in prison. Snipes was convicted February 1 on three misdemeanor counts of failure to file federal income tax returns for 1999-2001 but acquitted on two felony tax counts and three more failure to file misdemeanor counts. Hodges sentenced Snipes to the maximum of one year on each count, to be served consecutively. He said “these are serious crimes, albeit misdemeanors, because he has a history of contempt over time.” Hodges also sentenced Snipes’ co-defendants Douglas Rosile and Eddie Ray Kahn, both convicted on the felony counts. Rosile was sentenced to 4 years and six months in prison and Kahn was sentenced to ten years in prison. Judge Hodges was obviously not swayed by a large number of celebrities asking him to sentence Snipes to probation. Among them were Woody Harrelson, Judge Joe Brown and Judge Greg Mathis. It’s hard to believe any federal judge would be influenced by requests from the son of Charles Harrison and two TV show judges. Bloomberg, Orlando Sentinel, DOJ (via PR Newswire).

It sounds like the plot for a yet-to-be-written Coen Brothers’ movie: according to a search warrant unsealed earlier this week in US District Court in Minneapolis, a St. Paul area man named Michael Anthony Powell is under investigation for allegedly swindling investors who were told he had contracts to deliver containerloads of carp worldwide for humanitarian purposes. The search warrant affidavit indicates that more than 40 people have invested in “fraudulent humanitarian carp proposals” with Powell since 1992, and six people have invested $694,000 into Powell’s ventures from 2000 through 2005. No one has been repaid, and Powell has allegedly converted the money to personal use. He has operated under a number of different company names. Among the ventures:

[The affidavit] said Powell allegedly told some investors in 2004 that he had a $1.2 million contract to deliver container loads of carp fillets to China; persuaded some business associates in 2005 to buy a fish plant in Pepin, Wis., where they were going to process carp for buyers he had supposedly lined up in Serbia, and pitched a deal as recently as last December to haul carp from Utah Lake that would be shipped as “humanitarian aid to countries around the globe.”

Minnesota is perhaps the only state where a bottom-dwelling sand-sucking primitive life form (the carp, not Powell) could generate such interest from investors (Star Tribune).

Robert E. Coughlin II, former deputy chief of staff of the DOJ’s criminal division, on Tuesday pleaded guilty to a single count of violating federal conflict-of-interest laws in connection with the Jack Abramoff public corruption scandal. His plea was entered before before US District Judge Ellen Segal Huvelle in the District of Columbia.  Coughlin admitted accepting meals, concert tickets and luxury seats at sporting events from a lobbyist who has been identified by sources as Kevin Ring, a key lobbyist for Abramoff, while helping Ring and Abramoff’s clients by leaking inside information, attempting to influence department colleagues and providing other help. Coughlin accepted the gifts from 2001 to 2003 while he was working on legislative affairs for the DOJ.  Under a plea agreement with the government, he faces up to 10 months in prison and is actively cooperating with prosecutors who are investigating Ring. Court papers also refer to at least two other unnamed DOJ officials who accepted meals from Ring.  Rep. John Doolittle (R-Calif.) and his wife Julie are known to be still under investigation in the Abramoff scandal and have been linked to Ring, who once worked for Doolittle, so Coughlin may also provide information in that matter (AP, Washington Post).

David Bermingham, Giles Darby and Gary Mulgrew, three British investment bankers known as the NatWest Three, were each ordered on Tuesday by US District Judge Ewing Werlein to report to prison within the next three weeks, each at a different prison.  Mulgrew was ordered to surrender to the facility in Big Spring, Texas, on April 30; Darby to the Allenwood facility in White Deer, Pennsylvania, on May 7; and Bermingham to the prison in Lompoc, California on May 9. They all asked for Allenwood at their sentencing hearing and Judge Werlein recommend it, but the Bureau of Prisons has final authority(Bloomberg).

The former Greenwich NatWest bankers were indicted on seven counts of wire fraud in 2002 in connection with a scheme devised by former Enron CFO Andrew Fastow and his right-hand man Michael Kopper. They pleaded guilty in 2007 to one count of wire fraud and were sentenced to 37 months in prison plus restitution by Judge Werlein on February 22, 2008 (earlier). Their plea agreements call for them to be eligible for transfer to the UK after several months imprisonment in the US, and under the UK system they will be eligible for parole after serving half of their sentences.

The latest developments in the bizarre aftermath of the mistrial of of former Allegheny County Coroner Cyril Wecht:

• A defense motion for dismissal alleges that the FBI falsified the proabable cause affidavit that led to the search of Wecht’s office in 2005, then deliberately hid the information from the defense (Pittsburgh Tribune-Review).
• The juror who was excused from deliberations has stated that he never asked to be excused, contrary to what the trial record states (WTAE-TV).
• The Tribune-Review, Pittsburgh Post-Gazette and WPXI-TV have asked US Court of Appeals for the Third Circuit to overturn US District Judge Arthur Schwab’s decision not to release the identities of jurors until after the case is resolved; that ruling applies to jurors who heard the first trial and those yet to be seated for the second trial, scheduled to begin May 27 (Tribune-Review).

After a two-week trial in US District Court in East St. Louis, Illinois,  a jury on Friday convicted Kyle Kimoto of St. George, Utah and Las Vegas on one count of conspiracy to commit mail fraud, wire fraud and money laundering, one count of mail fraud and 12 counts of wire fraud. The charges arose from a telemarketing scheme he operated in 2001 and 2002 through his Utah-based Assail, Inc. and a network of call centers; people with substandard credit were led to believe they would receive a MasterCard after paying a processing fee of $159 or more; what the consumers actually received was a “benefits package” which contained an application for a stored value MasterCard, a form of debit card that had no credit line and which had to be “loaded” with funds before it could be used. Over 300,000 consumers paid approximately $43 million to Kimoto’s various companies. Kimoto faces a sentence of up to 175 years in prison; sentencing is scheduled for September 5 (St. Louis Post-Dispatch, DOJ).

Two Roseville, Minnesota men entered guilty pleas in Minneapolis on Thursday before US District Judge Joan Ericksen in connection with a mortgage flipping scheme that involved 162 properties and approximately $35 million in fraudulently obtained mortgage funds. Jonathan E. Helgason and Thomas J. Balko , co-owners of TJ Waconia, pleaded guilty to charges of real estate and mortgage fraud. From 2005 to 2007, they bought the properties, many of them in a three-block area in north Minneapolis, and quickly flipped them for $20,000 to $60,000 more to straw “investors” who were lending their name and credit in exchange for kickbacks and a promise to pay the mortgages. The scheme collapsed in 2007, the investors were left upside down and most of the properties are in foreclosure. Sentencing has not been scheduled. Each man could receive up to 20 years in prison but Helgason faces a recommended sentence of about 12 1/2 years and Balko faces a sentence of about 10 years (Star Tribune, DOJ).

In Anchorage, Alaska on Thursday, US District Judge Ralph Besitline sentenced Mark Avery of Anchorage to 8 1/2 years in prison for embezzling the entire $52 million trust fund of May Wong Smith, a wealthy San Francisco widow who suffered from Alzheimer’s; she died in 2006.  Avery pleaded guilty to wire fraud and money laundering charges in March 2007.

Avery is a former San Francisco prosecutor who had moved to Alaska. The fund had been administered by his father, a prominent trust attorney; he took over administration of the fund after his father’s death in 2001. He withdrew all the funds during a six month period in 2005 and started several companies including Security Aviation in Anchorage. His spending spree brought him to the attention of federal investigators, “ especially the purchase of weapons, body armor, fighter jets and rocket launchers” (Anchorage Daily News, San Francisco Chronicle).

John B. Kim, also known as Jung Bae Kim, pleaded guilty on Thursday to a single count of wire fraud in connection with the collapse of hedge funds operated by KL Group LLC, originally in California and later in Palm Beach County, Florida.   His plea was entered before US District Court Judge Kenneth Ryskamp in West Palm Beach. John Kim, his brother Yung Kim and Won Sok Lee were indicted in January 2007 on 35 counts alleging a massive investment fraud scheme which caused investor losses of $195 million. In his plea, John Kim admitted misrepresenting unprofitable funds as successful, sending out false account statements and counterfeiting clearing firm statements. In the specific count covered by the guilty plea,

Kim admitted that in February, 2005, fictitious stock trading sheets were created that purported to show a one-day profit of $22 million in a stock known as RIMM, the company that manufacturers the “Blackberry” device. The RIMM trade, however, never took place, and the fictitious stock trading sheets were used to fool investors concerning the profitability of trades being conducted by the KL Hedge Funds.

After a hearing in Columbus that lasted all day Wednesday, US District Judge Algenon Marbley ruled that convicted National Century Financial Enterprises executives Donald Ayers, Randolph Speer and Roger Faulkenberry were flight risks and will remain in custody. The fourth, James Dierker was released on bond pending sentencing. The four executives and a fifth, company co-founder Rebecca Parrett, were convicted on March 13 of securities fraud and related charges in connection with the company’s 2002 collapse (here and earlier). All were allowed to remain free on bond with electronic monitoring, but Parrett disappeared (here) and remains at large. The other four were taken into custody on April 2 following disclosure of an alleged plot to escape to Aruba (here and here). Dierker currently works in marketing for Victoria’s Secret, and testimony from the company’s president and CEO Sharen Turney apparently helped convince Judge Marbley that Dierker would not flee (Columbus Business First, AP).

Meanwhile, the US Marshal Service is offering a reward for information leading to the arrest of Parrett — but won’t say how much the reward is (Columbus Dispatch).

A jury in US District Court in Manhattan on Thursday convicted former Refco Inc. President Tone N. Grant of conspiracy, securities fraud, wire fraud, bank 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. Refco, at one time the largest futures broker on the Chicago Mercantile Exchange, collapsed just two months after its IPO. Prosecutors alleged that Grant, former CFO Robert Trosten and former Chairman and CEO Phillip Bennett engaged in a years-long scheme to hide extensive trading losses from auditors, banks, investors and Thomas H. Lee Partners, which had purchased a majority interest in Refco in August 2004; the losses were transferred from the company’s books to a company controlled by Bennett, Grant and another partner. Trosten and Bennett pleaded guilty in February; Santo Maggio, former CEO of Refco’s offshore unit, pleaded guilty in December (earlier here and here). All three men agreed to cooperate with prosecutors; both Trosten and Maggio testified against Grant. Sentencing for Grant is scheduled for August 7; he faces a maximum of 85 years in prison. He was allowed to remain free on bond (Bloomberg, Dow Jones Newswires).

Circuit Court Judge William Coleman on Wednesday granted the motion by the Jones, Funderburg law firm to sanction Dickie Scruggs and all the other members of the former Scruggs Katrina Group and enter a default (here and earlier), striking the defendants’ motion to compel arbitration. He also granted Jones’ reasonable attorney fees in this proceeeding in addition to the question of damages originally sought from the partnership. He has scheduled a hearing on damages for November 12, 2008. H/t to David Rossmiller for the order, here. Legal Newsline has more here.

In yet another bizarre move, AUSA Stephen Stallings suggested in a court filing on Tuesday that the government may seek to empanel a jury of outsiders in the retrial of former Allegheny County Coroner Cyril Wecht. It was not a formal request, but Stallings said the government would accept a trial delay “if such a continuance were to become necessary to empanel a jury untainted by defendant’s unethical media campaign.” That’s right, the prosecution is complaining about prejudicial coverage (Pittsburgh Post-Gazette, Pittsburgh Tribune-Review).

On Wednesday US District Judge Arthur Schwab refused to delay the retrial, scheduled for May 27, and refused to recuse himself. Lawyers for Wecht will appeal (Post-Gazette).

Prosecutors on Monday filed a sentencing memorandum which recommends that actor Wesley Snipes be sentenced to three years in prison and fined $5 million. Snipes was convicted February 1 on three misdemeanor counts of failure to file federal income tax returns for 1999-2001; however, he was acquitted on the two felony counts he faced andon three misdemeanor failure to file counts for 2002-2004. In calling for the maximum sentence and an upward departure from the guidelines for the fine, the government appears to be seeking enhancements for the acquitted charges. Snipes is scheduled to be sentenced on April 24 (Reuters, Snipes sentencing memorandum).

Jones v. Scruggs is the state civil suit between the Jones, Funderburg law firm and its former Scruggs Katrina Group partners over disputed legal fees which resulted in the federal bribery charges against Dickie Scruggs and his four co-defendants. A hearing was held in Oxford on Tuesday before state Circuit Court Judge William Coleman on Jones’ motion to sanction all the members of the group and enter a default judgment against the other law firms; Jones is seeking 20% of all past attorney fees from Katrina litigation as well as the firm’s legal fees in this case.

Alyssa Schnugg covers the hearing in the Oxford Eagle here and AP’s coverage is here. But NMC @ folo liveblogged the hearing in six parts beginning here, giving us a much broader picture. Of particular interest is the testimony of Judge Henry Lackey, especially in part 3; these are his first extensive public statements about what happened, and it’s quite apparent from his testimony that he was outraged, referring to Dickie Scruggs as a monster. If Scruggs’ attorney Cal Mayo expected to impeach Lackey’s testimony, he failed badly. And in final arguments (part 6), Mayo ran afoul of Judge Coleman by referring to the bribery as an “ethical lapse” and appearing to argue entrapment. If he was intending to portray his client in a better light, he again failed badly.

Judge Coleman expects to issue a ruling today. His statements on Tuesday indicate that his decision will apply to all defendants.

Attorneys for former Allegheny County Coroner Cyril Wecht on Monday asked US District Judge Arthur Schwab to dismiss all charges against Wecht and to bar a retrial, asserting that Schwab erred in not following certain steps following last week’s declaration of a mistrial and that a retrial would subject Wecht to double jeopardy. Wecht’s attorneys also asked Schwab to order prosecutors to reveal how they obtained names of jurors contacted by the FBI last week after the mistrial was declared, asserting that that both sides were under strict orders from the judge not to record the jurors’ names (Pittsburgh Post-Gazette).

In a Monday Pittsburgh Tribune-Review op-ed, columnist Ralph Reiland lambasts USA Mary Beth Buchanan, calling her a thief and a fraud for wasting millions in public funds on the prosecution. And a Tuesday Tribune-Review editorial characterizes the prosecution “up to and including the questioning of the jurors, [as] nothing less than outrageous.”

Mary Lou Hernandez, owner of Angel Care Medical Supply in San Antonio, was sentenced on April 9 by US District Judge W. Royal Furgeson to 24 months in prison. In November 2006, Hernandez pleaded guilty to a 3-count Information charging her with conspiracy, health care fraud and violation of the anti-kickback statute. She admitted paying $800 to$1000 kickbacks to five area doctors for Certificates of Medical Necessity which were  needed to get reimbursement for motorized wheelchairs or scooters from Medicare and Medicaid. She then fraudulently billed approximately $3 million to Medicare and $1.4 million to Medicaid for the unnecessary equipment between 2001 and 2004. The doctors involved have not yet been charged (San Antonio Express-News, DOJ).

Samuel Israel III, co-founder of now-defunct hedge fund Bayou Group LLC, was sentenced to 20 years in prison on Monday by US District Judge Colleen McMahon in Manhattan. Israel and former Bayou CFO Daniel Marino had pleaded guilty to conspiracy, wire fraud and investment advisor fraud in September 2005, about a month after Bayou Group collapsed into bankruptcy. McMahon sentenced Marino to 20 years in prison in January (earlier). Israel and Marino admitted presenting fraudulent results and using a phony auditing firm to lure investors. Prosecutors said investors were defrauded of more than $400 million when the firm failed.  Bloomberg News has the story here.

A federal jury in McAllen, Texas on Monday convicted former Hidalgo County Commissioner Guadalupe Garces Jr. and his wife, Araceli Garces on one count of conspiracy and several substantive counts of health fraud. They used their Edinburg, Texas ambulance company A-Stat Ambulance Inc. to transport people to and from dialysis clinics knowing that transportation by ambulance was not medically necessary. They billed Medicare and Medicaid $12 million and received $4.5 million in payments. Then after Medicare and Medicaid suspended payments, they incorporated  A-Care E.M.S. Inc. in the name of their 20 year old son and continued the scheme, billing another $3 million and receiving $1.6 million in payments. US District Judge Ricardo Hinojosa scheduled sentencing for July 18 and allowed the couple to remain free on their current bonds. They could face up to 10 years in prison (AP, DOJ).

Brent Detelich of Clearwater, Florida, formerly a chiropractor in Hermitage, Pennsylvania, was sentenced on Friday to three years in prison by US District Judge Joy Conti in Pittsburgh. Detelich was convicted by jury trial in March 2007 on one  count of health care fraud and one count of mail fraud. Detelich owned and operated Detelich Chiropractic and Advanced Medical and Holistic of Hermitage.  Between 1996 and 2000, he submitted over $91,000 in fraudulent claims to Highmark Blue Cross/Blue Shield for chiropractic treatment and services which were never rendered.  When Highmark paid the claims, he split the payments with some of his patients who were involved in the fraud (AP).

We note that Detelich authored a chapter in a PowerPoint presentation for chiros published in 2005 called The Complete Insurance Guide. His contribution: “Dr. Detelich focuses on the billing- and insurance-related aspects of a chiropractic activecare approach.” No kidding!

In Tyler, Texas on Thursday Kenneth Elgin of Tyler was sentenced to 33 months in prison by US District Judge Michael Schneider in connection with a fraudulent oil and gas exploration scheme. He was indicted on seven counts of wire fraud in May 2007 and pleaded guilty in November. Elgin was CEO of Trinidad Exploration Inc. and West Coast Resources Inc., purportedly formed to conduct the explorations. He solicited seven Washington State residents who invested a total of $805,000 in projects Elgin represented to them as legitimate oil and gas drilling ventures when in fact he did not own or control the mineral rights and his license to operate had expired. He converted the funds for his personal use, including spending over $200,000 at a hotel and casino in Las Vegas (Tyler Morning Telegraph, AP).

Brent Crosson of Salem, Oregon, a former accountant with the Oregon Department of Education who was charged in February by federal prosecutors with embezzling $925,000 in federal education funds (earlier), on April 3 pleaded guilty to single count of fraud before US District Judge Garr King in Portland. He admitted diverting the 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. $750,000 has been recovered, but much of that will have to be repaid to the US Department of Education because the deadline for spending it has passed. Sentencing is scheduled for June 17; Crosson could receive up to ten yearsin prison but prosecutors are recommending a two year sentence because of his cooperation (The Oregonian).

If you are going to try and kill the King, you better damn well get it done. Cyril Wecht is a celebrity pathologist superstar. This means that the Cyril Wecht prosecution is a suitcase trial. If you are the prosecutor, you pack your suitcase ahead of time. If you don’t win, you leave town. Maybe that’s why the Wecht prosecutors were so quick to announce they would retry the case, almost right away, despite a hung jury leaning toward acquittal.

The haste to announce retrial was unseemly. Judge Schwab’s strong advice to the jury not to discuss the case with the press or the attorneys was bizarre at best and improper at worst. The publicly displayed animosity between the defense team, which includes a former U.S. Attorney General, and Judge Schwab was stunning. This just doesn’t happen at the federal level. 

The FBI’s decision to call some of the jurors to interview them about the case, reported here in the Pittsburgh Tribune-Review, was unusual and stupid, although Judge Schwab’s decision to wisk the jury away quickly after the trial obviously prompted the move.

I started reading about the Wecht trial late in the day. Press coverage has been abysmal. Some things are clear, though, from merely reading the indictment. The case looks pretty chicken-_____ at best.

Prosecutors and defense atttorneys divide crummy cases into two fundamental categories; chicken-_____ and bull-_____. Chicken-_____ cases allege actual crimes, but the charges, even if true, are technical and/or low-grade in nature. Bull-_____ charges are not really crimes at all. They are not “righteous” and never should have been brought in the first place.

The government charged way too many counts in the Wecht case. Most of them appear to be incredibly petty “misuse of public office charges” masquerading as honest-services mail and wire fraud. But honest service fraud cases usually require, in the absence of bribes or kickbacks, lying and/or concealment by a defendant regarding his/her theft of honest services. The Wecht indictment doesn’t do a great job of setting this lying/concealment out and neither, apparently, did the evidence. (Dr. Wecht’s private forensic pathology practice was well known to all.)

The only thing in the indictment that looks like a real crime, if true, is Dr. Wecht’s alleged billing of private clients for reimbursement for transportation expenses that were actually provided by the county. The indictment charges that phony receipts from a defunct company were used in connection with these bills. But even if this happened and Dr. Wecht knew about it, it isn’t the kind of thing you typically see prosecuted at the federal level. It falls under the category of petty theft or greed–fodder for state cases or private lawsuits at best.

In Tucson on Wednesday, Scott Gompert of Phoenix was sentenced by Chief US District Judge John M. Roll  to 26 months in prison for stealing more than $1.1 million from bank accounts of fraud suspects. Gompert pleaded guilty in October 2007, to a two-count information charging him with bank fraud and forging the signature of a judge or court officer; he also forfeited cash and other assets equal to the amount of the fraud. Gompert was formerly a special agent with the Office of Inspector General (OIG) of the US Department of Health & Human Services. He used his experience as an investigator to identify bank accounts holding funds seized from fraudulent activity. Three times in 2005 and 2006 he prepared fraudulent seizure warrants with forged signatures of US magistrate judges and presented the warrants to banks holding the funds; the warrants directed the banks to prepare cashier’s checks made out to a fake federal seizure account he controlled. AP, DOJ.

Zach Scruggs appears to have realized the possible consequences of his motion asking the Mississippi Supreme Court to dismiss the disbarment complaint initiated by the Mississippi Bar (earlier). In a response filed on Wednesday with the Mississippi Supreme Court, he told the court that he would not fight suspension of his law license and that his earlier objection to disbarment was meant to give him time to straighten out his clients’ affairs. The response filed by his attorney Mike Martz  states that he “is truly and humbly sorry for his actions” and that he “takes full responsibility for his acts and is prepared to accept the full consequences from all of the courts involved and the Mississippi Bar” (Sun Herald). Zach Scruggs pleaded guilty on March 21 to a one-count information for misprision of a felony in connection with the bribery of Judge Henry Lackey.

For reasons that are yet unclear, US District Judge Arthur Schwab asked jurors in the public corruption trial of former Allegheny County Coroner Cyril Wecht not to speak to the press or public until after a retrial. However, two jurors have spoken to the Pittsburgh Tribune-Review and the jury foreman has spoken to the Pittsburgh Post-Gazette, all on condition of anonymity, and a juror who was dismissed for medical reasons after the seventh day also spoke to the Post-Gazette. It is obvious from their statements that the majority favored acquittal and that the jurors who spoke did not buy the government’s case at all. The jury foreman contended that the allegations did not exist independently of the FBI investigation:

• “I guess what bothered me was the FBI went and informed his private clients, ‘Look what Dr. Wecht is doing to you. I can understand if they didn’t know that ahead of time, OK, fine. But once they were notified, not one of them came forward and said, ‘You know something, the government is right, Dr. Wecht cheated me, he robbed me, I would like to file charges, I want my money back, I want something done.’”

Another Post-Gazette article here by Jonathan Silverman analyzes the trial and finds the government’s case unconvincing. A retrial has been scheduled for May 27.

Leslie Tavolacci of Southbury, Connecticut waived indictment and pleaded guilty on April 3 to one count of wire fraud and one count of income tax evasion before US District Judge Stefan R. Underhill in Bridgeport. Tavolacci acknowledged that she embezzled $816,000 from RZM Imports Inc. of Southbury while working part-time for the firm between 1997 and 2004. She admitted opening accounts for herself in the name of RZM Imports Inc. and depositing legitimate checks made out to the firm into the accounts which she controlled, then withdrawing the money and using it for her own enrichment. Sentencing is scheduled for June 20; she faces a possible maximum of 25 years in prison (DOJ press release).

Alex Latifi, the Iranian-born US citizen whose Huntsville, Alabama defense contracting firm Axion Corporation was essentially destroyed because of an incompetent and possibly malicious prosecution for allegedly violating arms export rules (earlier), has been awarded government reimbursement for his legal fees, filing costs and expert witness costs. In a ruling last week in Birmingham, US District Judge Inge Johnson ordered the DOJ to pay Axion and Latifi under the Civil Asset Forfeiture Reform Act (CAFRA), a 2000 law designed “to give owners innocent of any wrongdoing the means to recover their property and make themselves whole after wrongful government seizures.” Latifi’s defense costs are estimated at $500,000. However, the firm is still closed as a result of the government’s long freeze on the firm’s assets and Latifi’s personal assets. Judge Johnson dismissed all counts against Latifi and Axion last October after seven days of trial and ordered the government to post notice of the acquittal.

The ruling is unprecedented, according to Latifi’s attorney Henry Frohsin of Baker, Donelson: “We believe Axion is the only company ever to win such a ruling in an arms export control case.” USA Alice Martin said the ruling means her office cannot make another attempt to seize assets and that it does not wish to. Russell Hubbard in the Birmingham News, Harper’s commentary by Scott Horton, Baker, Donelson press release.

The public corruption trial of former Allegheny County Coroner Cyril Wecht has ended. US District Judge Arthur Schwab on Tuesday morning declared a mistrial after the jury told him it remained hopelessly deadlocked following 10 days of deliberations. Dr. Wecht was indicted on 41 counts including wire fraud, mail fraud and theft of honest services. Judge Schwab set May 27 for the start of a new trial after AUSA Stephen Stallings announced the government would try the case again; prosecutors have until April 11 to tell Schwab which counts they will pursue. Schwab gave the defense until April 18 to file motions to oppose a retrial and to have the charges dismissed. Pittsburgh Post-Gazette, Pittsburgh Tribune-Review.

Jailed former National Century Financial Enterprises CEO Lance Poulsen said Monday that a confidential informant was lying when he told authorities that Poulsen told him that four convicted National Century executives had a plan to flee to Aruba if they were convicted. The four executives — Donald Ayers, Randolph Speer, Roger Faulkenberry and James Dierker — were arrested on April 2 (earlier) following disclosure of the alleged plan and the disappearance of the fifth executive, Rebecca Parrett (earlier), who remains at large.

Poulsen’s statement came in a letter from one of his attorneys which was attached to a motion filed on Friday by attorneys for Randolph Speer, who denies any knowledge of a plot and says the whole story was made up by the informant to reduce his prison sentence. Poulsen believes that the confidential informant is Robert Cihy, an inmate where Poulson is currently jailed. Cihy is being held on federal bank robbery charges; in a remarkable coincidence, he reached a plea agreement with the government on April 3, one day after the four executives were arrested. However, US District Judge Algenon Marbley on Monday denied a motion to compel the government to disclose its source. A bond revocation hearing for the four executives is scheduled for April 16 (Columbus Business First, Columbus Dispatch).

In Newark, New Jersey on Monday, US District Judge Stanley Chesler sentenced former Suprema Specialties Inc. CFO Steven Venechanos to eight years in prison and ordered him to pay $115 million restitution. Venechanos and former Suprema Specialties CEO Mark Cocchiola were convicted in April 2007 on 38 counts including conspiracy, bank fraud, making false statements to the SEC, wire fraud and mail fraud for their roles in a fraud that caused the Paterson, New Jersey cheesemaker to collapse in 2002.  Cocchiola was sentenced to 15 years in prison on March 27 (earlier). The seven year long scheme involved fraudulently inflating inventories and  billing $400 million in non-existent sales, causing a loss to investors and banks estimated at more than $177 million.  New Jersey Star-Ledger, Forbes/AP.

The jury in the honest services fraud trial of celebrity pathologist Cyril Wecht begins its 10th day of deliberations. Jurors told the judge on Thursday that they were deadlocked. The defense has, therefore, made a mistrial motion. The Philadelphia Inquirer reports here on the jury’s languid pace.

In a stunning decision on Friday in Gulfport, Mississippi, US District Judge L.J. Senter disqualified the remaining partners of the former Scruggs Katrina Group (now renamed the Katrina Litigation Group) from any litigation against State Farm or its contract adjuster E.A. Renfroe in the Southern District of Mississippi. In addition, he disqualified Cori and Kerry Rigsby as witnesses in any such litigation and excluded from evidence any documents provided by them to the Scruggs Katrina Group (opinion, order). The particular case at issue was McIntosh v. State Farm, but the order gives plaintiffs in all such cases 45 days to retain new counsel. Senter held that Scruggs’ actions with regard to the Rigsby sisters were unethical and held all members of the original Scruggs Katrina Group responsible for Scruggs’ actions because they were aware of the payments to the Rigsby sisters and did nothing to stop them. From the opinion:

• State Farm and Renfroe have charged Scruggs with two basic types of ethical misconduct and with conflicts of interest, all of which relate in one way or another to the relationship between Scruggs and the SKG and two former Renfroe employees Cori and Kerri Rigsby (the Rigsby sisters). State Farm and Renfroe allege 1) that Scruggs participated and encouraged the Rigsby sisters to wrongfully appropriate and disclose confidential documents in which both State Farm and Renfroe had a legitimate right to confidentiality; and 2) that Scruggs paid the Rigsby sisters a substantial sum in furtherance of Scruggs’s efforts to encourage the misappropriation of these documents… I have determined that disqualification is required because Scruggs, acting in furtherance of the SKG joint venture, paid the Rigsby sisters a substantial sum of money (a consulting fee of $150,000 per year) despite Scruggs’s knowledge that the Rigsby sisters were material witnesses in connection with many hurricane damage claims that were likely to become the subject of litigation… It is apparent to me, from my review of the deposition testimony of the Rigsby sisters, that there was no legitimate reason for these payments and that the “consulting” work that ostensibly justified these payments was a sham. Even if this were not the case, the performance of legitimate work that is closely related to a matter in litigation cannot justify an attorney’s payment of a substantial sum of money to a non-expert material witness.

McIntosh v. State Farm is one of the cases which led to the fee dispute between the Jones, Funderburg law firm and the other Scruggs Katrina Group partners, which in turn led to the state civil suit which resulted in the federal bribery charges against Dickie Scruggs and his four co-defendants.

David Rossmiller at Insurance Coverage Blog has been following Katrina litigation since well before the bribery indictments. He has an excellent analysis here and raises a very interesting question about former US Attorney Todd Graves, who has appeared as counsel for Zach Scruggs in the bribery case. The AP story is here.

The latest updates to stories we’ve been following:

• Dickie Scruggs is still fighting disbarment but will not fight indefinite suspension of his law license in the meantime (Sun Herald, earlier).
• The four convicted National Century execs who were taken into custody (earlier) will stay in jail (Columbus Dispatch).
• Wannabe Tennessee Titan Reed Kyle Diehl (earlier) has now been indicted on nine counts of wire fraud and two counts of money laundering (AP).
• The government responds to Jamie Olis’ §2255 motion to set aside his conviction (earlier).

In Miami on Wednesday, Rita Campos Ramirez of Miami was sentenced to 10 years in prison by US District Judge Alan S. Gold for her role in a $170 million Medicaid fraud scheme. Campos pleaded guilty last August to one count of conspiracy to commit health care fraud and one count of submitting false claims to Medicare. Campos admitted that from 2002 to 2006 she owned and operated R&I Medical Billing Inc., a medical billing company submitted bills to Medicare on behalf of HIV infusion clinics; she knowingly submitted approximately $170 million in fraudulent medical bills to Medicare on behalf of 75 HIV infusion clinics in Miami-Dade County that were part of the scheme. Medicare wound up paying about $105 million and Campos received about $5 million personally (DOJ Press Release).

In a related case, on Wednesday seven Miami area residents were indicted on charges that they set up a fake HIV infusion clinic and billed Medicare for $11 million in non-existent treatments (AHN). And in a previous related case, Dr. Orestes-Alvarez Jacinto was sentenced to 18 months in prison last October after pleasing guilty to conspiracy to commit health care fraud. He was a doctor at St. Jude’s Rehab Center, one of the clinics serviced by R&I Medical Billing; he admitted submitting $7 million in fraudulent claims to Medicare, of which $5 million was paid.

Chip Off The Old Block Department: Zach Scruggs has followed in his father’s footsteps and filed a motion asking the Mississippi Supreme Court to dismiss the disbarment proceedings initiated by the Mississippi Bar. The Sun Herald story here indicates that the basis of the motion is that his guilty plea has not been accepted by the court. However, page 14 of Zach Scruggs’ plea hearing transcript quotes US District Judge Neal Biggers: “the Court will accept your guilty plea and enter a judgment of guilty on your plea.”

Judge Biggers has already made it abundantly clear that the court is not bound by the recommendation of probation contained in Zach Scruggs’ plea agreement. Zach Scruggs could receive up to three years in prison. It’s hard to see what he could possibly hope to gain by this stalling tactic when he has so much more to possibly lose. Does he suppose that Judge Biggers does not follow the news and will not be aware of this motion?

Honest, they were just going to help look for Natalee Holloway: The FBI on Wednesday arrested four of the five executives of National Century Financial Enterprises who were convicted on March 13 of securities fraud and related charges in connection with the company’s 2002 collapse (here and earlier); US District Judge Algenon Marbley ordered the arrests of Donald Ayers, Randolph Speer, Roger Faulkenberry and James Dierker after the FBI learned of an alleged plan to flee the country. According to a filing in US District Court in Columbus:

• The (FBI) developed information from a confidential source, who reported to FBI that (former National Century CEO Lance Poulsen) told the confidential source that the NCFE defendants had a plan to flee to Aruba if they were convicted.

This follows the disappearance of  the fifth executive, Rebecca Parrett, who remains at large. The new filing alleges that Parrett attempted to obtain false identification papers before the trial. All five defendants had been allowed to remain under house arrest with electronic monitoring pending sentencing. Poulsen faces trial August 4 on similar fraud charges; he and his associate Karl Demmler were convicted of witness tampering last week in connection with the fraud charges. Columbus Business First, Columbus Dispatch.

Jeff Skilling’s lead attorney Daniel Petrocelli on Wednesday called former Enron CEO Jeff Skilling’s 2006 trial “fundamentally unfair and defective” in oral arguments before the US Court of Appeals for the Fifth Circuit in New Orleans. In urging the three-judge panel to overturn the convictions, Petrocelli focused on the August 2006 US v. Brown (Enron Nigerian Barge) decision in which the Fifth Circuit held that “honest services fraud” does not apply when an employee’s actions were intended to benefit the company rather than for personal gain. Skilling was convicted in May 2006 on 19 of 28 counts including conspiracy, securities fraud and insider trading and is currently serving a 24 year prison sentence. Houston Chronicle (Kristen Hays), Texas Lawyer (Brenda Sapino Jeffreys), AP.

The US Court of Appeals for the Fifth Circuit will hear arguments today in the appeal of former Enron CEO Jeff Skilling. Kristen Hays’ Houston Chronicle story here discusses the key issues, especially the “honest services fraud” theory used to convict him. The Fifth Circuit has already rejected this theory in vacating convictions in the Enron/Merrill Lynch Nigerian Barge case. 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.