September 2008

It’s beginning to look like Sen. Ted Stevens’ best defense may be just to sit tight and watch the prosecution’s case unravel. Late Sunday night Stevens’ attorneys filed an emergency motion seeking dismissal of the charges or a mistrial on grounds that the government withheld exculpatory evidence. The move came after they learned the prosecution had sent home one of its witnesses without having him testify. The witness’ proposed testimony allegedly did not support the government’s case concerning renovations to Stevens’ Alaska home. Stevens is charged with intentionally failing to disclose the value of the renovations. The defense contends that the witness, Rocky Williams, would have testified that he spent a lot less time on the renovation than the government claims and that Stevens “expressed little interest in the renovations other than a desire to keep his wife happy.” Williams contacted the defense team but they contend that prosecutors blocked them from meeting with him and then sent him home to Alaska with an unspecified health problem.

This infuriated US District Judge Emmet Sullivan, who said he was flabbergasted and peeved that Williams was sent home without informing the court or the defense, telling prosecutors “somebody better do some explaining.” He declined to grant the defense motion at this time but will reopen earlier testimony to allow more cross examination of VECO bookkeeper Cheryl Boomershine, whose Friday testimony concerned the hours Williams allegedly spent on the renovation project. Williams may not be able to return, and as of late Monday Judge Sullivan had not decided how to handle that issue.

Former VECO CEO Bill Allen, the government’s key witness, was expected to take the stand on Tuesday In light of Monday’s developments, his testimony may be delayed.

(WSJ, NYT, Politico)

Attorney General Michael Mukasey on Monday announced the appointment of Nora Dannehy, US Attorney for Connecticut, as special prosecutor to investigate the firings of nine US Attorneys in 2006. The announcement came as the DOJ’s Inspector General and its Office of Professional Responsibility released its report on its investigation into the firings. The report called the firing process “fundamentally flawed” and was highly critical of former AG Alberto Gonzales and former Deputy AG Paul McNulty for allegedly abdicating their responsibilities and allowing Gonzales’ former chief of staff Kyle Sampson to oversee the process. Gonzales was also faulted for his “extraordinary lack of recollection about the entire removal process.” The investigators were unable to determine if any indictments were warranted because of the refusal of Karl Rove, Harriet Miers, former DOJ official Monica Goodling and others to cooperate and the White House’s refusal to turn over requested documents.

Unlike the IG and OPR, Dannehy has prosecutorial powers and can compel witnesses from outside the DOJ to appear. Will she empanel a grand jury? It remains to be seen, but she appears to have the confidence of Mukasey, who said “the Justice Department has an obligation to the American people to pursue this case wherever the facts and the law require.” (NYT, WaPo)

Twin Cities businessman Tom Petters is well known in the region as the founder of Petters Warehouse Direct and the owner of Sun Country Airlines. His Petters Worldwide group also includes Polaroid and Fingerhut among its holdings. But his future is now in doubt after the FBI executed nine search warrants last week. According to the affidavit for the search warrants, Petters is accused of using capital raised by his equity company, Petters Co. Inc. (PCI), “for his other business ventures and to support his extravagant lifestyle.” At least four other associates are involved.

The affidavit, which was unsealed on Friday, reveals that an unnamed cooperating witness wore a wire in meetings with Petters and his associates; the witness will plead guilty to conspiracy. On one recording Petters allegedly “talks about fleeing the country and creating fabricated defenses if the fraud scheme is discovered.” One of his associates is allegedly on tape as saying that the amount of the fraud could exceed $2 billion.

The alleged fraud scheme lured investors by claiming that their money was secured by merchandise purchased from certain wholesale vendors and sold to Wal-Mart, Sam’s club and other retailers. According to the FBI, these were all sham transactions; the purchase and sales orders were fictitious, and the wholesale vendors were shell companies allegedly used to launder funds to PCI. The Star Tribune has an extensive story here.

Former Credit Suisse broker Julian Tzolov, charged with securities fraud in an indictment unsealed on September 3 (earlier), was told Friday by US District Judge Jack Weinstein in Brooklyn to return $2 million he sent to Bulgaria while he was under investigation. Tzolov went missing when the investigation was revealed and was thought to be in his native Bulgaria, but he returned and surrendered a day later. After AUSA Greg Andres said Tzolov had sent $2.3 million to Bulgaria, Tzolov said the money was sent to his parents to buy property. That didn’t go over well with Weinstein, who told him to get it back and put it in escrow. Weinstein also set a tentaive trial date of April 27, 2009. Tzolov’s former colleague Eric Butler will stand trial with him. The two allegedly misled investors by selling customers auction rate securities backed by mortgageswhen they had represented the securities as being backed by student loans (Reuters).

Friday’s testimony from government witnesses centered on the extensive amount of work performed by VECO on Sen. Ted Stevens’ Alaska home. A number of tradesmen testified, inclding an electrician who worked about 400 hours on the project at about $29 per hour, none of which was ever billed to Stevens by VECO.

A 28-page expense report from VECO which was introduced into evidence contains a note that there is to be “no paper trail” and “no who” on the project “per Bill Allen” (former VECO CEO). VECO bookkeeper Cheryl Boomershine testified that she received the note after asking for an explanation of a certain expense.

Allen, the government’s key witness, is expected testify Monday ahead of schedule. Friday’s testimony went faster than expected, leading prosecutors to tell US District Judge Emmet Sullivan that witnesses originally scheduled Monday might not make it from Alaska in time. Judge Sullivan told them they had better get it straightened out and threatened to end their case early if the witnesses wren’t ready.

(McClatchy, DowJones Newswires)

• Prosecutor Brenda Morris said that Stevens used VECO Corp. as his “own personal handyman service” and indicated that jurors would hear a recorded conversation in which Stevens told former VECO CEO Bill Allen that “the worst that could happen to the two was if anyone found what the company had done for him was that they’d have to spend a lot of money on lawyers - and perhaps serve a little jail time.”
• Stevens’ attorney Brendan Sullivan blamed “the deviousness of Bill Allen” for renovations to Stevens’ Alaska home and other undisclosed gifts at the heart of the prosecution’s case. He also shifted responsibility to Stevens’ wife Catherine: “She was the person who opened the account, reviewed the bills; she was the person who wrote the check.”
• Sullivan also said “This is a renovation by a married couple that lives 3,300 [miles] from the renovation. They live here with us in the District of Columbia because he works up here on Capitol Hill.” Apparently he really doesn’t live in Alaska; how will that play with the electorate?

(WSJ, Anchorage Daily News, Politico)

The full US Court of Appeals for the Tenth Circuit in Denver on Thursday heard oral arguments in the appeal of former Qwest CEO Joe Nacchio. The full court had earlier agreed to review the March 17 decision of the three-judge panel which reversed Nacchio’s insider trading convictions on grounds that US District Judge Edward Nottingham improperly excluded testimony from expert defense witness Professor Daniel Fischel.

Although the three-judge panel ruled 2-1 in favor of reversal, news reports from the Rocky Mountain News and Reuters indicate that six of the nine judges who heard the case were overtly critical of Nacchio attorney Maureen Mahoney’s arguments. Chief Judge Robert Henry and the two judges who earlier ruled in favor of reversal appeared to support Nacchio’s claims.

Nacchio was convicted in April 2007 of 19 of 42 counts of insider trading and was sentenced to 72 months in prison. He has been free on bond during his appeal.

In Sacramento on Wednesday, US District Judge Lawrence Karlton sentenced community activist and fundraiser Julie Lee of San Francisco to one year and one day in prison in connection with the illegal diversion of state grant money to a political campaign. In July, a federal jury convicted Lee on two counts of mail fraud and three counts of attempted witness tampering. Evidence showed that she took $125,000 of a $500,000 state grant to develop a community center (which was never built) and funneled it through intermediaries to the Secretary of State campaign of Kevin Shelley. She also allegedly attempted to persude three witnesses not to cooperate with the investigation of her activities. Shelley resigned in 2005 after the story broke but has never been charged and has denied invovement. Lee still faces state charges in the matter (San Francisco Chronicle, DOJ).

Twelve jurors and four alternates have now been seated for the US District Court trial in Washington of Sen. Ted Stevens (R-Alaska) on charges of making false statements on his Senate financial disclosure forms between 1999 and 2006. McClatchy’s story offers some background on the jurors. Opening statements begin tomorrow; the trial is expected to take three to four weeks.

Like a punch-drunk bum who doesn’t know when to quit, Travis County DA Ronnie Earle on Monday asked Texas’ Third Court of Appeals to reconsider the August 22 ruling (earlier here, analysis here) by a three-judge panel of the Court in the cases of Tom DeLay associates John Colyandro and Jim Ellis. The Court has already refused an en banc rehearing.

The Austin-American Statesman reports here that Earle’s appeal implies (without naming names) corruption among the three judges who rendered the decison:

The dark shadow of corruption of our system of justice looms over this case. Every lawyer has a duty to raise questions of corruption that go to the heart of our judicial system, and it is in the discharge of that duty that the State pursues this effort.

Earle will fold up his circus tent and retire shortly, but it’s obvious that the clown will keep performing his act until the bitter end. Way to go, Ronnie. Imply corruption by the very people who will hear your appeal. That should sit well.

The US Court of Appeals for the Third Circuit on Tuesday denied a motion by attorneys for former Allegheny County Coroner Cyril Wecht requesting a 90 day stay of its order remanding the case to US District Court for possible retrial. Wecht’s attorneys sought the delay to prevent a retrial from starting while they try to get the Supreme Court to consider taking the case, which Wecht is appealing on double jeopardy grounds. In denying the motion as unnecessary, the court said that a retrial wouldn’t prevent Wecht from appealing (Pittsburgh Post-Gazette).

Yet another example of the blatant Medicare fraud that’s been going on in public for years: a federal jury in Los Angeles on Monday convicted the owner of durable medical equipment supplier Pacific City Group in connection with a scheme to get Medicare to pay for motorized wheelchairs that weren’t needed. Leonard Nwafor was convicted on 11 counts including health care fraud and conspiracy. Between January 2006 and May 2008 his company billed Medicare over $1.1 million and was paid $526,000 for the wheelchairs, which sell for as much as $7,000 each. Evidence at the trial allegedly showed that prescriptions for the motorized wheelchairs purporting to be from several LA-area doctors were forged. A “beneficiary” testified that a company representative posing as a Medicare official threatened her with loss of benefits if she and her husband didn’t accept two wheelchairs they didn’t need.

Nwafor faces a statutory maximum of 110 years in prison. His sentencing is scheduled for December 1 before US District Judge John Walter. He also faces federal mail fraud charges in a separate case (DOJ).

John Mohan of Delray Beach, Florida on Friday pleaded guilty to a one-count information charging him with wire fraud in connection with the theft of $1.2 million in client funds held in escrow. Mohan worked as a mortgage broker and closing agent. Among the funds collected were amounts to be used to pay off existing mortgages. Mohan allegedly diverted these funds for his personal use, sometimes making payments on the original mortgages in an effort to hide the fraud and prevent foreclosure. He faces a stautory maximum of 20 years in prison. Sentencing is scheduled for December 19 before US District Judge James Cohn in Fort Lauderdale (Bizjournal, DOJ).

Following reaction to his report of corruption in the Royalty-In-Kind (RIK) program of the Minerals Management Program (MMP) of the Department of the Interior (earlier), the department’s inspector general Earl Devaney on Thursday testified before the House Natural Resources Committee. Devaney said he recommended that the DOJ prosecute officials Gregory and Lucy Dennet, saying “Simply stated, the MMS employees named in these reports had a callous disregard for the ethical rules by which the rest of us are required to play.” The DOJ declined to prosecute them and has not explained its decision (McClatchy).

Jury selection begins today in the trial of Alaska Senator Ted Stevens for making false statements on his Senate financial disclosure forms between 1999 and 2006. Bloomberg has a background summary here. In one of the more interesting pretrial rulings, US District Judge Emmet Sullivan on Thursday ordered the DOJ to post Stevens’ defense exhibits on its own website, saying “I don’t think I’m overstepping my authority. There’s nationwide interest in this case.” Sullivan also ruled that the defense is entitled to medical records documenting a head injury sustained by former VECO CEO Bill Allen in a motorcycle accident. Allen has pleaded guilty in the ongoing Alaska corruption probe and is expected to be the key witness against Stevens (Legal Times blog).

Memphis Mayor Willie Herenton, already under investigation by the FBI in connection with the awarding of no-bid city contracts to his contractor friends, is now being investigated for his role in a redevelopment plan involving Greyhound Bus Company. The site of the company’s downtown bus station is allegedly set to be redeveloped by contractor Elvin Moon, a Herenton friend, in a secretly-made deal that shuts out other interested parties and involves building a new facility for Greyhound near the airport. Although the roles of Moon and Greyhound are questionable, Herenton appears to be the target (Commercial Appeal).

Attorneys for former Allegheny County Coroner Cyril Wecht said Thursday they plan to ask the US Supreme Court to review the recent Third Circuit ruling that a retrial of Wecht was not constitutionally barred. Wecht wants the charges dismissed on double jeopardy grounds (earlier). Wecht’s attorneys filed a motion with the Third Circuit requesting a 90 day delay in sending the case back to US District Court while they try to get the Supreme Court to consider taking the case (Pittsburgh Tribune-Review).

David Burns, formerly of Kingston, New Hampshire, on Monday pleaded guilty in US District Court in Concord to wire fraud charges in connection with the theft of $1.6 million from his disabled daughter. Burns is now in state prison after being convicted in 2004 of trying to strangle his girlfriend. Burns’ daughter was born with brain damage and was awarded over $2.4 million in damages (including interest) from a malpractice suit. The indictment alleged that in the 47 months after the money was deposited in an account managed by a Boston law firm in 1999, Burns withdrew over $1.6 million and spent it on purposes not related to his daughter, including attorneys fees, bail on criminal charges, drug rehabilitation expenses, race cars, funeral expenses, and illegal drugs.

Burns’ sentening is scheduled for Decemeber 16; he faces a statutory maximum of 20 years in prison. New Hampshire’s Office of Public Guardian sued the Boston law firm and reached a settlement which made the daughter whole financially, according to AUSA Arnold Huftalen (Union Leader, DOJ).

Convicted former class action attorney Bill Lerach has been transferred from the minimum security federal prison camp at Lompoc, California to the Federal Correctional Institution in Phoenix, “a medium security facility for male offenders.” Lompoc was a fenceless camp, Phoenix has prison cells. Officials won’t comment but the move is apparently in response to Lerach’s alleged offer to let a prison guard use his San Diego Chargers season tickets (earlier), which landed him in “administrative segregation” for 23 hours a day (Legal Pad, Portfolio).

On July 28 Zach Scruggs was permanently disbarred from practicing law in Mississippi. His March 21 plea hearing transcript contains this exchange:

THE COURT : All right, Mr. Scruggs. Of course, the legal profession that you say you love so much, you will not be a part of it the rest of your life. You understand that?
THE DEFENDANT : Yes, Your Honor.

But that was oh so long ago! Now Zach doesn’t see it that way at all. He now claims that Mississippi Bar rules “do not provide for permanent disbarment.” He has asked the Mississippi Supreme Court for clarification and has filed a motion in US District Court asking for a stay of federal disbarment until the question is resolved (Daily Mississippian, Daily Journal).

Rule 6 of the Mississippi Bar’s Rules of Discipline doesn’t contain the word “permanent.” However, it doesn’t appear to provide for reinstatement except in cases of reversal of conviction (or judgment).

Martin Bodner, former CFO of Tommy Hilfiger Handbags and Small Leather Goods Inc. (a licensee of Tommy Hilfinger Corp.), has admitted stealing more than $19 million from the company between 2000 and 2007. He pleaded guilty on Tuesday in US District Court in Manhattan to a two-count information charging him with mail fraud and wire fraud. He allegedly accomplished the theft largely by using his authority to secretly increase his salary and bonuses and arranging to be reimbursed for phony expenses. Bodner is scheduled to be sentenced on November 5 by US District Judge P. Kevin Castel. The plea agreement calls for a sentence of 63 to 78 months in prison (NYT, CFO).

Harriet Walters, a former manager in the District of Columbia Office of Tax and Revenue, on Tuesday pleaded guilty before US District Judge Emmet Sullivan in DC to counts of wire fraud, money laundering conspiracy, federal tax evasion, and District of Columbia tax evasion. Walters, who was the principal in an 18 year long fraud scheme, admitted issuing 226 fraudulent property tax vouchers totalling over $48 million between 1989 and 2007. Nine of her co-conspirators have already pleaded guilty; two others are awaiting trial. A sentencing date has not been set. Sullivan expressed doubts about the 15 to 18 years called for in the plea agreement and set a status hearing for October 27 (DOJ, Washington Times).

Following the Second Circuit’s August 28 ruling in US v. Stein (earlier), four defendants remain: former Sidley Austin LLP law partner R. J. Ruble and former KPMG LLC partners David Greenberg, John Larson and Robert Pfaff. On September 10 US District Judge Lewis Kaplan denied (.pdf) their motion to dismiss the indictment on grounds of denial of due process (h/t White Collar Prof Blog).

Minh Huynh and Thien Tuan Vo, two Fort Worth area chiropractors, were indicted last week on charges that they defrauded insurance companies by seeking payments for bogus treatments of “victims” of staged accidents. Huynh was charged with three counts of health care fraud, one count of conspiracy to commit mail fraud and one count of mail fraud. Vo faces one count of health care fraud. The indictment alleges that they received “patients” from a law firm which had contracted to represent participants in staged accidents. They allegedly then supplied the law firm with falsified treatment and billing records which were submitted to insurance companies. Hyunh also allegedly paid kickbacks to an employee of the law firm in exchange for referrals. The Star-Telegram describes the scheme as a fraud that took in more than $1 million; more indictments are likely (DOJ).

Last week’s surprising announcement that Thomas and Pamela McIntosh were dropping extra-contractual and punitive damage claims against State Farm indicated that the case was about to settle. On Monday, a confidential settlement was announced and US District Judge L. T. Senter dismissed the case (.pdf). While the McIntoshes’ attorney Chip Merlin claimed that the settlement had no bearing on other pending State Farm lawsuits, State Farm’s press release, although certainly biased, really hits the nail on the head by describing the case the “centerpiece of Dickie Scruggs’ flawed Katrina legal strategy.” The Sun Herald has more here.

Leib Pinter, one of two principals of now-defunct Olympia Mortgage indicted in separate fraud schemes (earlier), on Thursday pleaded guilty in US District Court in Brooklyn to one count of conspiracy in connection with the theft of $44 million from Fannie Mae. Pinter was indicted in May on conspiracy and wire fraud counts. He allegedly diverted the payoff proceeds for 257 refinanced home mortgage loans funded by Fannie Mae and serviced by Olympia by wiring the funds to a bank account controlled by Olympia instread of to Fannie Mae. Pinter’s sentencing is scheduled for December 19; guidelines call for a sentence of about ten years. In any event, it’s far too late to help Fannie Mae (Reuters).

The case of Pinter’s former partner Barry Goldstein is still pending. He was charged with conspiracy and bank fraud in connection with Olympia’s sale of a portfolio of 12 nonperforming mortgage loans to Credit Suisse using falsified loan histories.

In a unanimous decision (.pdf), the Virginia Supreme Court on Friday overturned the state’s anti-spam law on federal constitutional grounds and reversed the conviction of Jeremy Jaynes, who in 2004 became the first person in the country to be convicted of a felony for spamming. The court ruled that the state law violates protected speech under the First Amendment because it prohibits all unsolicited email, not just commercial junk mail. Jaynes was sentenced to nine years in prison but has been under house arrest pending the outcome of his appeal. Virginia Attorney General Bob McDonnell said he will appeal the decision to the US Supreme Court (WaPo).

Still crazy after all these years: most of the world has long since stopped wondering what happened to Melvin Dummar in the 30 years since a Nevada probate court ruled the so-called Mormon Will of Howard Hughes was a fake. But Melvin Dummar never went away. In 2006 he filed a federal suit in Salt Lake City alleging that a Hughes relative and an executive of the holding company that controls Hughes’ estate conspired to coordinate false testimony to discredit the handwritten will. The suit was dismissed last year but Dummar appealed.

On Friday, the US Court of Appeals for the Tenth Circuit upheld the dismissal. The Salt Lake Tribune’s story quotes Dummar’s attorney Stuart Stein: “Perhaps it comes down to the rich and the powerful always win and the poor and powerless always lose.” And perhaps he said that with a straight face. Too bad for Paul Le Mat, who perhaps was waiting for a Melvin and Howard sequel.

Here’s another strange development in the case of former Allegheny County Coroner Cyril Wecht: in the wake of the Third Circuit’s ruling that a retrial was not barred and its removal of US District Judge Arthur Schwab (earlier), it has been revealed that former Third Circuit Judge Timothy Lewis has been working with both sides to to avoid a retrial. In a statement released on Friday, USA Mary Beth Buchanan said she was approached by Lewis several months ago and agreed to participate, but threatened to retry Wecht if the talks fail. However, comments by Wecht attorney Jerry McDevitt indicate it’s a new effort following the Third Circuit’s ruling. McDevitt criticized Buchanan for discussing the matter, saying it violated an agreement not to go public. He added: “Threats of a willingness to proceed to trial are counterproductive to that effort, and a needless reminder of the power of the United States Attorney to do as she pleases.” (Pittsburgh Post-Gazette)

Daniel Dove, formerly of Clintwood, Virginia, was sentenced on Tuesday to 18 months in prison by US District Judge James P. Jones in the Eastern District of Virginia for his role in a P2P internet piracy group. Dove, an administrator for the now-defunct EliteTorrents, was convicted by a jury in June on one count of conspiracy and one count of felony copyright infringement for using BitTorrent technology to distribute copyrighted movies. EliteTorrents attracted the FBI’s attention in 2005 when it released “Star Wars Episode III: Revenge of the Sith” six hours before it was released in theaters. The operation was closed as part of the FBI’s Operation D-Elite. Dove is the eighth administrator to be convicted in connection with the operation, and the only one to plead not guilty and go to trial (Daily Tech, DOJ).

Anthony Seminerio, a Democratic Assemblyman from Queens, was arrested on Wednesday and charged with one count of honest services mail fraud. He is accused of setting up his own consulting firm for the purpose of taking payments from businesses to influence his official actions. The complaint describes a particular scheme in which a hospital paid his consulting firm a total of about $390,000 to influence legislation. In one recorded conversation with a cooperating witness, Seminario allegedly explains what caused him to set up his own consulting firm: “…I was doing favors for these sons-of-bitches there, you know, they were—they were making thousands. ‘Screw you, from now on, you know, I’m a consultant.’” (NYT, DOJ)

A report by the US Department of the Interior’s inspector general Earl Devaney alleges that a culture of sex, drugs and corruption exists at the Denver-area office of the Department’s Minerals Management Program (MMS), which is responsible for collecting royalties from oil and gas producers. The office is home to the MMS’ Royalty-In-Kind (RIK) program. The RIK program allows royalties to be paid in oil and gas rather than money.

The report (.pdf) states that between 2002 and 2006, 19 RIK employees, about one-third of the staff, “had socialized with, and had received a wide array of gifts from, oil and gas companies with whom the employees were conducting official business.” Four companies were allegedly involved: Chevron, a Shell subsidiary, Gary-Williams Energy and Hess Corporation. The report describes “an organizational culture lacking acceptance of government ethical standards, inappropriate personal behaviors, and a program without the necessary internal controls in place to prevent future unethical or unlawful behavior,” including allegations that some employees “frequently consumed alcohol at industry functions, had used cocaine and marijuana, and had sexual relations with oil and gas company representatives.” Devaney released a separate report on former MMS director Gregory Smith, alleging improper conduct, and made public a memo to Interior Secretary Dirk Kempthorne which said his office had referred cases against two other former high-ranking MMS officials to the DOJ, which has declined to prosecute (WSJ, WaPo).

Raffaello Follieri, former beau of actress Anne (Agent 99) Hathaway, pleaded guilty on Wednesday before US District Judge John Koeltl in Manhattan to one count of conspiracy, eight counts of wire fraud and five counts of money laundering in connection with a real estate investment scheme he operated from 2005 to 2007. Follieri, who was indicted in June (earlier), admitted soliciting more than $2 million from investors by falsely claiming that he had close connections with the Vatican that enabled him to purchase unwanted Catholic Church properties in the US at a substantial discount, then converting the money to personal use. He will be sentenced on October 3; his plea agreement calls for a sentence of 51 to 63 months and requires him to forfeit over $2.4 million in cash plus expensive watches and other jewelry (WSJ, DOJ, plus Reuters on Hathaway’s reaction).

In East St. Louis, Illinois on Friday, US District Judge Michael J. Reagan sentenced Kyle Kimoto of St. George, Utah and Las Vegas to 350 months in prison for operating an advance fee telemarketing scheme that allegedly defrauded over 300,000 consumers of approximately $43 million. A jury convicted Kimoto in April on charges of conspiracy, mail fraud and wire fraud. In the scheme, consumers with substandard credit paid an advance processing fee of $159 or more, believing they would receive a MasterCard; what they actually got was a “benefits package” with an application for a stored value MasterCard — a debit card with no credit line which had to be “loaded” with funds before it could be used (St. Louis Post-Dispatch).

Convicted former class action attorney Bill Lerach, sentenced to two years in prison for his role in his firm’s kickback scandal, has landed in hot water: shortly after arriving at the minimum security federal prison camp at Lompoc, California in May, he allegedly offered a guard use of his San Diego Chargers season tickets. The guard reported the incident and Lerach has reportedly been put in “administrative segregation” for 23 hours a day, pending a hearing. This is considered a “high category” offense for an inmate and could result in his transfer to a higher security prison and other sanctions (ABA Journal, Legal Week).

The Houston Chronicle reports that convicted former Dynegy executive Jamie Olis on Monday filed suit in Delaware Chancery Court seeking more than $600,000 in defense costs. Is it coincidental that the filing comes less than two weeks after the Second Circuit affirmed Judge Kaplan’s rulings in US v. Stein?

That hammering sound you hear on the Mississippi coast isn’t coming from people boarding up for another Gulf hurricane–it’s the sound of more nails in the coffin lid of the former Scruggs Katrina Group’s once-grand plans to extort unwarranted punitive damage settlements from State Farm.

In McIntosh v. State Farm, on Monday the new attorneys for Thomas and Pamela McIntosh on Monday filed a Motion For Dismissal With Prejudice Of Extra-Contractual And Punitive Damage Claims, conceding among other things that the majority of their damage was caused by flood, that State Farm promptly paid their wind damage and the full limits of their flood policy, and that there is no credible evidence of bad faith or other conduct that would give rise to punitive damages. State Farm quicky responded and US District Judge L. T. Senter wasted no time approving. Per Anita Lee’s Sun-Herald story there’s still an issue of actual wind damages.

And if you should hear a whooshing sound, that’s just the wind being knocked out of the Rigsby sisters’ sails in ex rel. Rigsby, the qui tam case.

Ehud Tenenbaum, a 29-year-old Israeli national living in Montreal, was arrested last week and charged with theft of credit card data and fraud in connection with a $1.8 million theft from a Calgary company that sells prepaid debit cards. Tenenbaum is accused of hacking into Direct Cash Management’s computers and increasing the value of the prepaid cards; the money was then allegedly withdrawn from ATMs by three accomplices.

Ehud Tenenbaum was also the real name of “The Analyzer,” an Israeli teenager who in 1998 managed to hack into computers belonging to the Pentagon, NASA and the Knesset. He was convicted and served time in an Israeli prison. While the Calgary Herald and other sources say that authorities are trying to determine if the arrested man is the Pentagon hacker of the same name, a story from Haaretz leaves little doubt, since the hacker’s mother is quoted as accusing the FBI of framing her son.

Apparently the Indictment (part 1 part 2) was filed on Friday and unsealed today. The charges are conspiracy, honest services wire fraud, obstruction of justice, and payment of illegal gratuities.

US District Judge Vanessa Gilmore on Friday delayed the retrials of former Enron Broadband executives Joseph Hirko, Rex Shelby and Scott Yeager while they take their case to the US Supreme Court. In March, a three-judge panel of the Fifth Circuit ruled that Gilmore was correct in refusing to dismiss most of the remaining charges against Hirko and Shelby and all the remaining charges against Yeager (earlier) after jurors were hung on many counts; the three were acquitted on some counts. Gilmore had scheduled the retrial of Hirko and Shelby for November 3, while Yeager’s retrial was set for January 12, 2009. But prosecutors said that it would be mid-November at the earliest before the Supreme Court could decide if it would take the case. In response, Gilmore rescheduled the Hirko and Shelby retrial for December 1 and the Yeager trial for March 24, 2009 (Houston Chronicle).

Remaining Kentucky Fen-Phen defendants William Gallion and Shirley Cunningham Jr., whose first trial ended in a mistrial in early July, were reindicted on Wednesday by a federal grand jury in Covington and will face new counts. The original indictment charged them with one count each of conspiracy to commit wire fraud. The new indictment charges them with eight counts of wire fraud in addition to a conspiracy count (Lexington Herald-Leader).

US District Judge Danny Reeves on Friday denied a request by an attorney for Gallion to delay the retrial until April. Reeves offered trial dates in either October or February. Gallion and Cunningham are scheduled to be arraigned Thursday (Herald-Leader).

A three judge panel of the US Court of Appeals for the Third Circuit on Friday ruled (.pdf) that US District Judge Arthur Schwab erred in the procedures he used when he declared a mistrial on April 8 in the public corruption trial of former Allegheny County Coroner Cyril Wecht, but said that he was correct to conclude that there was “manifest necessity” to declare a mistrial without Wecht’s consent. As a result, the Court ruled that there was no constitutional bar to retrying Wecht. However, the Court remanded the case to the Chief Judge of the District Court to reassign the case to a different judge. USA Mary Beth Buchanan declined to say if she intended to retry the case (Pittsburgh Post-Gazette, Trib).

US District Judge Ellen Huvelle of the DC Circuit on Thursday sentenced former lobbyist Jack Abramoff to 48 months in prison for public corruption. Abramoff pleaded guilty in January 2006 to conspiracy, honest services fraud and tax evasion charges. He was previously sentenced to 70 months in prison in connection with the Florida Sun Cruz Casinos fraud case and has served about 22 months to date. With this sentence he is expected to be in prison until 2012. The sentence was nine months longer than prosecutors had recommended based on Abramoff’s cooperation in cases involving officials he corrupted, and much less than the approximately 11 years he could have received under sentencing guidelines. It was not nearly long enough to satisfy representatives of two Indian tribes he defrauded (NYT, DOJ).

Matthew Marino, brother of convicted former Bayou Group CFO Daniel Marino, pleaded guilty on Wednesday before US Magistrate Judge Lisa Margaret Smith in White Plains, New York to a one count information in which he admitted knowing about the fraud at the now-defunct hedge fund and actively helping conceal it. Daniel Marino and Bayou co-founder Samuel Israel III each received 20 year prison sentences earlier this year. Matthew Marino faces a maximum sentence of three years in prison; sentencing is scheduled for December 4 (Reuters, DOJ).

That didn’t take long: missing former Credit Suisse broker Julian Tzolov, who was indicted Wednesday on securities fraud charges, surrendered on Thursday at JFK and was taken into custody by the FBI. His arraignment is scheduled for today (Reuters).

In a superseding indictment unsealed Wednesday in US District Court in Brooklyn, Eric Butler and Julian Tzolov, two former Credit Suisse brokers, were charged with conspiracy, securities fraud, and wire fraud in connection with allegedly fraudulent sales of auction rate securities to Credit Suisse Group customers. According to the DOJ Press Release:

The superseding indictment alleges that the defendants schemed to obtain higher sales commissions by selling auction rate securities (“ARS”) backed by mortgages to Credit Suisse clients who, in fact, had placed orders to buy ARS backed by student loans. The defendants concealed their scheme by falsifying the names of the ARS the clients bought and otherwise misleading the clients into believing they had bought ARS backed by student loans. When the mortgage-backed ARS market failed, the clients lost their money.

Butler pleaded not guilty on Wednesday before US Magistrate Judge Ramon Reyes, who released him on bond. Tzolov went AWOL shortly after the investigation became public knowledge (earlier) and is believed to be in his native Bulgaria (Reuters).

As expected, US District Judge Samuel Kent on Wednesday pleaded not guilty to one count of abusive sexual conduct and two counts of attempted aggravated sexual abuse. He entered his pleas in Houston before Judge Edward Prado of the US Court of Appeals for the Fifth Circuit. Kent, who was indicted last week (earlier), said “For the record I absolutely intend to testify, and we are going to bring a horde of witnesses.” The charges arise from complaints made his former case manager Cathy McBroom. Kent claims their relationship was consensual.

Although Prado was not on the panel that late last year reassigned and suspended Kent over the allegations, he stated that a judge from outside the Fifth Circuit would be appointed. He released Kent on his own recognizance. Kent is continuing to hear cases (Houston Chronicle).

Albert “Jack” Stanley, former CEO and later chairman of Kellogg Brown & Root (now KBR), pleaded guilty on Wednesday in Houston before US District Judge Keith P. Ellison to a two-count information charging him with conspiracy to violate the Foreign Corrupt Practices Act and conspiracy to commit mail and wire fraud. He is cooperating with prosecutors. In the FCPA count, he admitted participating in a decade-long scheme to bribe Nigerian government officials to obtain contracts, in particular paying $182 million in bribes to obtain a $1.2 billion contract as part of the construction of a $6 billion gas liquefaction plant on Bonny Island, Nigeria. In the second count, he admitted taking $10.8 million in kickbacks from a consultant he hired at KBR. A sentencing date has not been set but the plea agreement calls for him to serve seven years in prison (Houston Chronicle, DOJ).

Texas’ Third Court of Appeals on Friday refused by a 4-2 vote the request of Justice Diane Henson for an en banc review of its August 22 decision in the cases of Tom DeLay associates John Colyandro and Jim Ellis. The Court released Henson’s dissenting opinion over the weekend. The vote was along party lines. Travis County DA and perennial master of the absurd Ronnie Earle called the ruling “absurd” and said he might take it to the Texas Court of Criminal Appeals (San Antonio Express-News, earlier here and here).

In court filings made Tuesday by attorneys for US Sen. Ted Stevens (R-Alaska) it was revealed that FBI agents recorded 105 phone conversations involving Stevens out of more than 2800 calls recorded as part of the Alaska public corruption investigation involving VECO Corporation and its CEO Bill Allen. Stevens’ attorneys want the calls ruled inadmissible on grounds that they don’t pertain to the charges in the indictment:

The government obviously wishes to import the stench of a bribery prosecution into a case that is nothing of the sort. The government has cited no case, and we are aware of none, in which prosecutors were permitted to suggest a quid pro quo when no quid pro quo was or could be charged in the indictment. Particularly here, where the government concedes that the senator’s official acts were entirely lawful and proper, the allegations are unnecessary and unfairly prejudicial.

Stevens was indicted on seven counts of making false statements on his Senate financial disclosure forms. His trial is scheduled to begin on September 22 (Fox, AP).

George Motz, CEO of Melhado, Flynn & Associates in Manhattan and mayor of Quoque in the Hamptons, was indicted Thursday on charges of securities fraud and altering documents to obstruct an SEC examination. He is accused of operating a so-called cherry picking scheme in which he allegedly executed buy orders in the morning without allocating them to specific accounts, and then selling late in the day, assigning the profitable trades to his firm’s accounts and the less profitable or losing trades to discretionary clients. The alleged practices are said to have cost his clients $1.4 million. Motz pleaded not guilty on Friday before US Magistrate Judge Kathleen Tomlinson and was released on bond (Newsday, DOJ).

Robin Snyder of Pikesville, Maryland was sentenced on August 26 to 97 months in prison by US District Judge Catherine Blake in Baltimore in connection with a scheme to defraud commercial loan applicants. Snyder and his company Mortgage Bankers, Ltd. were convicted on February 28 on 13 counts including wire fraud, money laundering and obstruction of justice. He allegedly promoted his company online as a commercial lender for difficult loans and approved applicants subject to nonrefundable advance fees, but never completed the loans because he had no sources. He allegedly collected $650,000 in advance fees between 2002 and 2006 and even continued soliciting applicants after his indictment, in violation of his pretrial release conditions (Baltimore Sun, DOJ).