October 2008

Petters associate Larry Reynolds, who pleaded guilty last week to money laundering conspiracy (earlier), was granted bail on Thursday in Minneapolis by US Magistrate Judge Susan Nelson. He and his wife agreed to surrender their passports and put up their home as security for the $2.5 million bond, and he will be subject to home detention and electronic monitoring.

Although we previously noted that he was said to be negotiating with prosecutors for his release, controversy arose because the matter was not on the public docket. From the Star Tribune:

Assistant U.S. Attorney Timothy Rank was walking toward the courtroom with Reynolds’ attorney, Fred Bruno, when they recognized a reporter and froze in their tracks.

Despite their protestations, it certainly gave the appearance that they had something to hide. And how could Reynolds be allowed to use his home as security when US District Judge Ann Montgomery has frozen his assets? With Judge Montgomery’s dubious actions already raising questions, it’s no wonder that the commenters on this and just about every other Star Tribune story on the Petters fiasco believe some kind of behind-the-scenes skulduggery is going on.

Kenneth Wade Pearson, the webmaster of the notorious St. Regis University diploma mill, was sentenced to 48 months in prison on Tuesday in US District Court in Spokane, Washington. He received a six month sentence for conspiracy to commit wire and mail fraud in connection with the St. Regis operation, and a concurrent 48 month sentence for receipt of child pornography. Pearson’s testimony was key in in implicating the Randock family, who ran the operation (earlier coverage). Owners Steven and Dixie Randock pleaded guilty and are currently serving 36 month prison sentences, while their daughter Heidi Lorhan is serving a 12 month sentence.

When Pearson was investigated during the diploma mill probe, authorities found over 11,000 child porn images on his computer. He claimed he had downloaded the porn images at Dixie Randock’s request so she could start a porn website, but she was never charged with porn possession. In any event, he immediately became a cooperating witness and provided critical information on the St. Regis operation, which resulted in prosecutors recommending a lesser sentence on the porn charge than called for by guidelines (Spokesman-Review).

In Los Angeles on Monday, US District Judge John Walter sentenced former Milberg Weiss partners David Bershad and Steven Schulman to six months in prison each for their roles in the long-running kickback scheme at the firm, now known as Milberg LLP. Bershad pleaded guilty in July 2007 to a one-count information charging him with obstruction and making false statements. He was the first partner to plead guilty and his cooperation helped the DOJ obtain guilty pleas from the firm and from principals Melvyn Weiss and Bill Lerach, who are currently serving 30- and 24-month prison sentences, respectively. But Walter rejected his plea for probation, calling him an architect of the scheme. Schulman pleaded guilty to a racketeering count in October 2007. Both men had already agreed to forfeit their gains — $7.75 million for Bershad, $1.85 million for Schulman (Bloomberg, Reuters).

Longtime Massachusetts State Senator Dianne Wilkerson of Roxbury was arrested on Tuesday by federal authorities on charges of attempted extortion under color of official right and theft of honest services as a State Senator. She is accused of taking eight bribes totaling $23,500: it’s alleged that in one scheme, she took payments totaling $8,500 to help secure a liquor license for an undercover agent and a cooperating witness posing as constituents; in another, that she took payments totaling $15,000 in a scheme to transfer public land for a proposed development to an undercover agent posing as a private developer. The evidence includes a photograph taken by the undercover agent purportedly showing her stuffing a $1000 bribe in her bra. She appeared on Tuesday before before US Magistrate Judge Timothy Hillman but did not enter a plea; she was released on $50,000 bond and ordered to appear at a hearing on November 17 (Boston Globe, Boston Herald, DOJ). A related Herald article suggests that this is the beginning of a wider scandal.

Andrew Parker of San Antonio, owner of San Antonio Trade Group, Inc., was sentenced on Monday to 117 months in prison by US District Judge Fred Biery for defrauding the Export-Import Bank of the US of $107 million. In an indictment unsealed on May 1, Parker was charged with conspiracy, wire fraud, use of a false document, money laundering, tax evasion and filing a false tax return. In August, he pleaded guilty to 11 of the 28 counts in the original indictment; Our earlier entries cover his alleged actions, which involved such a large percentage of the Ex-Im Bank’s loan portfolio that the bank’s management has had to revamp the whole program and cut back its offerings. Yet the Express-News quotes Parker as telling Judge Biery: “I was but a cog in this big machine. The truth is I’m caught in a system that, like with many agencies in Washington, is defective.” The DOJ Press Release (.pdf) is here.

Another sidebar to the Petters securities fraud case: Tom Petters’ attorney Jon Hopeman was approached by a man who said he had connections and could make the case against Petters “go away” for $250,000. The man, Derrick Lee Riddle of Minneapolis, has at least four felony convictions. Hopeman called the FBI, and agents taped him on audio and video making the offer at Hopeman’s office. He now faces state charges of attempted theft by swindle and attempting to aid an offender (St. Paul Pioneer Press).

Although early news reports stated that US District Judge Emmet Sullivan had set January 26 as the sentencing date for convicted Sen. Ted Stevens, he changed his mind. Now he has set a hearing dte of February 25 and has postponed sentencing until sometime after that. He has given Stevens’ attorneys until December 5 to file motions. Anchorage Daily News (McClatchy) has expanded coverage of the verdict and an editorial about how he lost his way: “His story, however, didn’t persuade the jury — and it shouldn’t persuade voters, either.”

Former Enron CEO Jeff Skilling has been moved from the low-security federal prison at Waseca, Minnesota to a facility in the suburban Denver area. The federal prison in Englewood, Colorado has recently been changed from medium security to low security, while the Minnesota facility is being turned into a low security prison for women. Skilling is serving a 24 year prison sentence for conspiracy, securities fraud and insider trading; his appeal is still pending before the US Court of Appeals for the Fifth Circuit. The Rocky Mountain News also notes that former Enron Broadband CEO Ken Rice, who has been serving his 27 month sentence for securities fraud at a federal prison camp in Beaumont, Texas, was moved to a halfway house in Houston in August in anticipation of his release in February 2009.

In Baltimore on Friday. US District Judge Catherine Blake sentenced Alan Fabian of Cockeysville, Maryland to nine years in prison for operating two different investment schemes which defrauded a Georgia company, banks and other funding sources of an estimated $39.5 million. Fabian, a Republican donor and fundraiser, was co-chair of Mitt Romney’s national finance committee. He pleaded guilty in May to one count of mail fraud and one count of filing a false tax return (earlier) after being indicted in August 2007 on 26 counts including bankruptcy fraud, mail fraud, money laundering, obstruction of justice and perjury. In one scheme, Fabian used forged invoices and wire transfer receipts to convince Norcross, Georgia computer leasing company Solarcom into believing that he had purchased millions of dollars in computer equipment and software; he then sold the nonexistent products to Solarcom and leased them back, using the proceeds on a lavish lifestyle and to set up a nonprofit consulting firm. He took in $32 million from this operation. In a later scheme, he deceived Provident Bank, Wachovia Bank and an invoice discounting company into providing $7.5 million in funding for entities he controlled including the consulting firm he had set up with the stolen funds from his earlier scheme (Baltimore Sun, DOJ).

Three Florida A&M University students have been indicted by a federal grand jury in Tallahassee for allegedly hacking into the university’s computer system and changing about 650 grades of about 90 students. In most cases, failing grades were changed to “A” grades. In addition, the status of some students was changed from out-of-state to resident. Marcus Barrington, Christopher Jacquette and Lawrence Secrease were charged in a five-count indictment with conspiracy to commit wire fraud and unauthorized computer access, aggravated identity theft, and one substantive count of unauthorized computer access. From the DOJ Press Release:

According to the indictment, the conspirators were able to access the FAMU computer system by surreptitiously installing keystroke loggers on computers used by employees of the registrar’s office. The keystroke loggers enabled the conspirators to obtain the secure user names and passwords of FAMU registrar’s office employees; the conspirators then used these names and passwords to access the FAMU computer system to make both grade and residency changes. The indictment also alleges that after learning that FAMU had reversed the unauthorized grade changes, the conspirators accessed the computer system a second time to change their grades back, once again improving students’ GPAs and changing failing grades to passing ones.

All three men have pleaded not guilty. A trial date of December 15 has been scheduled (Tallahassee Democrat).

The jury has convicted Sen. Ted Stevens on all seven counts of making false statements on his Senate disclosure forms. Sentencing has been set for January 26 (ADN/McClatchy, WaPo/AP).

Kentucky Fen-Phen defendants William Gallion and Shirley Cunningham Jr., who are awaiting retrial on wire fraud and conspiracy charges after their first trial ended in a mistrial in July, were permanently disbarred on Thursday by order of the Kentucky Supreme Court. Both men had been charged with 22 ethical violations in connection with their handling of class action settlement funds from American Home Products on behalf of 440 Kentuckians harmed by the drug. Both agreed to admit to eight of the 22 charged violations; both filed motions to withdraw from the Kentucky Bar under those terms. From the Lexington Herald-Leader:

Gallion and Cunningham admitted in their disbarment orders that they failed to inform their clients in writing about fee arrangements in the fen-phen settlement; failed to tell clients that they were seeking fees greater than contingency fee agreements provided; failed to advise clients about the total amount of the settlement; and failed to get clients’ consent to place $20 million in settlement money in a charitable fund that the lawyers controlled.

The third defendant, Melbourne Mills Jr., has also been under suspension, but the jury acquitted him. His status is still pending. Gallion and Cunningham will be retried in February (earlier coverage).

US District Judge Emmet Sullivan on Sunday dismissed the missing Juror No. 4 in the public corruption trial of Sen. Ted Stevens. He has been unable to contact her since she left suddenly on Thursday evening, saying she had to attend her father’s funeral in California. An alternate juror has been named and deliberations will start from scratch Monday morning (Anchorage Daily News).

First of a four-part Star Tribune series: The collapse of the Petters empire. Long but worth the read. How could he have gotten away with a multi-billion dollar fraud scheme for so long? The warning signs were ample.

Jack Campbell, former lobbyist for the Texas Association of Business, speaks out in a Statesman op-ed about the recently concluded prosecution of TAB (earlier) which saw charges against Campbell dropped:

Ronnie Earle spent six years trying to get the taste of sour grapes out of his mouth. He badly wanted to convict TAB for exercising the right of free speech but lost. His attempt at pitting corporate America against the little guys was nothing more than a power play to avenge his goose-egg track record of convicting public figures.

Meanwhile, a Statesman editorial frets about corporate money in elections; too bad they aren’t more concerned with free speech. At least they acknowledged that Earle’s declaration of victory was ludicrous.

Raffaello Follieri, the former boyfriend of actress Anne Hathaway, was sentenced in Manhattan on Thursday by US District Judge John Koeltl to 54 months in prison for defrauding real estate investors. Follieri pleaded guilty in September to one count of conspiracy, eight counts of wire fraud and five counts of money laundering (earlier). He 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; instead he used the money to fund his lifestyle. Per the plea agreement, Koeltl ordered Follieri to forfeit over $2.4 million in cash plus expensive watches and other jewelry (Bloomberg, DOJ).

The jury in the public corruption trial of Sen. Ted Stevens was sent home for the day this morning by US District Judge Emmet Sullivan. He didn’t explain to them why Juror No. 4 was missing, probably because no one seems to know for sure. Last night it was reported that she was leaving for Texas to attend to a sick relative, now she reportedly has gone to California to attend her father’s funeral. Judge Sullivan plans to call her at 5 PM today to determine her status. She apparently said nothing to the marshall to indicate that she was abandoning the jury, but no one seems to know for sure if or when she will return.

Judge Sullivan has scheduled another hearing for 6 PM Sunday. At this point the prosecution reportedly wants to proceed with an alternate juror but the defense is against it and also doesn’t want to proceed with only 11 jurors. Judge Sullivan is also opposed to going with 11 jurors in light of yesterday’s problems with Juror No. 9 (McClatchy, BLT, earlier).

Larry Reynolds of Las Vegas on Thursday became the fourth defendant to plead guilty in the Petters case, leaving Tom Petters as the only one of the five persons charged who has not pleaded guilty. As expected, Reynolds pleaded guilty to a one-count information charging him with money laundering conspiracy. Reynolds admitted that his Los Angeles firm, Nationwide International Resources, had laundered about $12 billion in investor funds since 2002. Instead of being used to buy electronics merchandise, as investors were told, it was funneled to Petters, minus a commission which earned Reynolds about $6 million over the years. He is still in custody but is negotiating with prosecutors for possible release on bond. Another bond hearing was to be held for Tom Petters on Thursday, but that has been postponed until October 31 (Star Tribune).

KSTP has obtained a transcript of defendant Robert White’s call to Tom Petters in which Petters discussing fleeing the country (story w/ video). It turns out that White, who pleaded guilty on October 8 to mail fraud and illegal monetary transactions (earlier), called Petters at the FBI’s request.

US District Judge Ann Montgomery on Wednesday ordered a freeze on the filing of civil suits at the request of court-appointed receiver Doug Kelley. Wait… she can’t do that! The same story discloses that in St. Paul, US Bankruptcy Judge Gregory Kishel is consolidating 10 bankruptcy petitions from the various Petters companies under a single case number. Does Judge Montgomery plan on interfering with bankruptcy proceedings? Remember, this is the same judge whose actions effectively prevented this enormous mess from surfacing six years ago (earlier).

After leaving early Wednesday citing stress and a need for “a minute of clarity,” the jury in the public corruption trial of Sen. Ted Stevens fared no better on Thursday. Around midday, the jury foreman sent four notes to US District Judge Emmet Sullivan, one of them demanding that Juror No. 9 be dismissed because she was “rude, disrespectful and unreasonable,” had engaged in “violent outbursts” and had refused to follow procedures (text of note). Judge Sullivan brought all the jurors in, gave them what he described as a “pep talk” and sent them back to deliberate. In the afternoon, the jurors again asked to leave early, citing exhaustion. Then Juror No. 4 told the marshal that she had to leave for Texas immediately to see a seriously ill family member. She could not be located afterwards. Judge Sullivan called an emergency session early Thursday evening, telling attorneys for both sides to have briefs to him by 7 AM Friday about the possibility of going forward with 11 jurors; he’ll hold a hearing at 9 AM (McClatchy, WaPo).

Colin Nathanson, formerly of Coto De Caza, California, on Monday pleaded guilty to six counts of wire fraud before US District Judge Cormac Carney in Santa Ana. Nathanson was president and CEO of former Orange County-based Giant Golf and Play Big Enterprises, which sold golf clubs and accessories. He admitted inducing several hundred people to invest about $28.4 million in a privately held internet technology company under false pretenses. The company, Nathanson Investment Trust, was fictitious. Instead he used the funds to prop up his golf businesses, which were losing money, and for lavish personal expenses including gambling debts.

Nathanson’s sentencing is scheduled for February 9, 2009; he faces a statutory maximum of 120 years in prison (DOJ).

Six years. Hundreds of thousands of taxpayer dollars wasted on a bogus felony prosecution. Hundreds of thousands spent by the Texas Association of Business to defend itself. And in the end, on Tuesday, the TAB pleaded guilty to a misdemeanor charge, unlawful direct campaign expenditure, and paid a $10,000 fine to make it go away. TAB admitted that it paid the salary of its president Bill Hammond when he traveled the state in 2002 in support of Republican candidates. Charges against its former lobbyist Jack Campbell were dropped. Other felony charges brought by Earle against TAB had already been thrown out by State District Judge Mike Lynch.

Ever graceless and clueless, Travis County DA Ronnie Earle claimed victory when in fact it was a repudiation of his attempt to convict the organization on felony charges. Worse, he’s still claiming that the facts supported a felony and that cost was the only reason he avoided a trial (Austin American-Statesman ).

After hearing an hour and 20 minutes of instructions from US District Judge Emmet Sullivan, the jury in the public corruption trial of Sen. Ted Stevens begin deliberating. After about four hours, they asked to leave slightly early, citing a need for “a minute of clarity;” Judge Sullivan granted the request.

In the instructions, Judge Sullivan told jurors that star prosecution witness Bill Allen’s guilty pleas in other cases have no connection to this case, and allowed jurors to consider other acts Stevens was not charged with but that were included in the testimony. He again specified to jurors what stricken evidence could not be considered but according to McClatchy, “the language in the instructions laid no blame for why the evidence wasn’t to be considered.”

Closing arguments were made on Tuesday in the public corruption case of Sen. Ted Stevens. Jurors will begin deliberations today.

Prosecutor Joseph Bottini dismissed Stevens’ explanations for not reporting renovations on his Alaska home and gifts on his financial disclosure forms, calling his claims “nonsense.” He replayed the recording in which Stevens told former VECO CEO Bill Allen that the worst that could happen to them was a little jail time, and asked “Does that sound like someone who really believes he didn’t do something wrong?”

Stevens’ attorney Brendan Sullivan told jurors that prosecutors had twisted the evidence against Stevens: “If you look at life through a filthy, dirty glass, then the whole world looks dirty.” He said that the $160,000 that Stevens paid was more than enough to cover the cost of the renovation project and that Stevens and his wife “believed they paid their debts and they didn’t think they were getting anything for free.” (McClatchy, WaPo)

Ryan McCourt and Kenneth Hartley, both former managers for McCourt Construction Company, were sentenced on October 16 by US District Judge Joseph Tauro in Boston for their roles in an overbilling scheme on Boston’s Big Dig project. Ryan McCourt was sentenced to two years probation, while Kenneth Hartley was sentenced to six months in prison and two years of supervised release. Both men pleaded guilty in July to a single-count information charging conspiracy to commit highway project fraud by making false statements regarding the cost of work performed on a federal highway project, admitting that they took part in overbilling the I-93 Tip O’Neill Tunnel project in a scheme where subcontractors charged journeyman labor rates for work actually done by apprentices (earlier). McCourt Construction also pleaded guilty and will be sentenced on November 7 (Boston Globe, DOJ).

Chief US District Judge Edward Nottingham of the District of Colorado has resigned effective October 29. Here’s the statement from Chief Circuit Judge Robert H. Henry posted on the Tenth Circuit website:

In response to complaints of judicial misconduct lodged in August 2007, the Tenth Circuit Judicial Council initiated misconduct proceedings against Judge Edward Nottingham. As additional allegations developed and subsequent misconduct complaints were filed, the Judicial Council expanded the initial misconduct proceedings.

The Judicial Council, through its appointed Special Committees, conducted a thorough and extensive investigation, interviewed many witnesses, considered voluminous documentation, and conducted two hearings. At this critical time in the investigation of these multiple complaints of misconduct, Judge Nottingham has stepped down, effective immediately, as Chief Judge of the District of Colorado, has ceased judicial duties, and has resigned his commission as a United States District Judge effective Wednesday October 29, 2008. The Council will have no further statement until Judge Nottingham’s resignation is effective.

9News, which broke the latest allegations involving Nottingham and a prostitute, has more, including speculation that he could face obstruction of justice charges.

UPDATE: The  US District Court has issued a statement (.pdf) on the resignation, announcing that Judge Wiley Daniel will be the new chief judge in the district.

Under cross examination Monday, Sen. Ted Stevens continued to insist that he was unaware that VECO paid for unbilled renovations on his Alaska home. Lead prosecutor Brenda Morris cited emails where he had praised a VECO employee for work done on the home, yet Stevens continued to deny that VECO as a company worked on his home. When Morris questioned Stevens about certain furniture he had received which was admittedly in the home for years, Stevens insisted that the furniture was there on loan and was not an undisclosed gift. Quote of the day, from Stevens: “We have lots of things in our house that don’t belong to us.” Closing arguments are scheduled for Tuesday and the case is expected to go to the jury on Wednesday (McClatchy, WaPo).

US District Judge Edward Nottingham, embroiled in misconduct allegations (earlier), notified the court that he will be off all week despite a scheduled caseload. He called in sick Wednesday through Friday of last week. However, there is no indication yet that he has resigned. 9News now reports that the FBI has contacted the former Bada Bing of Denver escort agency prostitute who filed a complaint with the Tenth Circuit; a criminal investigation has begun.

A longtime civilian purchasing agent with the National Geospatial-Intelligence Agency (part of the US Department of Defense) has admitted stealing $280,000 in agency funds by using his government P-Card to process phony credit card transactions through his girlfriend’s sham credit card processing business. Steven C. Brown pleaded guilty to one count of theft of public money earlier this month in US District Court in St. Louis. Brown and his girlfriend Teressa Shrum, a former exotic dancer and Hustler model, were indicted in June on 20 counts of theft of public money. Shrum pleaded not guilty; her trial is scheduled to begin on November 3. Under federal sentencing guidelines, Brown is likely to face 18 to 37 months in prison when he is sentenced on December 30 (St. Louis Post-Dispatch, DOJ).

A former paralegal at a South Windsor, Connectiut law firm has admitted embezzling more than $1.7 million from her employer to cover her gambling debts. Patricia Baddeley-Meehan pleaded guilty to two counts of mail fraud and one count of filing a false tax return earlier this month before US District Judge Stefan Underhill in Bridgeport. She had signatory authority on three major accounts at the Berman & Russo law firm and wrote checks from the firm’s client fund account over a four year period to pay off nearly $1.5 million in cash advances she had taken on her credit cards at several casinos and to fund other purchases. Her sentencing is scheduled for January 6, 2009; she faces a statutory maximum of 43 years in prison (Hartford Courant, DOJ).

Attorneys for Sen. Ted Stevens on Saturday filed yet another motion for dismissal, this time based on the same evidence already excluded from the trial by US District Judge Emmet Sullivan. Now the defense says that the billing records of two VECO employees that the prosecution knew were false were also presented to the grand jury which indicted Stevens: “Knowingly presenting false testimony to the grand jury is conduct fatal to the indictment and inconsistent with the liberties and due process rights the government is entrusted to safeguard.” (Roll Call)

On Sunday evening the prosecution responded by claiming that the defense motion quotes from grand jury testimony in violation of a direct order by Judge Sullivan that grand jury testimony not be revealed: “The Court’s Order could not have been clearer: Do not disseminate or publish the material to anyone – not defense counsel, not witnesses, not third parties, and certainly not the public at large.” (Roll Call)

Larry Reynolds of Las Vegas, who was arrested in California on October 3 and charged with mail fraud and money laundering in connection with the Petters case (earlier), is apparently on the verge of becoming the fourth defendant to plead guilty. The Star Tribune reports that prosecutors have now filed an information charging him with one count of money laundering conspiracy, indicating that a plea agreement is imminent.

Frank Vennes Jr., the supposedly reformed con man who is also under investigation in the case (earlier), has been allowed to have his frozen assets separated from the others and assigned to a different receiver. He has not been charged.

As a result of the August 1 ruling by the US Court of Appeals for the Third Circuit in the Cyril Wecht case (earlier), Chief US District Judge Donetta Ambrose of the Western District of Pennsylvania has revoked her 2006 rule that kept juror names secret. Although the Third Circuit decision only specifically addressed the bizarre rulings of US District Judge Arthur Schwab, it also said that an anonymous jury goes against American judicial tradition. Judge Ambrose decided that meant that juror names should no longer be protected (Pittsburgh Post-Gazette).

Sen. Ted Stevens spent all day Friday on the witness stand. Under direct examination, he reiterated the defense’s theme that his wife was in charge of the bill paying and renovations to their Alaska home since he was too busy and that he was unaware of any unbilled work on the home. He called key prosecution witness Bill Allen’s testimony that Stevens knew he was getting work done for free “just an absolute lie.” But on cross examination he told lead prosecutor Brenda Morris that Allen “was a good friend and I trusted him.” As Morris continued to grill him about inconsistencies, Stevens got progressively crankier and accusatory, at one point telling her “I think you better rephrase your question; your question is tautological.” Will the jury understand that?(MSNBC, McClatchy)

Chief US District Judge Edward Nottingham of Denver is reportedly resigning under pressure, possibly as early as today. Nottingham has been the subject of prior misconduct complaints and in March was removed from the case of former Qwest CEO Joe Nacchio (more).

The latest allegations against Nottingham involve a former prostitute who claims the judge asked her to lie to investigators and not tell them he paid her for sex. Last Friday she filed a written complaint with the US Court of Appeals for the Tenth Circuit. According to 9NEWS:

The former prostitute claims he initially paid her $300 an hour for sex, but became a VIP member after 25 visits and was then only charged $250 an hour for his weekly sexual visits.

This frequent flier discount was given by the (I’m not making this up) Bada Bing escort agency, where the woman worked in 2003 and 2004. Nottingham’s name also appeared on a list of clients from Denver Players, an alleged prostitution operation raided early this year. The Rocky Mountain News has more.

Sen. Ted Stevens spent 20 minutes on the witness stand late Thursday, denying that he ever intentionally filed false disclosure forms. He will apparently be the last defense witness. His attorney Brendan Sullivan plans to question him for at least two more hours Friday morning.

His wife Catherine Stevens testified earlier, asserting that she was the one who oversaw the renovations on their Alaska home because the Senator was too busy. She said the assumed that two VECO employess who worked on the house were being paid by Rocky Williams of Christensen Builders. Williams is the prosecution witness who was mysteriously shipped back to Alaska by the prosecution at the last minute.

(McClatchy, Reuters)

Texas’ Third Court of Appeals Chief Justice Ken Law has denied Justice Jan Patterson’s allegation that he refused to let her file a dissent to the court’s ruling last week denying Travis County DA Ronnie Earle’s latest attempt to subvert the Court’s earlier ruling in the cases of Tom DeLay associates John Colyandro and Jim Ellis (earlier).

In a reply filed Monday with the Texas Supreme Court, Law said he acted because Patterson refused to follow the court’s internal procedures which call for circulating the opinion among colleagues first to allow them to respond:

“Justice Patterson’s dissenting opinion is currently in circulation at the court and will be released together with any other opinions in the matter upon completion of that process … It is well-settled that a court of appeals may maintain internal administrative rules regarding … issuance of opinions.”

The court already refused Earle’s motion to rehear its August 22 decision en banc; the motion denied last week was Earle’s attempt to get the court to reconsider its previous refusal on grounds that Justice Alan Waldrop was biased and should have recused himself. Give it up, Ronnie.

US District Judge Ann Montgomery ordered the seizure of the Petters companies’ assets at the DOJ’s request and has frozen the personal accounts of individuals charged or under suspicion. But according to a St. Paul Pioneer Press article, she repeatedly thwarted an investor’s attempt to obtain $1.3 million he says was stolen from him by Petters Company, Inc.

Richard Hettler, who started investing with Petters in 1997, claims PCI gave him two hot checks totaling that amount in January 1998 in payment of promissory notes. He sued in 2002 but Montgomery not only dismissed it, she barred him from filing further lawsuits over the notes. In 2005, when Petters announced that he was buying Polaroid, Hettler went public with his accusations, only to have Montgomery grant a restraining order against him at Petters’ request. And in Decemeber of 2006, Montgomery granted a Petters motion to hold Hettler in contempt of court for posting “inflammatory” material online, and ordered the material removed.

There’s much more; read the whole story here.

When we last visited the Ronnie Earle dog-and-pony show, the Travis County DA had filed a motion asking Texas’ Third Court of Appeals to reconsider its August 22 ruling (earlier) 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.

Earle’s target is Justice Alan Waldrop, who wrote the decision. That’s because Waldrop, before he was elected to the court, once dared to call a civil lawsuit against Colyandro and Ellis “politically motivated.” At the time, Waldrop was representing Texans for Lawsuit Reform, which met with Colyandro during the 2002 US congresional campaign. In the Dudley Do-Right world of Ronnie Earle, that’s prima facie evidence of corruption.

Waldrop has refused to recuse himself. And last week, the Third Court denied Earle’s motion without further explanation. Now Justice Jan Patterson, one of the Court’s two Democrats, has accused Chief Justice Ken Law of refusing to file her dissent to that ruling. Last Friday, she asked the Texas Supreme Court to intervene in the matter. Her filing claims that after she announced her intention to file a written dissent, Law instructed the court clerk not to file it. Will the Texas Supreme Court choose to get involved? Apparently there’s no state law or court rules discussing the right to file a dissent.

Bob Persons, a neighbor who looked after Sen. Ted Stevens’ Alaska home, testified on Wednesday that he never told former VECO CEO Bill Allen not to send Stevens a bill for the renovation work VECO performed on the home. Allen, the government’s key witness, previously testified that Persons told him “Ted’s just covering his ass” by requesting a bill.

Augie Paone, a carpentry contractor, testified that Allen told him to “eat” a bill for about $13,400 of work he did on the home rather than send the bill to Stevens, and to regard it as a political contribution. He said it would have been “business suicide” to disregard Allen’s wishes. On cross examination, Paone conceded that he later did more work on the home which he billed to VECO, and acknowledged that it was work that would have been noticed by Stevens.

Both Sen. Stevens and his wife Catherine are expected to testify today.

(ADN/McClatchy, Reuters)

Jury selection began Tuesday in US v. Stein et al, the tax shelter fraud trial which once had 19 defendants, including 17 former KPMG partners. What once promised to be the largest tax fraud trial ever now has four defendants remaining: former Sidley Austin LLP law partner R. J. Ruble and former KPMG LLC partners David Greenberg, John Larson and Robert Pfaff. Two of the original defendants pleaded guilty. US District Judge Lewis Kaplan in July 2007 dismissed the indictments of 13 other KPMG partners in a decision with far-reaching implications (earlier here and here). Last month Kaplan refused to dismiss the remaining indictments. The trial is expected to last three to four months (NYT, Reuters).

WCCO’s Esme Murphy reports that the assets of Tom Petters’ co-defendants have now been frozen by a federal judge. That would be US District Judge Ann Montgomery, who previously froze the assets of the Petters companies and Tom Petters personally. Attorney (and former AUSA) Doug Kelley, the court-appointed receiver, will be handling all the accounts.

The story identifies the co-defendants as Deanna Coleman, Robert White, James Wehmhoff, Larry Reynolds, Michael Catain and Frank Vennes. However, although Wehmhoff and Vennes were identified in the FBI affidavit, to our knowledge they have yet to be charged.

Meanwhile, Tom Petters’ attorney Jon Hopeman said he expects a grand jury indictment to be handed down early next month (Star Tribune).

US District Judge Emmet Sullivan on Tuesday denied a defense motion (earlier) to quash a DOJ subpoena from September 15 demanding emails and other documents from Mayer Brown LLP, where Stevens’ wife, Catherine Stevens, is a partner. Although the prosecution has rested, Catherine Stevens is listed as a potential defense witness. If there’s anything in those documents that could be problematic on cross examination, it could put the brakes on defense plans to have her testify.

Sen. Orrin Hatch (R-Utah) testified on Tuesday as a character witness, calling Stevens “one of the true lions of the Senate” and “totally honest, totally straightforward.” Hatch admitted on cross examination that he was unfamiliar with the case. Stevens said that he intends to take the stand, possibly as early as today. The defense could rest as early as late today or Thursday and the case could go to the jury by next Tuesday.

(Reuters, Anchorage Daily News)

As expected (earlier), former Enron Broadband Services division CEO Joseph Hirko pleaded guilty on Tuesday to one count of wire fraud, admitting that he misled investors at Enron’s January 2000 analyst conference by announcing that a new operating system on Enron’s broadband network was completed when it was actually still under development. Hirko agreed to serve a prison sentence of 12 to 16 months; he will also forfeit $7 million in cash and $1.7 million in deferred compensation to the government, which represents what he gained when stock prices rose following the announcement. US District Judge Vanessa Gilmore scheduled his sentencing for March 3, 2009 (Houston Chronicle).

Gregory King of Fairfield, California was sentenced last week to two years in prison by US District Judge Lawrence Karlton in Sacramento. He was also ordered to pay over $69,000 in restitution. On June 10 King pleaded guilty to two counts of transmitting code to cause damage to a protected computer (earlier). He admitted operating a 7,000-computer botnet and using it to launch distributed denial-of-service (DDoS) attacks against the Killanet and CastleCops forums. He was caught in the DOJ and FBI’s “Operation Bot Roast” operation (DOJ).

The Houston Chronicle’s Kristen Hays reports that former Enron Broadband Services division CEO Joseph Hirko is expected to plead guilty on Tuesday to a single count of wire fraud before US District Judge Vanessa Gilmore in Houston. The plea agreement calls for Hirko to serve 12 to 16 months in prison. Hirko and former broadband divison software executive Rex Shelby were scheduled to be retried starting December 1 (earlier). The two men and three others were accused of deceiving investors in connection with a failed broadband venture. Hirko, Shelby and former division strategic planning executive Scott Yeager were tried in 2005 and acquitted on some counts, but the jury deadlocked on other counts. Gilmore refused to dismiss those counts. Shelby is still scheduled for trial in December, while Yeager’s retrial is set to begin on January 12, 2009.

Petters Company Inc. (PCI) and Petters Group Worldwide filed for Chapter 11 bankruptcy in petitions filed Saturday night by attorney Doug Kelley, the court-appointed receiver. PCI is the entity directly involved the fraud allegations; Petters Group Worldwide is the parent of the various Petters-owned or controlled businesses, including Polaroid and Sun Country Airlines (Star Tribune). Sun Country filed Chapter 11 earlier last week.

Cheryl Mau, VP of marketing for Polaroid, said yesterday that Polaroid will “continue to build and ship product,” indicating that the company’s plans haven’t changed. And perhaps Polaroid will be unaffected. But the now-released FBI affidavit (.pdf) lists Polaroid CEO Mary Jeffries as the recipient of $1 million in PCI assets in December 2007 from one of the accounts allegedly involved in the fraud. Jeffries was previously COO and President of Petters Group Worldwide until being named to the Polaroid post in April 2008. Former Polaroid CEO Thomas Beaudoin and another Polaroid employee also appear on the list of recipients (pp. 20-21). Stay tuned.

UPDATE/CORRECTION: Contrary to what we posted earlier, Fingerhut is not presently controlled or owned by Petters Group Worldwide. As explained in this press release: “[Fingerhut] is not dependent for any funding from Petters Group Worldwide or any of its affiliates (PGW) and hasn’t been since February 2004. PGW is a minority, passive stockholder, and has not been involved in the day-to-day operations of the company since that time.”

Two former executives of Seattle-based privately held software company Entellium Corporation were charged with wire fraud on October 8 in US District Court in Seattle: Paul Thomas Johnston, former CEO, and Parrish Jones, former CFO. The two men founded the company in 2004. Entellium makes and sells programs which help companies track sales and customer information.

Johnston and Jones allegedly grossly overstated revenue from the beginning in order to attract about $50 million in private investment funds, including $19 million from Ignition Partners, a Bellevue,Washington venture capital firm. Late last month a human resources VP discovered the alleged fraud, which led to a quick resignation by Johnston and Jones. An attorney for the company reported it to the FBI (PC World, DOJ).

The fraud trial of former National Century CEO and co-founder Lance Poulsen is recessed until October 20 due to prior commitments by US District Judge Algenon Marbley. The government’s key witness, former Executive VP for Compliance Sherry Gibson, testified on Thursday and Friday that she had falsified records at Poulsen’s specific request “report by report, and sometimes line by line” dating all the way back to 1992. Among other things, she said she was told to show falsify the balances shown in the company’s reserve accounts, and she explained how the company would deceive auditors by creating false backup reports and by varying audit dates for different entities in order to shuffle funds between accounts.

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 trial of five other executives who were convicted in March, and also in the March trial of Poulsen and his associate Karl Demmler for witness tampering. They were convicted of trying to bribe her to change her testimony; Poulsen was sentenced to 10 years in prison in August in that case.

Earlier in the week, FBI Special Agent Jeffrey Williams testified that investigators discovered $1.3 billion in unsecured loans to companies owned or controlled by Poulsen and other National Century principals.

(Columbus Dispatch, Columbus Bizjournal)

Attorneys for Sen. Ted Stevens on Saturday filed a motion to quash (.pdf) a DOJ subpoena from September 15 demanding emails and other documents from Mayer Brown LLP, where Stevens’ wife, Catherine Stevens, is a partner. Prosecutors want emails between the Senator and Mrs. Stevens as well as her correspondence with 37 other people and companies regarding anything of value that may have been provided to the couple. Stevens’ attorneys called the government’s renewed request for more documents “a last-minute fishing expedition” and impermissibly overbroad. The motion also claims that any communications between the Senator and Mrs. Stevens are privileged. The trial resumes Tuesday (Anchorage Daily News).

Friday developments in the public corruption trial of Sen. Ted Stevens:

• US District Judge Emmet Sullivan ruled that the defense is limited to five character witnesses.
• Former Secretary of State Colin Powell on Stevens: “As we say in the infantry, this is a guy you would take on a long patrol.” On cross-examination, Powell admitted that he had never visited Stevens’ Alaska home and was unfamiliar with the case.
• The principals of two construction businesses that performed work on Stevens’ Alaska home testified that all bills were paid promptly and never ignored.
• A private appraiser and two assessors with the Municipality of Anchorage testified that the value of Stevens’ home after the renovations could not have equaled the value the government claims Stevens received in free labor and gifts.

(CQ Politics, McClatchy)

Although US District Judge Emmet Sullivan on Wednesday tossed out the time card records of VECO employee Dave Anderson, saying the government knew they were falsified, he did allow Anderson to testfy on Thursday about the work he did on Sen. Stevens’ home. Anderson, nephew of former VECO CEO Bill Allen, said he was at the home as many as six days a week during parts of 2000 and 2001. But he also said that Stevens wasn’t around much and that the renovation was “basically Bill’s thing. Bill [Allen] wanted to do it, take care of Mr. Stevens.”

The defense did not cross examine Anderson; the prosecution rested. Judge Sullivan rejected the prosecution’s plea to not issue jury instructions which will explain to the jury that the time records are being tossed out due to government misconduct; he also denied the defense’s motion for acquittal.

The defense’s first witness was Stevens’ longtime colleague Sen. Daniel Inouye (D-Hawaii), who testified to Stevens’ good character: “I can assure that his word is good, as far as I’m concerned, it’s good enough to take to the bank.” Former Secretary of State Colin Powell is expected to testify on Friday.

(CQ Politics, Politico, McClatchy)

A three-judge panel of Texas’ Fourth Court of Appeals on Wednesday unanimously upheld the conviction and sentence (.pdf) of suspended attorney Ted H. Roberts of San Antonio. Roberts was convicted in March 2007 on three counts of theft by deception and coercion and sentenced to five years in prison; he was acquitted on two other counts. His wife Mary, also an attorney, was convicted on five counts at her trial and sentenced to 10 years probation. Ted Roberts was accused of using Rule 202 petitions threatening civil litigation to coerce payments from men who had affairs with Mary; the deception was telling them the money would go to charity when it actually went to him and his wife. Roberts’ primary arg