Former CIA executive director Kyle “Dusty” Foggo was sentenced to 37 months in prison on Thursday by US District Judge James Cacheris in Alexandria. Foggo pleaded guilty in September to one count of honest services wire fraud in connection with the Brent Wilkes case (earlier). The sentence was the maximum allowable under his plea agreement (NY Times).
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Timothy Balducci and Steve Patterson were each sentenced to 24 months in prison on Friday by Senior US District Judge Neal Biggers in Oxford for their roles in the first Dickie Scruggs case involving the attempted bribery of Judge Henry Lackey. In both cases it was a downward departure from guidelines. Folo reports the real news here: AUSA Bob Norman needs both men to testify in person on March 23 before a grand jury in the ongoing investigation. Both men were ordered to report to prison on March 25 (Daily Journal, Clarion-Ledger).
Here (h/t folo). One count of conspiracy, one count of honest service mail fraud, two counts of mail fraud and one count of obstruction of justice. The only other name on the indictment was Dickie Scruggs, whose named was removed in connection with his plea on Tuesday. However, count one names four other co-conspirators: Ed Peters, Joey Langston, Tim Balducci and Steve Patterson. Langston has already been sentenced to prison and Ed Peters has surrendered his law license and forfeited his proceeds, while Balducci and Patterson will be sentenced tomorrow for their roles in Scruggs I.
The indictment is still sealed this morning but Judge Bobby DeLaughter was arraigned before US Magistrate Judge S. Allan Alexander in Oxford and pleaded not guilty to all charges. We do know that it’s a five-count indictment, Daily Journal says it will be unsealed later today. Tom Freeland at folo reports that DeLaughter was in leg irons and handcuffs. More: Clarion-Ledger.
Dickie Scruggs pleaded guilty yesterday in US District Court in Aberdeen to a one count information charging him with honest services mail fraud. He was immediately sentenced to seven years in prison by US District Judge Glen Davidson. The sentence will run concurrently with the five year sentence he is already serving in connection with Scruggs I.
It was announced that his name had been removed from the list of names in a sealed indictment, confirming rumors that a sealed indictment exists, possibly containing more than just Judge Bobby DeLaughter’s name. USA Jim Greenlee afterwards said it would be unsealed shortly.
Scruggs has become a cooperating witness, and Tom Freeland at folo quotes AUSA Bob Norman: “His cooperation has opened several doors we need to investigate.” Could one or more of them lead to Washington?
From the courtroom: Tom Freeland at folo, Alan Lange at Y’all Politics. Also see: Daily Journal, Clarion Ledger.
The Clarion Ledger reports that he’ll be appearing on Tuesday in US District Court in Oxford to enter a guilty plea in the ongoing second case (h/t folo). He’s apparently en route from prison in the custody of the US Marshals Service. Meanwhile, Scruggs I defendants Tim Balducci and Steve Patterson will be sentenced next Friday.
With Joey Langston sentenced, the other shoe is about to drop in Scruggs II. On Tuesday, WLBT reported that former Hinds County DA Ed Peters has surrendered his law license. Tuesday evening, NMC at folo posted (.pdf) an order from US Magistrate Judge S. Allan Alexander seizing $425,000 from Peters; the funds are already in the possession of the United States Marshals Service:
The court is satisfied that based on the Verified Complaint For Forfeiture In Rem, as well as the Verification of the Complaint by Samuel D. Wright, Assistant United States Attorney for the Northern District of Mississippi, United States Department of Justice, filed with this court on December 31, 2008, there is probable cause to believe that the Defendant property is subject to forfeiture pursuant to 18 U.S.C. § 981(a)(1)(c) because it is property that constitutes or is derived from proceeds traceable to violations of 18 U.S.C. § 1343 (Wire Fraud), which constitutes a “specified unlawful activity” by virtue of 18 U.S.C. § 1956 (c)(7)(A) and 18 U.S.C. § 1961 (1), collectively.
The Daily Journal has more here on the underlying complaint. Nothing has been announced yet, but it’s apparent that Peters has reached a plea agreement with federal prosecutors. This means that the hammer is about to drop on Judge Bobby DeLaughter and (again) on Dickie Scruggs. Will Scruggs II also ensnare Trent Lott and the mysterious P.L. Blake? Stay tuned.
Chief US District Judge Michael Mills on Tuesday sentenced Joey Langston to 36 months in prison for his role in the public corruption scandal now known as “Scruggs II” (Daily Journal, Clarion-Ledger). Langston pleaded guilty in January to a one-count information charging him with bribing Judge Bobby DeLaughter. He received the maximum sentence allowable under his plea agreement despite a a motion for downward departure filed by prosecutors last month citing his extensive cooperation. The implications for Bobby DeLaughter and Ed Peters (not to mention Dickie Scruggs) are ominous.
More: the Daily Journal hints at upcoming Scruggs II indictments, NMC’s courtroom commentary at folo, sentencing transcript (.pdf).
Giving Thanks by Jennifer James in the Los Angeles Times.
If only Beltway politicians could understand as well as a child!
In Sherman, Texas on Tuesday, US District Judge Richard Schell sentenced James Sandlin of Sherman to three years in prison in a bank fraud case. A jury convicted Sandlin in June on two counts of submitting a false statement to a federally insured financial institution (earlier); the indictment charged that he failed to disclose a $996,000 debt on financial statements he submitted to a Sherman bank (DOJ, AP).
Sandlin is former business associate of US Rep. Rick Renzi (R-Ariz.) and was indicted with Renzi in February in a different case (earlier).
UD District Judge Peter Messitte on Tuesday sentenced former Prince George’s County Schools Superintendent Andre Hornsby to six years in prison for illegally steering district contracts to LeapFrog Enterprises, a company run by his now ex-girlfriend, in exchange for kickbacks. Hornsby was convicted in July on six of the 22 public corruption-related counts he faced: three counts of honest service wire fraud and one count each of evidence tampering, witness tampering and obstruction of justice (earlier). Although the DOJ press release describes a second scheme in detail, the three wire fraud counts on which he was convicted all relate to the LeapFrog allegations (Baltimore Examiner).
US District Judge Emmet Sullivan on Wednesday scheduled a hearing for next Monday to consider a request by attorneys for Sen. Ted Stevens to question prosecution witness Dave Anderson about the letter he sent to the court and lawyers for both sides (earlier here and here). Anderson, a former VECO employee and nephew of former VECO CEO Bill Allen, is is seking to “clarify” his testimony at trial that he had not been offered immunity in exchange for his testimony against Stevens (WaPo).
Bloomberg reports that former NatWest investment banker David Bermingham was flown to the UK on November 21 to finish serving his 37 month prison sentence for wire fraud in connection with a scheme devised by former Enron CFO Andrew Fastow. Bermingham entered prison in May. All three bankers were cleared to return on November 6 (earlier). In the UK, unlike in the US federal system, Bermingham will automatically be eligible for parole after serving half his sentence.
A federal jury in Manhattan last week convicted William Spencer of Oakland, California of bankruptcy fraud in connection with the attempted purchase of Hawaiian Airlines out of bankruptcy in 2003. Spencer is the pastor of the House of Truth in Oakland. He and his associate Paul Boghosian were indicted in April 2005 on charges that they attempted to defraud the US Bankruptcy Court for the District of Hawaii by providing false documentation claiming that their Hawaiian Investment Partners Group could provide $500 million in financing to reorganize the airline. They then allegedly used the false documentation to solicit investors, since they apparently didn’t actually have any money. Boghosian pleaded guilty to bankruptcy fraud on October 29. Sentencing for both men in scheduled for January 30, 2009 before US District Judge Loretta Preska, who presided over the trial (Reuters, DOJ).
Eaton v. Frisby is a civil trade secrets case not directly related to Dickie Scruggs as far as we know, but it came to light as a result of what’s now known as the “Scruggs II” case. It’s under investigation by the FBI in connection with public corruption allegations against Hinds County Circuit Judge Bobby DeLaughter and former Hinds County DA Ed Peters. Frisby maintains that DeLaughter started ruling in favor of Eaton once Peters secretly entered the case on behalf of Eaton.
In a Monday Clarion Ledger story, Jimmie Gates reports on a report filed under seal earlier this month by David Dogan III. Dogan was appointed Special Master in the case after an earlier turn of events we covered here, when DeLaughter removed the first special master under suspicious circumstances and the replacement special master resigned.
In the report, Dogan asserts that Peters maintained improper contact with DeLaughter and recommends that emails and documents showing the communication be produced in connection with the lawsuit.
The documents to be produced show a design, and in certain cases direct evidence, of engaging in contact with Judge DeLaughter on an ex parte basis. Such conduct is not permissible and is, as a matter of law, improper.
In addition to the federal investigation, DeLaughter is the subject of a continuing investigation by the Mississippi Judicial Performance Commission, which suspended him with pay. Circuit Judge Swan Yerger is now handling the lawsuit.
Martin Bodner, former CFO of Tommy Hilfiger Handbags and Small Leather Goods Inc. (a Tommy Hilfinger licensee), was sentenced on Friday to 66 months in prison by US District Judge P. Kevin Castel in Manhattan. Bodner pleaded guilty on September 15 to a two-count information charging him with mail fraud and wire fraud (earlier); he admitted embezzling more than $19 million from the company between 2000 and 2007, largely by using his authority to secretly increase his salary and bonuses, arranging to be reimbursed for phony expenses and using company funds to pay for personal expenses. Bodner was also ordered to pay over $17.3 million restitution and to forfeit luxury items including real estate and cars (DOJ, North Country Gazette).
Althea Jackson and her husband James Jackson on Thursday were each sentenced to 30 months in prison by US District Judge Orlando Garcia in San Antonio for their roles in the theft and resale of more than 5,600 ticket vouchers from Southwest Airlines, resulting in a loss to Southwest of $800,000. The Jacksons pleaded guilty to wire fraud on February 12. Our earlier coverage (here and here) details the involvement of public officials who bought tickets; those who did have all stated that they had no knowledge that the tickets were stolen. It’s not known if the investigation is still open (Express-News, DOJ).
A superseding federal indictment unsealed on Friday afternoon includes the previous immigration and bank fraud charges against former Agriprocesssors CEO Sholom Rubashkin and adds new counts. Rubashkin now faces charges of conspiracy to harbor undocumented aliens for profit, harboring undocumented aliens for profit, conspiracy to commit document fraud, aiding and abetting document fraud, six counts of aiding and abetting aggravated identity theft, and two counts of bank fraud.
Also named are the corporation and four other management team members: Brent Beebe, Hosam Amara, Zeev Levi and Karina Freund. Amara and Levi are believed to have fled to Israel after the May immigration raid at the Postville, Iowa kosher meat processing plant. Amara and Freund were named in an earlier indictment. The Iowa Independent has a full listing of the charges and background.
Former Enron Task Force co-lead prosecutor John Hueston says that the SEC’s insider trading case against Mark Cuban is flimsy, that Cuban isn’t an insider, and that he wouldn’t have brought the case:
….the case really appears to be just a he-said-she-said case. And so, I believe Mr. Cuban has a very strong factual defense before he even gets to any legal arguments. For an insider trading case, he’s not an insider at all. He is essentially a stockholder, essentially pitched to make an additional investment. He was disgusted by that pitch and the direction of the company and sold his stock. And he did so in a very open way consistent with someone who had nothing to hide.
And the SEC in a target-driven matter has now drummed up a case, based on pressured and apparently uncorroborated testimony of one other person on a phone line. That is certainly not a criminal case. And it makes for a risky and flimsy case even under a civil standard. It makes me wonder why the SEC has decided to file this case. And I would not be surprised at all if Mr. Cuban took the SEC to trial over this case.
Hueston is now a partner with Irell & Manella (Corporate Crime Reporter).
The Columbus Dispatch reports that the Office of Congressional Ethics, created earlier this year by the House, will be led by AUSA Leo Wise (.pdf), who successfully prosecuted former National Century Financial Enterprises CEO Lance Poulsen in both his fraud and witness tampering trials. Wise was named staff director and chief counsel. He’ll have his hands full.
VECO employee Dave Anderson, nephew of former VECO CEO Bill Allen, told jurors in the public corruption trial of Sen. Ted Stevens that he was testifying without a formal grant of immunity. He now says he had an immunity agreement with prosecutors and that he “would not have given the same testimony” without it (we briefly discussed his testimony here). His new statements came in a November 15 letter to US District Judge Emmet Sullivan and attorneys for both sides, and were publicly disclosed yesterday in a defense filing that accused prosecutors of suborning perjury.
Prosecutors filed a response later yesterday, saying they have proof that Anderson’s new statements are false and proof of “Mr. Anderson’s collusion with an interested party in the preparation and transmission of Mr. Anderson’s letter.” (WaPo)
After a Wednesday bond hearing in Cedar Rapids, Iowa, US Magistrate Judge Jon Scoles ruled on Thursday that former Agriprocessors CEO Sholom Rubashkin must remain in federal custody pending his trial on bank fraud charges. Scoles ruled that Rubashkin is a serious flight risk, citing substantial evidence against Rubashkin and the $20,000 in cash and passports found in a travel bag in the Rubashkin home. Agriprocessors is the giant kosher slaughterhouse in Postville, Iowa that was raided in May by immigration officials, resulting in the arrest and detention of about 400 illegal immigrants.
Rubashkin was arrested last Friday on the bank fraud charges (earlier); he is accused of diverting millions of dollars in customer payments that were part of First Bank’s collateral and instructing an employee to delete evidence of the scheme from the company’s computers. His arrest came just one day after he posted bond on criminal immigration charges resulting from the May raid. His trial on the immigration charges is scheduled for January 20, but no date has been scheduled on the bank fraud charges (Des Moines Register, Iowa Independent).
Meanwhile tensions are reportedly very high in Postville, where the plant sits idle and workers have not been paid as promised. Threats of violence have been reported (Iowa Independent, Failed Messiah).
Trevor Blackann, a former legislative assistant to Sen. Kit Bond (R-Mo.) and Rep. Roy Blount (R-Mo.), on Thursday pleaded guilty before US District Judge Richard Roberts in DC to making a false statement on his 2003 tax return. He admitted failing to report at least $4,100 in illegal gifts that he received from lobbyists connected with Jack Abramoff, including a paid trip to see a 2003 World Series game. He also “admitted knowing that the World Series trip and other tickets, meals and drinks provided by the lobbyists were given to him for, or because of, official action the lobbyists were seeking from Blackann.” The time frame of the activities correspond to his employment with Sen. Bond. No sentencing date was announced (DOJ, The Hill).
A federal jury in Pittsburgh on Wednesday convicted former Pennsylvania Superior Court Judge Michael Joyce on two counts of mail fraud and six counts of money laundering for giving false information to colllect an insurance settlement. Joyce collected $440,000 from two insurance companies after a slow-speed traffic accident in August 2001; evidence presented at trial showed that he used his official letterhead as part of his effort to obtain the settlement. He claimed to have debilitating neck and back injuries, but later engaged in physical activities in public, including golfing, scuba diving, rollerblading and piloting airplanes. Joyce was suspended last year after being indicted; he chose not to run for reelection. His sentencing is scheduled for March 10, 2009 (Law.com, AP).
Longtime Massachusetts State Senator Dianne Wilkerson, a Democrat from Roxbury, was indicted on Tuesday by a federal grand jury in Boston on eight counts of of attempted extortion under color of official right for allegedly accepting $23,500 in cash payments between June 2007 and October 2008. Wilkerson was arrested on October 28 after being photographed by an undercover agent stuffing a $1000 cash payment into her bra (earlier). The bribes were allegedly paid to help secure a liquor license for a nightclub and to push legislation to transfer public land for a proposed private development. Wilkerson resigned her seat yesterday. The investigation remains active (DOJ, Boston Globe).
The Daily Journal reports that Joey Langston will be sentenced for his role in “Scruggs II” on December 16 before Chief US District Judge Michael Mills. Langston pleaded guilty in January to a one-count information charging him with bribing Judge Bobby DeLaughter. I anticipate more pleas and/or indictments shortly. Here’s our recent coverage.
Attorneys for Mark Cuban on Tuesday fired back at the SEC on Cuban’s Blog Maverick, disputing the SEC’s claim that Cuban agreed to keep confidential the information he was given about a proposed stock sale at Mamma.com Inc. The entry excerpts their transcribed interview with former Mamma.com CEO Guy Faure:
CHRISTOPHER CLARK :
1) Q- We spoke earlier about you were telling Mr. Cuban in words or substance : “I have confidential information for you”.
A- Right.
2) Q- Do you recall anything Mr. Cuban said in response or reply to that statement by you ?
A- No, I do not.
They also ask:
Why did the SEC end their multi-year investigation of Mamma.com Inc. for alleged securities laws violations days before interviewing present and former Mamma.com Inc. executives about this matter? Was the timing a coincidence? We think not.
Reuters has more.
The founder and CEO of PurchasePro, Charles E. “Junior” Johnson of Las Vegas, on Friday was sentenced to 108 months in prison for securities fraud by US District Judge Liam O’Grady in Alexandria, Virginia. Johnson was convicted on May 15 of conspiracy, securities fraud, witness tampering, and obstruction in connection with a scheme to falsely inflate the now-defunct company’s first quarter 2001 revenue to meet Wall Street’s expectations. PurchasePro’s primary product was a business-to-business “marketplace license” sold through its business partner, AOL. Johnson was considered the mastermind of the scheme; six other PurchasePro executives were convicted and AOL paid $210 million to settle charges aiding and abetting securities fraud (DOJ, AP).
McClatchy reports that Senate Republicans decided to postpone the vote they had plannned yesterday to decide whether to toss convicted Sen. Ted Stevens out of the Senate Republican Conference until his Senate race is resolved. The latest results (ADN/McClatchy) have Stevens’ Democratic opponent, Anchorage Mayor Mark Begich, ahead of Stevens by 3,724 votes with only about 2,500 absentee ballots left to be counted.
It’s been a bad year for former Agriprocessors CEO Sholom Rubashkin. The giant kosher meat processing plant he ran for years was raided by ICE in May, resulting in the arrest and detention of about 400 illegal immigrants and his removal as CEO. The Postville, Iowa plant is owned by his father, Aaron Rubashkin. On October 30, Sholom Rubashkin was arrested and charged with charged with with conspiracy to harbor undocumented aliens for profit, aiding and abetting document fraud and aiding and abetting aggravated identity theft. On November 5, Agriprocessors filed Chapter 11 bankruptcy.
Last Friday, he was rearrested, this time on charges of bank fraud. He’s accused of defrauding a bank on Agriprocessors’ $35 million line of credit by diverting millions of dollars in customer payments that were part of the bank’s collateral. He also allegedly instructed an Agriprocessors employee to delete evidence of the scheme from the company’s computers.
Rubashkin had been released on bond Thursday on the October 30 immigration charges, but he was taken back into custody early Friday. After an initial appearance later on Friday before US Magistrate Judge Jon Scoles, he was ordered held pending a detention hearing scheduled for Wednesday (DOJ, Des Moines Register).
After a two week trial in Tacoma, on Thursday a federal jury convicted Charles Nolon Bush of Port Orchard, Washington on 27 counts including securities fraud, wire fraud, mail fraud and money laundering in connection with a Ponzi scheme he allegedly operated between 1998 and 2002. Bush had left the US in 2002 and was arrested in Poland after being indicted in 2006. He was extradited in 2007. Bush was accused of accepting $35 million through three entities from hundreds of investors with promises of high yields, then diverting most of it to fund a lavish lifestyle and pay off early investors. He faces a statutory maximum of 20 years in prison on each count; sentencing is scheduled for February 6, 2009 before US District Judge Benjamin Settle (DOJ, Bizjournal).
When WexTrust Capital LLC principals Steven Byers and Joseph Shereshevsky were arrested in August and charged with conspiracy to commit secuties fraud (earlier), we speculated that more criminal counts might be forthcoming due to the massive civil fraud charges filed by the SEC which allege a $255 million Ponzi scheme. Last week, Byers and Shereshevsky were indicted on one count of securities fraud and one count of conspiracy in connection with the same $9.2 million fraud scheme alleged when they were arrested. No further criminal activities are included in the indictment — at least, not yet (DOJ, Virginian-Pilot).
October 13: Mark Cuban launches Bailout Sleuth, a blog which exposes the secrecy surrounding the government TARP bailout and documents the massive giveaway of federal funds.
November 17: The SEC files a civil complaint (.pdf) charging Cuban with insider trading, alleging that he avoided a loss of $750,000 by selling his shares of Mamma.com Inc. based on non-public information.
Coincidence? Cuban’s response on his Blog Maverick claims that the matter has been before the SEC for two years. Why now?
Cuban calls it “a product of gross abuse of prosecutorial discretion.” It’s also pocket change to him. Bloomberg has more.
TIME reported on Friday that it has obtained internal documents showing that USA Leura Canary continued to direct the prosecution of former Alabama Governor Don Siegelman long after she formally recused herself. Canary’s husband Bill is a close political ally of Alabama Governor Bob Riley, who defeated Siegelman in 2002 and easily won reelection against him in 2006 after he was convicted in mid-campaign. The documents are among those provided by whistleblower Tami Grimes, who was prominently featured in 60 Minutes’ feature on the Siegelman case. Grimes also provided evidence of contact between a juror and a member of the prosecution team.
The US Court of Appeals for the Eleventh Circuit will hear oral arguments December 9 in the appeal of Siegelman and co-defendant Richard Scrushy. The DOJ and the House Judiciary Committee continue to investigate. The Press-Register has more.
The “other” criminal matter involving Dickie Scruggs is the case in which Joey Langston pleaded guilty in January to bribing Judge Bobby DeLaughter via former Hinds County DA Ed Peters on behalf of Scruggs to influence the Wilson v. Scruggs civil suit. Prosecutors are referring to this case as “Scruggs II”. We’ve heard nothing recently until last week, when prosecutors filed a motion for downward departure from the maximum sentence permitted under Langston’s plea agreement. The motion was supposed to be filed under seal; it was inadvertently made public and quickly withdrawn.
While it’s no secret that Langston pleaded guilty (.pdf) and agreed to cooperate in exchange for a maximum sentence of 36 months, the withdrawn filing contained details not intended to be made public. Still, we can tell you that the case is very much alive (Clarion-Ledger, AP/Sun Herald).
The US Supreme Court on Friday agreed to hear the appeal of former Enron Broadband Division strategic planning executive Scott Yeager, who is fighting a retrial on insider trading charges. Yeager’s retrial on 13 onsider trading and money laundering counts had been scheduled for next March before US District Judge Vanessa Gilmore in Houston, but the Supreme Court is not expected to hear arguments before February or March. Yeager was acquitted in 2005 on conspiracy and fraud counts but jurors were hung on insider trading and money laundering counts. The essence of his appeal is that he couldn’t have engaged in insider trading and money laundering since he’s not guilty of participating in the alleged conspiracy and fraud. In March, a three-judge panel of the Fifth Circuit ruled that Gilmore was correct in refusing to dismiss the counts.
The Court’s list of accepted cases didn’t include the appeal of Yeager’s co-defendant Rex Shelby, former broadband divison software executive. Shelby’s attorney held out hope that he won’t be on Monday’s rejected list. His retrial is scheduled for January. A third co-defendant, Joseph Hirko, pleaded guilty last month to one count of wire fraud and sgreed to serve a sentence of 12 to 16 months in prison (Houston Chronicle).
McClatchy reports that Senate Republicans will hold a secret vote on Tuesday and decide whether to toss convicted Sen. Ted Stevens out of the Senate Republican Conference. Meanwhile, at the Washington Post, jurors explain how badly Stevens hurt himself by taking the stand in his defense.
Robert Brodzin, former CFO of for Shriners Hospital for Children – St. Louis, was sentenced on November 7 to 41 months in prison by US District Judge Catherine Perry for embezzling $828,000 from the hospital between 2004 and 2008. Brodzin pleaded guilty in August to one count of mail fraud (earlier). He admitted stealing the funds by billing the hospital for services that were never rendered by three dummy companies he had set up. He used the money for luxuty items and and for his tanning salon business (DOJ, Bizjournal).
Bill Weimar, former owner of now-defunct Alaska-based Allvest, Inc., was sentenced on Wednesday by Chief US District Judge John Sedwick in Anchorage to six months in prison on public corruption charges, to be followed by six months home detention. Weimar pleaded guilty in August to a two count information charging him with conspiracy to commit honest services mail and wire fraud and structuring financial transactions (earlier). He admitted conspiring in 2004 with an unnamed consulting firm to funnel $20,000 in illegal payments to Jerry Ward, a former state senator who was trying to regain his seat in 2004; Ward allegedly would have supported a private prison project in which Weimar held a contingent interest. VECO (of Ted Stevens infamy) was initially a partner with Allvest in the proposed prison project but was apparently no longer involved by the time of the conspiracy (Anchorage Daily News, DOJ).
Raffaello Follieri, the recently convicted former boyfriend of actress Anne Hathaway (earlier), is not happy with conditions in the federal prison in Brooklyn and wants to go back to the facility in Manhattan where he was held pending trial (MSN/AP). Hopefully his fellow inmates won’t read the story.
Raoul Weil, chairman and CEO of UBS’ global wealth management and business banking division, on Wednesday was indicted by a federal grand jury in the Southern District of Florida on charges of conspiring to defraud the IRS by helping US citizens avoid paying federal income tax. The indictment (.pdf) comes as part of the DOJ’s ongoing investigation of UBS’ cross-border banking business. Weil’s division provides cross-border services to about 20,000 clients with assets of about $20 billion. The indictment alleges that about 17,000 of those clients concealed their identities and Swiss bank accounts from the IRS, and that UBS assisted them by failing to report Form 1099 information to the IRS. Weil is accused of facilitating this and failing to stop it (Bloomberg, DOJ). UBS has issued a press release stating that Weil will relinquish his duties.
In a unanimous decision (.pdf), a three-judge panel of the US Court of Appeals for the Fourth Circuit on Wednesday affirmed the public corruption indictment of US Rep. William Jefferson (D-La.), upholding the US District Court’s earlier decision refusing Jefferson’s motion to dismiss most of the 16 counts he faces. Jefferson contended that the grand jury could have heard some protected Speech or Debate Clause materials, claiming that any mention of Speech or Debate Clause material in a grand jury proceeding mandates the dismissal of all counts related to that evidence. The court rejected this argument, ruling that even if the grand jury heard some testimony about Jefferson’s congressional activities it wouldn’t be enough to overturn the indictment:
The principle of grand jury independence is firmly rooted and jealously protected in our federal system of justice. Because it is an independent investigative body, the federal courts have consistently accorded a grand jury “wide latitude to inquire into violations of criminal law.”
Barring an appeal to the US Supreme Court, Jefferson’s is expected to stand trial early next year (Times-Picayune).
Viktor Savtyrev of Old Bridge, New Jersey was arrested on Monday and charged with two counts of violating a federal cyberextortion statute for allegedly threatening to hack the computer system of his former employer if the company didn’t meet his demands for money, better medical coverage and a good job reference. Savtyrev, a systems administrator, was one of 14 employees laid off on November 5 by Third Avenue Management, a Manhattan-based mutual fund manager. The next day, he allegedly emailed the company attorney and three employees, threatening to breach and damage the company’s computers if his demands weren’t met. He repeated his threats in an additional email and two phone conversations which were recorded, at one point saying he would get “comrades from Belarus” to help him hack the company’s servers. Savtyrev is a Russian but has legal permanent resident status — at least for now. At his initial hearing on Monday in US District Court in Newark before US Magistrate Judge Patty Shwartz, Savtyrev’s attorney called it “an idle threat.” A bail hearing is scheduled today. He can probably forget about getting that good job reference (Newark Star-Ledger, Computerworld).
Jeffrey Koger of Herndon, Virginia, pleaded guilty to wire fraud and tax evasion counts on Monday before US District Judge Leonie Brinkema in Alexandria. Koger was the formerly the CFO of his father’s real estate management firm, Koger Management Group, which managed about 400 homeowners associations. He admitted embezzling about $3 million from a bank account that received dues from homeowners and distributed them to the various associations. On about 140 occasions between 2003 and 2006 he diverted funds to his own accounts; among other things, he invested $733,000 of the embezzled funds in a restaurant and paid a contractor almost $500,000 to remodel his house and a fitness center. He also admitted failing to pay more than $775,000 in income taxes during that period.
The investigation began after Robert Koger, the father, told Fairfax City police that he suspected his son had embezzled $800,000 before leaving the firm in late 2006. The firm filed for bankruptcy in July 2007 but Robert Koger has said he intends to repay the associations.
Jeffrey Koger’s sentencing is scheduled for February 6, 2009; he faces a maximum of 25 years in prison, but he also faces a Virginia state trial later in February on multiple violent felony charges in connection with a shootout with police early this year (DOJ, WaPo).
Grant Gaspard of Olympia, Washington, a former assistant fire chief, on Friday pleaded guilty to mail fraud before US District Judge Ricardo S. Martinez in Seattle. In an indictment unsealed in August, Gaspard was charged with embezzling over $500,000 from South King Fire & Rescue, where he was in charge of financial and procurement operations. Gaspard admitted operating an elaborate scheme involving fraudulent purchase orders and a fake company; he used the embezzled funds to buy luxury goods. He also admitted submitting phony documentation to cover up unauthorized purchases on his fire district credit card. Gaspard faces a probable sentence of 33 to 41 months in prison when he is sentenced on January 30, 2009 (Tacoma News Tribune, DOJ).
McCourt Construction Company was sentenced on Friday to a $500,000 fine and three years probation by US District Judge Richard Stearns in Boston for its role in an overbilling scheme on Boston’s Big Dig project. Stearns also ordered the company to pay $600,000 restitution to the Massachusetts Turnpike Authority. McCourt pleaded guilty earlier this year to conspiracy to defraud the US government with respect to claims on a federal highway project. Two of its supervisors pleaded guilty conspiracy to commit highway project fraud by making false statements and were sentenced last month. The charges arose from overbilling on the I-93 Tip O’Neill Tunnel project. McCourt admitted participating in over 1500 instances of overbilling between 2002 and 2005 in which subcontractors charged journeyman labor rates for work actually done by apprentices (DOJ, Boston Bizjournal).
US District Judge Sean McLaughlin held a status conference on Friday afternoon in the pending retrial of former Allegheny County Coroner Cyril Wecht on public corruption charges. McLaughlin was named to handle the case only a week earlier. AUSA James Wilson told McLaughlin that the government plans to file for a change of venue, claiming bias due to media coverage will make it impossible to select jurors. That’s right — the government wants a change of venue. Considering the conduct of US District Judge Arthur Schwab and former lead prosecutor Stephen Stallings, it’s easy to see why they’re worried. AUSA Leo Dillon told McLaughlin that a new indictment will be filed which will see 27 counts dropped, reducing the number of counts to 14. The original indictment of January 2006 included 84 counts.
McLaughlin set this Friday as the deadline for filing a new indictment and November 21 as the deadline for the defense to file new dismissal and suppresion motions and for prosecutors to file a change of venue motion, but he declined to set a new trial date: “I just don’t think it makes sense right now to throw a dart out there to try to hit a date that isn’t likely to stick anyway.” Perhaps he sees the tenure of USA Mary Beth Buchanan coming to a merciful end soon into the coming administration (Pittsburgh Post-Gazette, Tribune-Review).
Richard Walters of Bowie, Maryland, brother of DC Tax Office fraud ringleader Harriette Walters, was sentenced on Tuesday to 51 months in prison by US District Judge Alexander Williams in Greenbelt, Maryland for his role in the $48 million fraud scheme. He had pleaded guilty to receipt of stolen property and conspiracy to commit money laundering in connection with a property tax refund scheme, and had cooperated with authorities. Walters’ business, Helmet’s Plumbing, was used to launder 15 fraudulently issued DC tax refund checks totaling $4.9 million between 2001 and 2007. Over $1 million of that amount went into accounts he controlled.
Five more cooperating defendants will be sentenced by Judge Williams, including three in December. Harriette Walters pleaded guilty in September in DC (earlier). She will be sentenced on March 25, 2009 by US District Judge Emmet Sullivan (DOJ, WaPo).
Colleen Walsh, the alternate juror in the Ted Stevens trial who replaced AWOL Juror No. 4, is blogging about her experience: Juror 11 Explains All. She has her own names for the cast of characters, likening lead prosecutor Brenda Morris to Rosie Perez and lead defense attorney Brendan Sullivan to Mr. Burns of The Simpsons.
David Bermingham, Giles Darby and Gary Mulgrew, three British investment bankers known as the NatWest Three, will now be able to leave for the UK to serve the remainder of their 37 month prison sentences. On Thursday, the three men appeared before US Magistrate Judge Frank Maas in New York, who approved the transfers. 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 a total of $7.3 million in restitution by US District Judge Ewing Werlein in Houston on February 22, 2008 (earlier). Their plea agreements allowed a transfer to the UK after several months, where they will be eligible for parole after serving half their sentences. Each has already served about six months (Bloomberg).
USAO Michael Garcia (Southern District of New York) said Thursday that his office will not seek criminal charges against former New York Governor Eliot Spitzer in the Emperors Club VIP case. Four people connected to the operation have pleaded guilty to prostitution and/or money laundering charges (earlier). From the press release (.pdf):
ELIOT SPITZER has acknowledged to this Office that he was a client of, and made payments to, the Emperors Club VIP. Our investigation has shown that on multiple occasions, Mr. SPITZER arranged for women to travel from one state to another state to engage in prostitution. After a thorough investigation, this Office has uncovered no evidence of misuse of public or campaign funds. In addition, we have determined that there is insufficient evidence to bring charges against Mr. SPITZER for any offense relating to the withdrawal of funds for, and his payments to, the Emperors Club VIP.
In light of the policy of the Department of Justice with respect to prostitution offenses and the longstanding practice of this Office, as well as Mr. SPITZER’s acceptance of responsibility for his conduct, we have concluded that the public interest would not be further advanced by filing criminal charges in this matter.
Spitzer issued a separate statement:
I appreciate the impartiality and thoroughness of the investigation by the U.S. Attorney’s Office. I acknowledge and accept responsibility for the conduct it disclosed.
Bloomberg has more.
Another former natural gas trader has been sentenced to prison for reporting false prices to industry publications in order to influence pricing. Donald Burwell of Richardson, Texas, a former El Paso Corporation trader, was sentenced to 10 months in prison on Monday by US District Judge Vanessa Gilmore in Houston. He pleaded guilty in 2006 to one count of reporting fictitious natural gas trades (Reuters, DOJ). See earlier here and here for other prosecutions.
We won’t know for a couple of weeks whether or not just-convicted Alaska Sen. Ted Stevens will retain his seat, but there are two other races of interest involving public corruption cases:
In Louisiana’s 2nd Congressional District, Democratic Rep. William (Cold Cash) Jefferson easily won his primary runoff race over former TV news anchor Helen Moreno (Times-Picayune). He is heavily favored to win the December 6 general election contest against Republican candidate Anh “Joseph” Cao, an attorney and former ethics professor (profiled here). Jefferson was indicted in 2005 on 16 counts including bribery, racketeering, money laundering and obstruction of justice.
Texas’ Third Court of Appeals Chief Justice Ken Law, whose recent alleged actions have caused controversy in the cases of Tom DeLay associates John Colyandro and Jim Ellis (here and here), has been defeated in his reelection bid by Woodie Jones, who formerly served on the court for 12 years (Austin American-Statesman). The final margin was about 52% to 48%. This will mean the court will now have three Democrats and three Republicans. However, the court has already refused to reconsider its recent ruling and it takes a majority to overturn that. Travis County DA Ronnie Earle is retiring; it’s not known if his successor, Rosemary Lehmberg, will be as aggresive in pursuing a further appeal.
In Hartford on Friday, US District Judge Christopher Droney ruled that investor losses were between $544 million and $597 million in the case of four former executives of Berkshire Hathaway’s General Re and one former executive from AIG who were convicted in February (earlier) on charges related to fraudulent reinsurance accounting transactions. While it’s less than the $1.4 billion figure put forth by prosecutors, it’s still enough to indicate the probability of substantial prison sentences. Droney also ruled that the fraud had more than 250 victims, which also increases the potential sentences under the guidelines. The original sentencing date of May 15, 2008 was postponed; a new date has not been scheduled (Reuters).
In Los Angeles on Monday, US District Judge John Walter sentenced the last two defendants in the long-running kickback scheme at the former Milberg Weiss law firm, now known as Milberg LLP. Former client Steven Cooperman, who acted as a lead plaintiff in some Milberg cases, was sentenced to four months in prison and two years of supervised release; Cooperman pleaded guilty to a conspiracy count last year. Paul Selzer, a former outside attorney who helped Milberg funnel kickbacks to clients, was sentenced to two years probation; Selzer pleaded guilty in July to a tax obstruction count (Reuters).
Former Goldman Sachs trader David Pajcin, one of the principals in a wide-ranging $6.7 million insider trading and securities fraud scheme, has disappeared. Pajcin was sentenced in January to time served (earlier) after having been jailed for about two years but was put on three years supervised release. A separate civil case against Pajcin and other defendants is still ongoing before the SEC, and SEC trial lawyer Scott Black has now informed US District Judge Kimba Wood that Pajcin “is in violation of his probation.” Neither the USAO in Manhattan nor Pajcin’s criminal defense attorney knows where he is. Pajcin has family in Croatia and is believed to have left the country (Bloomberg, Reuters).
The Alaska Bar Association on Thursday asked the Alaska Supreme Court to suspend Sen. Ted Stevens’ law license pending his appeal. Under state bar rules, a felony conviction is effective as soon as the jury rules, but Stevens will be allowed to file defense memoranda (Anchorage Daily News).
AWOL Juror No. 4, now identified as Marian Hinnant, did actually show up Monday to explain her absence to US District Judge Emmet Sullivan. She did go to California, but not for her father’s funeral — he’s alive and living in North Carolina. Turns out she had bought a ticket to fly to California to see the Breeders’ Cup at Santa Anita Park, and she didn’t expect the trial to last as long as it did. Her reported statements in court Monday were bizarre and incoherent. Judge Sullivan did not sanction her and said he was convinced that she had been unable to continue deliberating; he was kind enough not to say it’s because she’s a raving loon (ADN/McClatchy, Legal Times).
Mitchel Guttenberg, a former executive director in the equity research department of UBS Securities LLC, was sentenced on Monday to 78 months in prison for insider trading by US District Judge Deborah Batts in Manhattan. Guttenberg pleaded guilty (.pdf) in February to two counts of conspiracy and four counts of securities fraud, admitting that he frequently fed inside information to two clients from 2001 to 2006 (Bloomberg, $WSJ$).
In Washington last week, US District Judge Richard W. Roberts sentenced Michael Dwayne Logan of Baltimore to 21 months in prison for using a camcorder in a theater to tape two movies. Logan was caught last November in a DC theater using a high definition camcorder to tape Disney’s Enchanted; he had recorded about 50 minutes of the film when he was arrested. A forensic investigation connected him to a pirated copy of 28 Weeks Later that DC police had obtained earlier in the year. Logan pleaded guilty to two counts of Unauthorized Recording of Motion Pictures in a Motion Picture Exhibition Facility (Ars Technica, DOJ).
US District Judge Sean McLaughlin, based in Erie, Pennsylvania, on Friday was selected by Chief US District Judge Donetta Ambrose to preside at the retrial of former Allegheny County Coroner Cyril Wecht. No trial date has been set and it’s not certain that there will be a retrial, but the mediation process has broken down. Former Third Circuit Judge Timothy Lewis, who has been working with both sides to to avoid a retrial, said last week that talks had ended.
It became clear to me that one side was unwilling to participate in the necessary follow-up that could have been productive. I will not work with a party who appears uncommitted to a mediation process, although I hasten to add, that is its prerogative.
He didn’t say who was unwilling to participate in the follow-up, but there’s no doubt it was USA Mary Beth Buchanan (Pittsburgh Post-Gazette, Tribune Review).
In US District Court in Los Angeles last week, four officials connected with Ralph’s Supermarket pleaded not guilty to labor fraud charges in connection with the 2003-2004 California supermarket strike and lockout. Scott Drew, a vice president with Cincinnati-based Kroger, which owns Ralph’s, and former Ralph’s managers Charles Vance, Randall Kruska and Karen Montoya were indicted in September on charges that they participated in a conspiracy to secretly rehire hundreds of locked-out employees under false names and false social security numbers during the 2003-2004 labor dispute. A December 23 trial date has been scheduled (Supermarket News, LA Times/AP). There’s no word about former Ralph’s vice president Patrick McGowan, who was indicted on the same charges.
In a meeting Thursday with the editorial board of the Fairbanks Daily News-Miner, Sen. Ted Stevens on Thursday claimed his conviction was still pending: “I’ve not been convicted yet. There’s not a black mark by my name yet, until the appeal is over…” (News-Miner)
The Anchorage Daily News reports that he reiterated the claim Thursday night in a televised debate with his general election opponent, Anchorage Mayor Mark Begich, saying: “I have not been convicted of anything.”
Meanwhile, AP reports that US District Judge Emmet Sullivan has ordered missing Juror No. 4 to appear before him on Monday to explain her absence and refusal to communicate with the court. Good luck with that, Judge Sullivan.
After only about four hours of deliberation, a jury in US District Court in Columbus has convicted former National Century Financial Enterprises CEO and co-founder Lance Poulsen on one count of conspiracy, one count of wire fraud and money laundering conspiracy, four counts of concealment of money laundering and six counts of securities fraud in connection with the company’s 2002 collapse which cost investors about $1.9 billion. The testimony of the government’s star witness, former executive VP for compliance Sherry Gibson, was central to the prosecution’s case. Gibson’s testimony was critical in the trial which resulted in the March convictions of five other former National Century executives. In addition, jurors heard Gibson testify about the attempt of Poulsen and his associate Karl Demmler to bribe her to change her story; Poulsen was convicted in that case and sentenced to 10 years in prison in August. US District Judge Algenon Marbley did not immediately set a sentencing date in this case (Columbus Dispatch, Columbus Bizjournal).
Chief US District Judge Michael Davis on Friday refused to grant bail to Tom Petters, affirming the earlier ruling of US Magistrate Judge Jeffrey Keyes (Star Tribune).
Meanwhile, WCCO’s Esme Murphy has filed a complaint with Judge Davis over the seemingly preferential treatment shown to some Petters defendants, including the unscheduled bond hearing for Larry Reynolds:
I am amazed that this group of co-defendants that have admitted to stealing a total of 3 billion dollars from unwitting investors is getting this kind of special treatment.
Judge Davis will look into it but told Murphy that “all court hearings should be open to the public and all hearings should be posted in the court calendar.”
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.
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.
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.
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.
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:
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US District Judge Emmet Sullivan ruled that the defense is limited to five character witnesses.
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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.
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The principals of two construction businesses that performed work on Stevens’ Alaska home testified that all bills were paid promptly and never ignored.
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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.
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.
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 argument was that his actions were lawful and that the petitions were legally valid. Justice Alma Lopez, who wrote the opinion, stated: “We fail to see how Roberts’s use of his law license to draft Rule 202 petitions in his efforts to get the men to ‘contribute to his favorite charity: me’ converts criminal extortion into lawful conduct.” Roberts has been free on bond pending appeal; his attorney indicated he would probably continue his appeal (Express-News).
On Monday in Raleigh, US District Judge W. Earl Britt sentenced former Brunswick County (Cape Fear area) Sheriff Ronald Hewett to 16 months in prison for obstructing a federal grand jury investigation into allegations of corruption in his department. Hewett pleaded guilty on June 2 to a one-count information charging him with obstruction of justice (earlier). On December 2006 the federal grand jury began investigating allegations that he had deputies perform manual labor on his property, demanded that deputies campaign for him and failed to prosecute prominent residents. After the grand jury subpoenaed 25 former and current sheriff’s office employees last June, Hewett reportedly harrassed, threatened and intimidated them before and after their grand jury testimony. He resigned this April 15 after being suspended March 27 and indicted March 31 on state charges of embezzlement and obstruction. He still faces the state charges, but District Attorney Rex Gore said he was waiting for the federal sentencing before deciding whether to proceed (Wilmington Star-News, DOJ).
US Magistrate Judge Jeffrey Keyes in St. Paul on Wednesday denied bond for Tom Petters, saying “He has the personality to pull off a flight caper.”
In the same courthouse, three Petters associates pleaded guilty:
- Faux wholesaler Michael Catain, as expected, pleaded guilty to money laundering conspiracy.
- Consultant and former PCI officer Robert White pleaded guilty to counts of mail fraud and illegal monetary transactions. White said the fraud “exceeded $3 billion.”
- Deanna Coleman, former vice president of operations for PCI, pleaded guilty to one count of conspiracy to commit mail fraud. Coleman formally acknowledged that she was the cooperating witness who went to the FBI and wore a wire.
Judge Keyes called the scheme “one of the greatest frauds in American history.” Colemn’s attorney alled it “an astronomical fraud.” According to another report, the FBI had no inkling until Coleman came forward on September 8. Yet one month later, and only five days after Petters and White were arrested, three principals have pleaded guilty. Will Tom Petters risk a trial? Not likely.
Jayrece Turnbull, niece of DC Tax Office fraud ringleader Harriete Walters, pleaded guilty on Tuesday before US District Judge Alexander Williams in Greenbelt, Maryland to receipt of stolen property, conspiracy to commit money laundering, tax evasion, and mail fraud in connection with the $48 million fraud scheme. Walters pleaded guilty last month (earlier). More than $24 million in fraudulent tax refund vouchers were routed through accounts controlled by Turnbull over a 6 year period. Her sentencing is scheduled for February 4, 2009. All other defendants have now pleaded guilty (WaPo, DOJ).
In Los Angeles on Tuesday, US District Judge John Walter sentenced Howard Vogel to three months in prison for his role in the Milberg Weiss kickback scheme. Vogel pleaded guilty in in August 2006 to one count of making a false statement in federal court. He admitted acting as a paid plaintiff or having a relative act as a plaintiff in 40 different class action lawsuits brought by the firm over a 14 year period. As part of his plea agreement, Vogel forfeited $2 million and paid $550,000 in back taxes (National Law Journal).
The latest twists and turns in the public corruption trial of Sen. Ted Stevens:
In motions filed Wednesday night, prosecutors asked US District Judge Emmet Sullivan not to issue instructions to the jury, while attorneys for Stevens asked for acquittal.
Earlier Wednesday, Judge Sullivan refused the defense’s latest motion for dismissal or a mistrial, but he did throw out certain evidence: time card records of two VECO employees who allegedly worked on Stevens’ Alaska home and evidence about the value of a Land Rover which former VECO CEO Bill Allen traded to Stevens in 1999. Judge Sullivan said prosecutors knew the VECO time card records were falsified and that prosecutors failed to turn over a check which established the cost of the Land Rover.His comment: “Something smells here.”
In Wednesday testimony, prosecutors sought to show that Stevens was closely involved in the renovation to his home and in his own finances.
Tuesday’s developments in the giant but fast-moving Petters fraud story:
Michael Catain, owner of one of the sham companies represented to investors as a wholesale supplier in the scheme, was charged last Friday with money laundering. He is expected to plead guilty to money laundering conspiracy on Wednesday afternoon in US District Court in St. Paul.
The Tuesday afternoon bond hearing for Tom Petters lasted three hours; US Magistrate Judge Jeffrey Keyes will announce his decision on Wednesday morning. The Star Tribune reports that secretly recorded tapes played at the hearing contain damning admissions by Petters, including this: “The only thing that makes me think there is some divine intervention [is that] when it gets down to it, there is no possibility we could have got away with this for so long.”
The testimony of the government’s star witness, former VECO CEO Bill Allen, ended Tuesday. Allen’s attorney Robert Bundy, who was booted from the courtroom at the end of Monday’s session when US District Judge Emmet Sullivan accused him of coaching Allen’s answers, was not in the courtroom on Tuesday. On cross examination, Stevens’ attorney Brendan Sullivan accused Allen of coloring his testimony to protect his company and his children as part of his plea agreement.
Jurors heard more taped conversations, this time between Allen and Bob Persons, a neighbor who looked after Stevens’ Alaska home. They discussed arrangements for Allen to pay contractor bills. The prosecution’s last witness will testify Wednesday. Judge Sullivan indicated he would then hear the defense’s latest motion to dismiss (CQ Politics).
Israeli national Ehud Tenenbaum, a/k/a “The Analyzer” of Pentagon hacking infamy who was charged last month in a $1.8 million fraud scheme in Canada (earlier), was ordered held without bond on Friday by a judge in Calgary on a US extradition warrant. The order came a day after he was granted bail on the Canadian charges, but he was rearrested before he ever left the remand facility where he was being held. The US allegations involve “potentially hundreds of financial institutions in Russia, Turkey, the Netherlands, Sweden, Belgium, Germany and other countries.” (Calgary Sun, Haaretz)
Gerald McAfee on Monday made his first court appearance in US District Court in Los Angeles on charges that he stole $1.6 million from College Hospital of Downey in 1985. Working as an accountant for the hospital, using an assumed identity, he allegedly talked officials into giving him control of the funds for reinvestment, then fled the country with the loot. He was indicted in absentia in 1987 on charges of bank fraud, mail fraud, wire fraud and interstate transportation of securities taken by fraud. Last year he was arrested in Thailand where he had been living under another name. To no one’s surprise, he has been ordered held without bond pending trial (LA Times).
US District Judge Emmet Sullivan allowed the trial to continue and deferred until Tuesday or Wednesday a hearing on the defense’s latest motion to dismiss. Jurors heard recorded conversations between Sen. Stevens and key witness Bill Allen; RetireTed has sound files of excerpts from the conversations. While Stevens did mention the possibilty of jail time on one of the tapes, he also insisted that he and Allen had done nothing wrong.
On cross examination by Stevens’ attorney Brendan Sullivan, Allen admitted that he never tried to bribe Stevens and acknowledged that Stevens wanted to pay for everything he got. Cross examination of Allen will continue Tuesday.
ABC News reports that Judge Sullivan noticed during Allen’s testimony that Allen’s attorney Robert Bundy was giving hand signals to coach his answers. After Allen’s testimony for the day ended, Judge Sullivan called Bundy to the dais, threatened him with contempt of court and ordered him out of the courtroom. McClatchy has more trial coverage.
US District Judge Ann Montgomery on Monday issued an order seizing the assets of Petters Group Worldwide, Petters Co. Inc. and most other Petters-related companies. Attoney Doug Kelley, a former AUSA, was appointed receiver. How this will track with the Illinois state court order issued on Friday (earlier) remains to be seen, but the federal seizure seems likely to prevail (Star Tribune). The order excludes Petters Aviation, operator of Sun Country Airlines, which filed Chapter 11 bankruptcy on Monday (Reuters).
Two more individuals have been charged: Deanna Coleman, a Petters employee, was charged with conspiracy on Monday for allegedly fabricating documents used by Petters. Michael Catain, listed as owner of one of the allegedly sham wholesale companies, was charged with money laundering (Pioneer Press). At least one source claims that Coleman is the cooperating witness who was wired by the FBI.
Testimony to date in the fraud trial of former National Century CEO Lance Poulsen has centered on how investors were allegedly deceived by the company’s accounting practices. National Century represented to investors that it was buying valid and collectible receivables from health care providers in exchange for cash to pay their bills. The receivables were packaged as bonds which were sold to investors. However, both former director of securitization Jon Beacham and former associate vice president of funding Jessica Bily both testified that National Century never actually purchased the receivables from six providers and instead deliberately overfunded them as part of a scheme to enrich Poulsen and two other principals, who controlled the six providers. Bily said that Poulsen ordered her to make false entries in the official books to make it appear that these were legitimate. Bily also testified that the scheme was going on as long ago as 1994. National Century collapsed in 2002 (Columbus Bizjournal, Columbus Dispatch).
Attorneys for Sen. Ted Stevens late Sunday night filed a new motion for a mistrial or dismissal of charges. The latest motion is based on new information they received late Friday after US District Judge Emmet Sullivan ordered prosecutors to turn over more evidence including rough FBI notes (earlier). The latest motion alleges intentional misconduct by prosecutors, claiming they got key witness Bill Allen to change his statement after they learned of his statements which were favorable to Stevens. The government’s response is due today (NYT).
It just keeps getting bigger: a group of lenders on Friday obtained an order appointing William Procida, Inc. of New Jersey as court receiver to oversee Petters holdings. The order was issued in state court in Cook County, Illinois. Procida claims to represent lenders holding over $3 billion in loans to Petters companies. Lancelot Investment Management a hedge fumd out of Northbrook, Illinois, acknowledged it has lent $1 billion to Petters Group Worldwide. Another hedge fund, Nevada-based Palm Beach Finance, admits lending $1.1 billion to Petters. (Bloomberg, Star Tribune).
A “reformed” con man who turned to religion and became involved in Christian charitable work has been identified as one of the parties whose house was raided by the FBI in the investigation. Frank Vennes Jr. has not been charged but the search warrant affidavit identifies him as “a facilitator who persuaded five major investors to invest $1.2 billion in companies controlled by Petters” and he has allegedly been involved in the scheme all along.
Twin Cities businessman Tom Petters, implicated in a multi-billion dollar fraud scheme (earlier), was arrested this morning after a criminal complaint was filed late Thursday charging him with mail fraud, wire fraud, money laundering and obstruction of justice. He is scheduled to be arraigned this afternoon before US Magistrate Judge Franklin Noel. From CBS afiliate WCCO:
Sources tell WCCO-TV that FBI officials arrested Petters, who had been under constant FBI surveillance for the last week, because they learned he was preparing to flee the country.
The Star Tribune previously reported that the affidavit for the search warrants executed last week said that Petters “talks about fleeing the country and creating fabricated defenses if the fraud scheme is discovered.” Good luck on that bond, Tom.
Another Petters associate, Larry Reynolds of Las Vegas was also charged with the same offenses. He was arrested Friday in California. Petters consultant and former officer Robert White was charged Tuesday with mail fraud and money laundering.
UPDATE: Tom Petters is jailed without bond pending a detention hearing which is now scheduled for Tuesday at 2 PM (Star Tribune). Here’s the government’s motion (.pdf), which describes the alleged flight risk and alleges that Larry Reynolds also planned to flee.
Initial reports on the developing Tom Petters fraud scheme story (earlier) only mentioned one investor, Fidelis Foundation, a 501(c)(3) charitable organization. Now more information is emerging. The St. Paul Pioneer Press reports that Interlachen Capital Group, a Twin cities-based hedge fund manager, has sued Petters Worldwide and PCI in US District Court. The lawsuit (.pdf) reveals that the fund had invested $60 million purportedly collateralized by televisions which turned out to be imaginary. Sources report that hedge funds played a role in uncovering the scheme.
The Star Tribune reports that Gottex Fund Management of Lausanne, Switzerland has an estimated $300 million invested with Petters and that Northwater Market of Toronto has an undisclosed amount invested; both have warned clients.
In addition, Acorn Capital Group sued (.pdf) Petters on August 14 in the Southern District of New York, alleging default on over $273 million in loans, $259 million of which had been resold to seven other noteholders. The suit alleges that Petters personally guaranteed $50 million.
We recently noted Zach Scruggs’ ludicrous attempt to redefine his disbarment. On Thursday, the Mississippi Supreme Court rejected his motion:
EN BANC
2008-BD-00486-SCTThe Mississippi Bar v. David Zachary Scruggs; Disposition: Motion for rehearing filed by David Zachary Scruggs is denied. Easley, Graves and Randolph, JJ., would grant.
Is this the end of the matter? Or will Zach file a new motion disputing the meaning of “denied”?
(h/t folo)
Breaking: lead prosecutor Brenda Morris has admitted the government “made a gross error” in failing to disclose potentially exculpatory evidence to Sen. Ted Stevens’ attorneys. Former VECO CEO Bill Allen said he believed that Stevens would have paid for the renovations to his Alaska home if Allen had ever billed him, but his statement was not revealed to the defense until late yesterday afternoon or early this morning. US District Judge Emmet Sullivan’s response: “It strikes me that this was probably intentional. I find it unbelievable that this was just an error.”
Judge Sullivan stopped testimony and set a hearing for 4:30 today to consider defense motions for a mistrial or dismissal.
Former VECO CEO Bill Allen continued his testimony Wednesday in the public corruption trial of Sen. Ted Stevens, focusing on the renovations to Stevens’ Alaska home and confirming that VECO paid for the materials and labor. He also described a number of instances in which Stevens had helped VECO’s business.
Allen read a note Stevens had sent him in 2002 thanking him for the work on his house. It stated, in part: “You owe me a bill… Friendship is one thing, compliance with the ethics rules entirely different.” However, Allen said that Bob Persons, a neighbor who had helped oversee the project, later told him that the note was a ruse: “Don’t worry about getting a bill, Ted’s just covering his ass.” Allen’s testimony continues Thursday.
Convicted Illinois developer and Democratic fundraiser Tony Rezko may be talking to prosecutors in the hopes of reducing his sentence. The Chicago Tribune and AP report that he has been visiting the federal courthouse and that several attorneys have reported that prosecutors have called them with details only Rezko would know. Rezko was convicted in June on 16 counts including mail fraud, wire fraud, money laundering and aiding and abetting bribery, and acquitted on eight other counts (earlier). His sentencing was scheduled for September 3 but has been moved back to October 28.
On Wednesday, US District Judge Amy St. Eve froze $105,000 of Rezko’s $380,000 in bond money, an indication that she plans to grant the prosecution’s request to order asset forfeiture (Chicago Trib/AP).
Twelve jurors and four alternates were selected on Wednesday in the fraud trial of former National Century CEO Lance Poulsen, with opening arguments scheduled for Thursday morning. (Columbus Bizjournal). Poulsen’s defense team will have one tactical advantage not available to his co-defendants who were convicted in March: since then, the SEC has put some of the blame on other parties. As the Columbus Dispatch pointed out:
The Securities Exchange Commission found Bank One and JPMorgan Chase, which now owns Bank One, culpable for negligent conduct while serving as National Century’s bank trustees.
The SEC has made similar findings with accounting firms PricewaterhouseCoopers and Deloitte & Touche while auditing National Century.
Still, Poulson faces long odds, and he has the additional problem of the tape recordings that sunk him in his witness tampering trial.
Former CIA executive director Kyle “Dusty” Foggo, once the agency’s third-ranking official, on Monday pleaded guilty to one count of honest services wire fraud. He admitted using his position to help his buddy Brent Wilkes, owner and founder of defense contractor ADCS, get fat defense contracts. From the DOJ Press Release (via Market Watch):
Throughout the years-long scheme, Foggo had a standing offer for a high-level, high-paying position with his best friend Brent Wilkes (who is currently serving a 12-year sentence imposed following his conviction in the Southern District of California for bribing former Congressman Randall “Duke” Cunningham). Foggo admitted that he allowed Wilkes to conceal their close relationship by adopting false cover stories regarding their relationship and using “straw men” and shell companies to conceal Wilkes’s interest in CIA contracts. As described in the indictment, Foggo caused the CIA to enter into these lucrative contracts without disclosing his interests.
The plea agreement follows a superseding indictment in May which piled on more counts (earlier), but Jerry Markon’s Washington Post article (here) suggests that Foggo got a good deal after his defense team threatened to introduce highly sensitive intelligence information if the case went to trial. Foggo’s sentencing is scheduled for January 8, 2009 before US District Judge James Cacheris in Alexandria; prosecutors are recommending no more than 37 months in prison.
Although he has not yet been indicted, Tom Petters on Monday resigned as CEO and Chairman of Petters Group Worldwide in the wake of the emerging investigation of a massive fraud scheme at his equity company, PCI (earlier). He announced that effective immediately he will no longer be involved in any of the operations of the parent company or its subsidiaries, which include Polaroid, Fingerhut and Sun Country Airlines (Star Tribune).
On Tuesday, Robert White, a former officer and current consultant to Petters, was charged with mail fraud and money laundering in connection with the operation. He allegedly created the phony purchase orders that were used to lure investors (AP/StarTribune ).
Jury selection begins today in Columbus before US District Judge Algenon Marbley in the fraud trial of Lance Poulsen, former CEO and co-founder of National Century Financial Enterprises. Poulsen faces one count of conspiracy, one count of wire fraud and money laundering conspiracy, four counts of concealment of money laundering and six counts of securities fraud in connection with the company’s 2002 collapse; the loss to investors has been estimated at anywhere from $1.9 billion to as much as $3 billion.
Five of Poulsen’s co-defendants have already been convicted, and four have been sentenced to prison (here and here) with the fifth, Rebecca Parrett, still at large. Poulsen’s trial was separated after he and an associate were charged with witness tampering for trying to bribe the prosecution’s star witness. Both were convicted; Poulsen has been sentenced to 10 years in prison in that case.
Ten residents of Israel were indicted on Friday in US District Court in Manhattan in connection with a lottery telemarketing scheme which allegedly bilked elderly US residents out of more than $2 million. Nine have been arrested in anticipation of extradition; one is at large. Each faces two counts of wire fraud and one count of conspiracy. The scheme was said to be a boiler room operation in which the victims were notified by operators claiming to be from a New York law firm that they had won large amounts of money in an international sweepstakes and told that they needed to wire thousands of dollars to accounts in Israel to cover fees and taxes. No such prizes were awarded, the sweepstakes never existed. There are allegedly hundreds of victims who wired as much as $40,000 in the hopes that somehow they were going to get rich from a sweepstakes they had never entered (DOJ, Jerusalem Post).
Tuesday’s testimony in the public corruption trial of Sen. Ted Stevens included the beginning of testimony by the prosecution’s key witness Bill Allen, the former CEO of VECO, the now-defunct oilfiled services company at the center of most of the Alaska corruption cases. There was not enough time to begin Allen’s testimony on renovations at Stevens’ Alaska home, but he did describe their long friendship and how Stevens approached him in 1999 and asked him to install a backup generator at the house, apparently because Stevens was concerned about Y2K predictions. The generator cost about $6,000 and Allen said that to his knowledge, Stevens had never paid VECO for the installation (McClatchy).
Earlier, Stevens’ former press secretary Courtney Boone said she “tried to get the story to go away” when a reporter questioned her in 2004 about the renovations. She described how she tried to delay responding to the reporter, Heather Reicz, in the hope that she would back off, and how Stevens referred her to his wife instead of responding to the inquiry. Reicz testified that she “closed the file and threw up my hands” after concluding that she wasn’t going to get a straight answer (CQ Politics).
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.
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.
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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?
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.
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).
One of the two men indicted in connection with an alleged scheme to defraud Medicare by recruiting patients from Skid Row in Los Angeles (earlier) has pleaded guilty. Estill Mitts, who operated an “assessment center” in the heart of Skid Row, on Thursday agreed to plead guilty to conspiracy to commit healthcare fraud, money laundering and tax evasion. In the plea agreement, Mitts admits recruiting homeless Medicare and Medi-Cal beneficiaries for three hospitals, where they received unnecessary medical treatments or no treatment at all. One hospital, City of Angels Medical Center, was owned by Dr. Rudra Sabaratnam, who was indicted along with Mitts and has pleaded not guilty (earlier). Mitts will enter his plea on September 10. Sabaratnam’s trial is scheduled to begin on September 30 (LA Times).
A federal grand jury in Houston on Thursday indicted (.pdf, explicit language) US District Judge Samuel Kent on one count of abusive sexual conduct and two counts of attempted aggravated sexual abuse. Kent becomes the first federal judge to face federal sex charges. Count one of the indictement describes a 2003 incident, counts two and three date from 2007 and all three involve Cathy McBroom, Kent’s former case manager who had previously made public allegations against Kent. She is identified as “Person A” in the indictment.
After McBroom’s harassment complaint became public last fall, Kent was reprimanded and reassigned from Galveston to Houston effective January 2008. He has been confined to handling civil cases, other than sexual harrassment cases. It has been no secret that a federal investigation was begun late last year. The Houston Chronicle reported last month that the investigation had expanded to include allegations that he accepted but failed to report gifts and also sold his home in a deal arranged by a lawyer with dozens of cases in his court.
Kent is represented by Dick DeGuerin, while Rusty Hardin is representing McBroom. Kent apparently will contend that the relationship was consensual (Houston Chronicle, with more background here).
Chief Judge Dennis Jacobs, writing for a unanimous three-judge panel of the US Court of Appeals for the Second Circuit, today affirmed (.pdf) US District Judge Lewis Kaplan’s July 2007 dismissal of the indictments of 13 out of an original 19 defendants in US v. Stein et al. The case was was once the largest criminal tax shelter prosecution in US history. Kaplan had ruled that the defendants were deprived of their Sixth Amendment right to counsel as a result of KPMG’s decision to stop paying the defendants’ legal costs (despite contractual obligations to pay) after the government threatened to indict the firm. In affirming the dismisal, the appellate court ruled that no other remedy would return the defendants to the status quo.
In Cincinnati on Wednesday, US District Judge Arthur Spiegel sentenced Steve Warshak, founder of Berkeley Premium Nutraceuticals, to 25 years in prison for selling at least $100 million of fraudulent “natural” remedies and refusing to accept returns when the products didn’t work despite a “double your money back” guarantee. Berkeley is infamous for marketing Enzyte, a “natural male enhancement” pill which promised permanent growth and for a time also claimed to help erectile disfunction.
Warshaw was convicted in February on 93 counts including conspiracy to commit money laundering, conspiracy to obstruct proceedings before the FTC, mail fraud, bank fraud and money laundering. Three others were also convicted, including his 75-year-old mother Harriet Warshak. Spiegel sentenced her to two years in prison (Kentucky Post).
Los Angeles-based class action attorney Pierce O’Donnell on Wednesday pleaded not guilty to charges that he funneled $26,000 in contributions through his employees to a PAC supporting a presidential candidate. The candidate was apparently John Edwards and the contributions were allegedly made in 2003. O’Donnell was indicted July 24 on three counts, including conspiracy, causing illegal contributions to be made and causing the campaign to make false statements to the FEC. His trial is scheduled to begin on October 21 (National Law Journal).
Thomas Rushing III, Brian Rue and William Partridge pleaded guilty on August 22 in US District Court in Austin, Texas to one count each of criminal copyright infringement for selling downloadable counterfeit software through a series of websites. They allegedly sold $2.5 million at retail value between early 2006 and September 2007. They face statutory maximum sentences of five years each; sentencing for all three defendants is scheduled for December 19 (DOJ).
US District Judge Nancy Atlas on August 21 sentenced two former natural gas traders to prison for their roles in false reporting of prices to industry publications in order to influence pricing. Michelle Valencia, formerly of Dynegy Inc., was sentenced to 57 months in prison and Greg Singleton, formerly of El Paso Merchant Energy, received a 28 month prison sentence. The two were indicted on charges of conspiracy, wire fraud and false reporting in violation of the Commodity Exchange Act, but after a jury trial in 2006 they were convicted only on the wire fraud charges: 7 counts for Valencia, one count for Singleton. Valencia’s attorney has filed notice of appeal (Houston Chronicle).
Another defeat for the Southern District of New York in its prosecution of specialist traders: In Manhattan on Monday, US District Judge Sidney Stein vacated the guilty pleas of Patrick McGagh and Joseph Bongiorno, both former specialists at Van der Moolen Specialists USA. The two men pleaded guilty to securities fraud in 2006 in connection with an interpositioning scheme, but the Second Circuit in June upheld a District Court acquittal of specialist David Finnerty and in July reversed the convictions of Van Moolen specialists, Michael Hayward and Michael Stern, ruling in both instances that the evidence was insuffcient to prove deception. In a related case, prosecutors dropped criminal charges against former LaBranche & Co. specialist Freddy DeBoer ($WSJ$, Investment News).
Robert Brodzin, former CFO of for Shriners Hospital for Children – St. Louis, pleaded guilty last Thursday before US District Judge Catherine Perry to one count of mail fraud in connection with the embezzlement of more than $828,000 from the hospital between 2004 and 2008. The stolen funds would have been used to care for sick children, but Brodzin admitted using the money for luxury items and for his tanning salon business. The indictment alleged that he accomplished this by billing the hospital for services that were never rendered by three dummy companies he had set up. His sentencing has been scheduled for November 7; prosecutors are expected to recommend a sentence in the four year range (St. Louis Post-Dispatch, DOJ).
Former KYW-TV Philadelphia news anchor Larry Mendte on Friday pleaded guilty before US District Judge Mary McLaughlin to a one count information charging him with with intentionally accessing a protected computer without authorization. Mendte admitted hacking into former co-anchor Alycia Lane’s email accounts for over 2 years, including 537 times between January 1 and May 26, 2008, and leaking her personal information to a Philadelphia Daily News gossip columnist. He accessed the accounts using a keystroke logger. Mendte was fired in June after the FBI raided his house. He faces a statutory maximum of five years in prison when he is sentenced on November 24. His public remarks at a news conference later Friday caused controversy after he said he had a “flirtatious, unprofessional and improper relationship” with Lane, whose attorney immediately denounced the statement (Philadelphia Inquirer here and here, our earlier entry).
As expected (earlier), Emperors Club VIP booking agent Tanya Hollander on Monday pleaded guilty before US District Judge Deborah Batts in Manhattan to one count of conspiracy to commit prostitution offenses. Hollander is the fourth and final defendant connected with the club to plead guilty in the prostitution ring case that ensnared former New York Governor Eliot Spitzer. She will be sentenced on November 25 and faces an estimated six to 10 months in prison under federal sentencing guidelines (Reuters, DOJ).
Saifoulaye Diallo and Habib Bah of New York City pleaded guilty on Thursday before US District Judge Brian Cogan in Brooklyn to to trafficking in counterfeit goods in violation of criminal trademark laws. The men admitted to distributing over 500,000 tubes of counterfeit Colgate toothpaste from China to discount stores in the US, who were no doubt trying to squeeze out a little extra profit. The retail value of the toothpaste was $730,000. The fake Colgate had no fluoride but came with a bonus of bacillus spores and diethylene glycol at no extra charge, although no illnesses were reported. Diallo and Bah face a statutory maximum of 10 years in prison; sentencing has been scheduled for January 9, 2009 (Newsday, DOJ).
US District Judge Danny Reeves on Friday drastically reduced bond for remaining Kentucky Fen-Phen defendants William Gallion and Shirley Cunningham Jr., who will be retried for allegedly pocketing $65 million more than they were entitled to under terms of the class action settlement with American Home Products on behalf of 440 Kentuckians harmed by the drug. The two men have been in custody since August 2007 under draconian bond amounts set by US District Judge William Bertelsman, $52 million for Gallion and $45 million for Cunningham; the Sixth Circuit upheld Bertelsmann’s ruling.
But Reeves, who took over the case when Bertelsman recused himself, reduced the Gallion’s bond to $2.5 million and Cunninham’s to $1.25 million, which they are expected to meet shortly. However, Reeves ordered severe restrictions including home detention, electronic monitoring and the keeping of visitor and phone logs (Louisville Courier-Journal).
The first trial resulted in an acquittal for Melbourne Mills, Jr. and ended in a mistrial for Gallion and Cunningham.
Joseph Brunson, Timothy McQueen and Tony Pough, the three African-American pastors/investment brokers who call themselves the “Three Hebrew Boys”, were indicted Thursday by a federal grand jury in Columbia, South Carolina on 12 counts of money laundering and 10 counts of transporting checks obtained by fraud. The new charges are in addition to the 35 counts of mail fraud they face from their May indictment which charged them with operating a fraudulent foreign currency trading scheme (earlier); they also face state securities fraud charges. The new counts arise from checks they received from investors which they allegedly converted to personal use. A September 3 arraignment is scheduled (WIS-TV).
In a decision published late Friday, Texas’ Third Court of Appeals upheld the 2005 money laundering indictments against James Ellis and John Colyandro (Third Court Decision, Houston Chronicle). The two operatives of former US House Majority Leader Tom DeLay were indicted on state charges of laundering $190,000 in corporate contributions through the Republican National State Elections Committee that wound up in seven targeted Texas House races in 2002. They appealed on two grounds: first, that the election code provisions under which they were indicted are unconstitutionally vague and overbroad — in particular, the statutory definition of “campaign contribution”; second, that the money laundering statute in effect at the time of the alleged offense is unconstitutionally vague, more specifically because the statute in effect in 2002 did not include checks in the definition of funds. The three judge panel flatly rejected both arguments and affirmed the district court’s decision. The Chronicle notes that all three judges are Republicans.
DeLay was not a party to this appeal, but his indictments on money laundering and conspiracy charges still stand and arise from the same occurrences.
Andrew Parker of San Antonio, owner of San Antonio Trade Group, Inc., pleaded guilty on Thursday to defrauding the Export-Import Bank of the US. WOAI reported Wednesday that US District Judge Fred Biery had given Parker one day to decide whether or not to accept a plea agreement. In an indictment unsealed May 1 (earlier here and here) Parker was accused of falsifying loan applications, submitting false reports that goods were bought with the loans, and diverting millions of the loan proceeds for his personal use. As much as $163 million was allegedly involved. He pleaded guilty to 11 of the 28 counts in the indictment, including conspiracy, wire fraud, money laundering, tax evasion, and filing false tax returns. Under the plea deal Parker faces up to ten years in prison and up to $10 million in restitution plus $495,000 in tax liability (WOAI, DOJ).
The Daily Journal reports that US Sen. Joe Biden (D-Del.) has returned campaign contributions of $2300 each from Dickie Scruggs, Zach Scruggs, Steve Patterson and Tim Balducci. An FEC report from the Biden For President campaign showed that the contributions had been donated to a cancer charity.
The WSJ Law Blog reported last December on the connection between the Biden campaign and the Scruggs defendants, including a fundraiser last August in Oxford hosted by Balducci, Scruggs and former Mississippi governor Bill Allain. Astonishingly, Biden had no comment. Not even a plagiarized speech.
US District Judge Emmet Sullivan on Wednesday denied a motion by attorneys for US Sen. Ted Stevens to move his corruption trial from Washington to Alaska. Stevens was indicted July 29 on seven counts of making false statements on his Senate financial disclosure forms (earlier). Stevens’ trial is to begin September 22; he demanded a quick trial in the hopes he could be exonerated before election day (Reuters).
Despite the indictment, Stevens is expected to win his primary contest next Tuesday against real estate developer Dave Cuddy, but recent polls show he’s trailing his expected general election opponent, Anchorage Mayor Mark Begich (Fairbanks Daily News-Miner).
Donna Gamble of Marietta, Georgia, a former Georgia Tech employee who pleaded guilty in May to all 22 counts of an indictment which charged mail fraud and theft from an organization receiving federal funds, was sentenced on Tuesday to 32 months in prison by Chief US District Judge Jack Camp in Atlanta. Gamble admitted using a Georgia Tech procurement card which was restricted to work-related expenses to make 2000 purchases of 3800 items for her personal use between 2002 and 2007. The procurement card was funded by a grant from the National Science Foundation. The total amount of Gamble’s illegal purchases was $316,000 and included personal watercraft, a popcorn machine, a wide-screen TV, robotic vacuums, a treadmill and Auburn University football tickets. Gamble hid the fraud by submitting fake receipts and making false entries in accounting records. Her activities were discovered after an audit and that was only conducted after a tip from an informant (Atlanta Journal Constitution, DOJ ).
Mark Eister, a computer tech who worked in the South Philadelphia office of indicted Pennsylvania State Sen. Vincent Fumo, pleaded guilty on Tuesday before US District Judge William Yohn to one count of conspiracy and four counts of obstruction of justice for destroying evidence implicating Fumo in fraudulent activities. The evidence was allegedly destroyed at Fumo’s behest after he learned he was being investigated by the FBI for corruption. Eister’s plea followed the August 11 guilty plea of his co-worker Leonard Luchko (earlier), and both men are expected to testify against Fumo (Allentown Morning Call, DOJ).
The public corruption trial of Fumo begins September 8 and is expected to be a months-long spectacle. The Philadelphia Inquirer has background here including the latest government filing which now puts the amount of the alleged fraud at $3.5 million.
Kyle Roher of Las Vegas pleaded guilty to two counts of wire fraud last Wednesday before US District Judge James Mahan in connection with the embezzlement of $1.6 million from his employer. Roher, a former senior business analyst with Nevada Power, allegedly forged wire transfer forms 19 times between 2002 and 2006 to disburse the funds from a Nevada Power bank account to two Bank of America accounts he controlled. Roher’s sentencing hearing is scheduled for November 12; he faces a statutory maximum of 20 years on each count (Las Vegas Sun, DOJ).
Dr. Rudra Sabaratnam, the CEO of City of Angels Medical Center who was indicted on August 6 in connection with a scheme in which patients were allegedly recruited from Los Angeles’ Skid Row and given unnecessary medical treatment (earlier), pleaded not guilty on Monday in US District Court in Los Angeles. A trial date was scheduled for September 30. Sabaratnam faces eight counts of paying kickbacks for patient referrals (AP).
Lennox and Lester Parris, brothers and principals of now-defunct Jericho, New York-based bottled water distributor Queénch, Inc., were each sentenced last Wednesday in Brooklyn to 60 months in prison for securities fraud in connection with the manipulation of stock prices which allegedly cost investors over $2.5 million. They were convicted in 2007 on six counts including securities fraud, conspiracy to commit securities fraud, witness tampering and conspiracy to commit witness tampering. What’s unusual here, although the DOJ press release fails to mention it, is that US District Judge Frederic Block departed sharply downward from federal sentencing guidelines, which called for a recommended sentences of 30 years to life based on offense levels of 42 for both men. Block criticized the guidelines’ “fetish with absolute arithmetic”, writing that while the sentences were well-deserved, the crimes did not rise to the level of Enron, WorldCom and Computer Associates. Mark Fass’ NY Law Journal story has more, including a link to the decision.
Steven Byers and Joseph Shereshevsky, principals of WexTrust Capital LLC, were arrested last week and charged in the Southern District of New York with conspiracy to commit secuties fraud. The DOJ Press Release alleges a particular scheme in which $9.2 million was raised from investors to buy certain GSA properties, but the properties were never purchased and the funds were used for other purposes including paying off investors in other schemes. However, this indictment may well be a prelude to more criminal counts, because the SEC unveiled massive civil fraud charges against Byers, Shereshevsky and Wextrust entities, alleging a Ponzi scheme involving $255 million raised from approximately 1,200 investors, largely from Shereshevsky’s contacts in the Orthodox Jewish community. Over $100 million was allegedly diverted. The scheme outlined in the criminal case is included. The assets of the Wextrust companies have been frozen.
Shereshevsky, of Norfolk, Virginia was ordered held without bond last Wednesday by US Magistrate Judge Tommy Miller in Norfolk, pending his arraignment on the criminal charges; Miller called Shereshevsky a thief and a thug (Virginian-Pilot). Shereshevsky was convicted on a federal bank fraud charge in 2003. Bloomberg has more.
A Uniontown, Pennsylvania man already indicted in state court for identity theft was indicted Wednesday by a federal grand jury in Pittsburgh on eight counts of mail fraud. Jason Joy, a former math professor, allegedly collected money for merchandise he sold on eBay and Yahoo Auctions but never delivered the goods. He allegedly told the buyers he was the victim of identity theft, but prosecutors claim he was actually using the identity of one of his students and that he stole his sister-in-law’s identity and used her check card to pay eBay seller’s fees. The loss involved in the charged counts totals over $38,000 (Pittsburgh Post-Gazette, DOJ).
Ella Mae Letellier of Ontario, Oregon has been indicted by a federal grand jury in Boise on 29 counts of mail and wire fraud in connection with a Nigerian check scam she allegedly helped run out of Payette, Idaho. It’s a rerun of the scheme for which a Washington woman was sentenced to prison in June (earlier): a seller is paid with a phony check for more than the amount of the goods, returns the excess money and winds up liable for the entire amount when the counterfeit check is eventually returned. Letellier allegedly acted as an accomplice for Patrick Anthony of Nigeria by sending out counterfeit checks on his behalf (Idaho Statesman). This scheme has been so well publicized online that it boggles the mind that people still bite. David Hannum was right.
In Casper, Wyoming on Wednesday, 19-year-old Jason Milmont of Cheyenne pleaded guilty before US Magistrate Judge Michael Shickich to one count of unauthorized access to a computer to conduct fraud. Milmont admitted creating a botnet of 5,000 to 15,000 computers by modifying the Nugache Worm to infect Limewire users in order to steal credit card and banking information. It’s the first case nationally in which a defendant has been charged with using P2P software to infect users. Milmont agreed to plead guilty in June in Los Angeles where the case originated but it was transferred to Wyoming last month. Milmont will be sentenced on October 23 by US District Judge William Downes. He faces a statutory maximum of five years in prison (Casper Star-Tribune).
In court filings made late Thursday, federal prosecutors laid out more of their case against US Sen. Ted Stevens (R-Alaska) and described several new alleged schemes beyond what was revealed in the indictment. The new evidence was described as part of the government response to a defense motion for dismissal on grounds that the indictment violated the speech and debate clause. The intent is to show that Stevens’ activities had nothing to do with lawmaking.
In one instance, Stevens allegedly turned a $5000 down payment on a Florida condo at a sweetheart price into a net profit of over $100,000 before the condo was ever built, with the aid of an interest-free loan he never reported. Others allegedly involve further entanglements with former VECO CEO Bill Allen, who has pleaded guilty and is expected to testify aganst Stevens. At least two of those allegations came as a result of taped conversations (Anchorage Daily News, WaPo).
In Pittsburgh on Monday, US District Judge Donetta Ambrose sentenced Mary Beth Klorczyk of North Huntingdon, Pennsylvania to 33 months in prison for embezzling $758,000 from her employer. Klorczyk, a former senior financial analyst for a Westinghouse subsidiary, pleaded guilty in April to mail fraud and interstate transportation of property taken by fraud. She admitted embezzling the money between 2003 and 2007 by using her corporate Amex card for personal expenditures and presenting false expense vouchers to Westinghouse. She used the money for expensive vacations, home improvement, cars and jewelry. Why Westinghouse took nearly four years to notice that it was paying such a large amount of expense reimbursements to a $70,000 per year employee is a mystery. At the sentencing hearing, Klorczyk’s attorney presented her as a victim of multiple mental disorders that turned her into a shopaholic, and Klorczyk testified that she stole because she missed her family when she was on business trips and called her children bigger victims than Westinghouse. Judge Ambrose didn’t buy that at all (Pittsburgh Tribune-Review, DOJ).
William Weimar, now of Big Arm, Montana but formerly owner of now-defunct Alaska-based Allvest, Inc., pleaded guilty on Tuesday in US District Court in Anchorage to a two count information charging him with conspiracy to commit honest services mail and wire fraud and structuring financial transactions. Weimar admitted conspiring in 2004 with an unnamed consulting firm and an unnamed candidate for the state legislature to structure $20,000 in illegal payments to the candidate, who would support a private prison project in which Weimar held a contingent interest. Veco, the now-defunct oilfiled services company at the center of most of the Alaska corruption cases (including that of now-indicted US Sen.Ted Stevens), was initially a partner with Allvest in the proposed prison project but was apparently no longer involved by 2004. Weimar will be sentenced on October 29; prosecutors estimate a sentence of 10 to 16 months in prison (Anchorage Daily News, DOJ).
Reza Bahram Tabatabai of Beverley Hills was sentenced on Monday to 87 months in prison by US District Judge Florence-Marie Cooper in Los Angeles for operating fraud schemes in three states which cost lenders over $8 million. Tabatabai operated a series of so-called bust-out schemes in which legitimate businesses were taken over and their lines of credit used to purchase large amounts of merchandise which were essentially resold with no intention of repaying the lenders. He was convicted in 2006 on 55 counts including conspiracy, interstate transportation of fraudulently obtained property, mail fraud, wire fraud and money laundering (AP, DOJ).
Leonard Luchko, a computer tech who worked in the South Philadelphia office of indicted Pennsylvania State Sen. Vincent Fumo, on Monday pleaded guilty to one count of conspiracy and 28 counts of obstruction of justice. Luchko, who was actually employed by Senate Democratic Computer Services, admitted acting at Fumo’s request to delete emails and other evidence from computers used by Fumo, his aides and staffers at Citizens Alliance, a nonprofit involved in the public corruption charges against Fumo. The destruction of evidence allegedly began after Fumo found he was the target of a federal investigation. Luchko is cooperating with prosecutors and will testify against Fumo in exchange for no more than two years in prison (Philadelphia Inquirer, DOJ).
Fumo is charged with using his senate office and staff and Citizens Alliance for his personal gain. His trial begins September 8 before US District Judge William Yohn. Ruth Arnao, his longtime legislative aide, and Mark Eister, a computer tech who worked with Luchko, are co-defendants. Here’s the February 2007 DOJ press release for the superseding indictment.
Rejecting the government’s recommendation of probation (earlier), US District Judge John Walter on Monday sentenced Los Angeles attorney Richard Purtich to two months in prison and fined him $50,000 for his role in the Milberg Weiss kickback scheme. Purtich pleaded guilty in April 2006 to a tax charge for failing to report to the IRS about $900,000 in illegal kickback payments he accepted from Milberg and then funneled to Steve Cooperman, who acted as a lead plaintiff in some Milberg cases. Purtich cooperated with prosecutors in their investigation of Cooperman, who pleaded guilty to a conspiracy count last year. Purtich is expected to be disbarred; he currently works as a contract paralegal (KNBC).
Steven Randock, the third principal in the notorious St. Regis University diploma mill, was sentenced to 36 months in prison on August 5 by US District Judge Lonny Suko in Spokane, Washington for his role in the fraud. He ran the operation with his wife Dixie Randock and daughter Heidi Lorhan, who were sentenced on July 2 (earlier). All three pleaded guilty in March to conspiracy to commit wire and mail fraud; Steven Randock’s sentencing was delayed for medical reasons (Spokesman-Review, DOJ). The Spokesman-Review has also published a list of all known purchasers — 9,612 of them.
The action in the US v. Scruggs bribery case which sent Dickie Scruggs, Zach Scruggs and Sid Backstrom to prison is now at a lull pending the (not yet scheduled) sentencing of Tim Balducci and Steve Patterson. However, there’s still the matter of the case in which Joey Langston pleaded guilty in January to bribing Judge Bobby DeLaughter via former Hinds County DA Ed Peters on behalf of Scruggs to influence the Wilson v. Scruggs civil suit. A federal grand jury which will meet in Oxford beginning August 19 is scheduled to hear the case. Langston, Patterson and Balducci are expected to testify. All three met last week with officials from the DOJ’s Public Integrity Division.This case has the potential to reveal much broader patterns of corruption; a certain former US senator could have a Lott of anxiety come next week (Clarion Ledger).
Meanwhile, the now-suspended DeLaughter is under investigation in at least three other cases unrelated to Scruggs but involving Peters. C-L stories here and here discuss recent developments in two of them.
Former longtime Chicago Alderman Arenda Troutman has become the 27th Chicago alderman to be convicted on corruption charges since 1972. Troutman pleaded guilty to one count each of mail fraud and tax fraud last Wednesday before US District Judge Ruben Castillo, admitting that she regularly solicited bribes from developers wanting to do business in her ward. Troutman was indicted last year on 13 counts including extortion, bribery, mail fraud and tax evasion. She maintained her innocence despite being caught on tape by the FBI asking a developer’s agent “What do I get out of it?” and saying “Most aldermen, most politicians are hos.” She was trounced in her reelection bid last Novermber after the charges were made public. Judge Castillo scheduled her sentencing for December 3 (Chicago Tribune).
US District Judge Arthur Schwab has twice been ordered by the US Court of Appeals for the Third Circuit to release the names of jurors in the trial of former Allegheny County Coroner Cyril Wecht (earlier). Yesterday, instead of just releasing the names as ordered, he announced that he will release the names next Monday, after the jurors and alternates have been notified. That’s right: even though it was public knowledge in advance of the trial that he had been ordered to make the jurors’ names public, and even though he has to release the names even if a juror were now to object, he insists on informing them first and delaying another week (Pittsburgh Tribune-Review).
A principal and CEO of a privately-owned Los Angeles hospital and a man who allegedly recruited homeless patients from L.A.’s Skid Row were arrested last Wednesday following the unsealing of a 21 count federal indictment charging them with operating a sophisticated health care fraud scheme. Dr. Rudra Sabaratnam, CEO of City of Angels Medical Center, was indicted on eight counts of paying kickbacks for patient referrals. Estill Mitts, who operated a storefront “Assessment Center” in skid row, was indicted on four counts of receiving kickbacks for patient referrals, six counts of money laundering and two counts of tax evasion. Mitts and stringers who worked for him allegedly brought the patients to the hospital in exchange for sham consulting fees arranged by Sabaratnam; the hospital allegedly submitted bills to Medicare and Medi-Cal for unnecessary medical treatments or in some cases for treatments never performed. A related civil case has been filed by the City of Los Angeles naming two more hospitals and more defendants, indicating that more federal criminal charges may be forthcoming (LA Times, DOJ).
In Alexandria, Virginia on Friday, US District Judge Leonie Brinkema sentenced Tai Shen Kuo of New Orleans to 188 months in prison for his role in passing classified national defense information about Taiwan from a to an unregistered agent of the People’s Republic of China during the period from March 2007 to February 2008. Kuo, a Taiwanese-born US citizen, pleaded guilty in May to conspiracy to deliver national defense information to a foreign government. He solicited the information from Gregg Bergersen, a former weapons systems policy analyst at an agency within the Department of Defense who had a top-secret clearance; the DOJ press release states that Kuo “led Bergersen to believe that he would make Bergersen a part owner or an employee of a company selling US defense technology to Taiwan after Bergersen’s retirement from government service.” Kuo then used Yu Xin Kang, a Chinese citizen and resident alien, as an intermediary to pass the information to the unregistered Chinese agent. Bergersen was sentenced in July to 57 months in prison. Kang was sentenced to 18 months in prison on August 1.
Ending this week’s sentencings of former executives of National Century Financial Enterprises, US District Judge Algenon Marbley today sentenced former CEO and co-founder Lance Poulsen to 10 years in prison for witness tampering. Poulsen and his associate Karl Demmler were convicted on March 26 on one count each of conspiracy to obstruct justice, witness tampering, witness tampering by influencing testimony and corruptly persuading a federal witness. They allegedly attempted to pay former executive VP for compliance Sherry Gibson $500,000 to $1 million to plead unfamiliarity with the fraud charges against Poulsen and other executives. Gibson, who had pleaded guilty in 2003 to one count of conspiracy to commit securities fraud and agreed to cooperate, went to authorities instead. She was a key witness in the fraud trial of the five executives who were convicted in March, testified against Poulsen and Demmler in this case and is expected to testify against Poulsen in his fraud trial which begins October 1. Demmler’s sentencing was postponed pending completion of a psychological evaluation (Columbus Dispatch).
In Manhattan on Thursday, US District Judge Naomi Reice Buchwald sentenced former Refco Inc. President Tone N. Grant to 10 years in prison for his role in the October 2005 collapse of the company which caused investor and partner losses estimated at $2.4 billion. A jury convicted Grant in April on one count each of conspiracy, securities fraud, wire fraud, bank fraud and money laundering. Grant’s attorneys plan to appeal his conviction (Bloomberg, Reuters). Our previous Refco entries are here.
US District Judge Kenneth Karas on Thursday refused to let imprisoned Bayou Group co-founder Sam (Suicide Is Painless) Israel III enter a plea in his bail jumping case. Israel planned to plead guilty to one count of failure to appear in connection with his disappearance the day he was to start serving his 20-year prison sentence for securities fraud, but in response to Karas’ questioning, he described his ability to understand the proceedings as only 60 to 70 percent because of his methadone addicition. Karas then refused to accept a plea, saying “I have to be satisfied that you’re competent.” He set a new hearing for September 16 (Bloomberg).
Following Wednesday’s sentencings, the third and fourth former National Century Financial Enterprises defendants were sentenced on Thursday by US District Judge Algenon Marbley in Columbus. In the morning, former executive vice president of securitizations Roger Faulkenberry was sentenced to 10 years in prison. He was convicted in March on one count of conspiracy, four counts of securities fraud, one count of wire fraud and two counts of money laundering. On Thursday afternoon, former associate director of marketing and vice president of client development James Dierker received a five year prison sentence. He was convicted on one count of conspiracy and three counts of money laundering. Marbley had previously indicated that he held Dierker less culpable than the other defendants. After fifth defendant Rebecca Parrett flew the coop, Dierker was the only other defendant allowed bond with electronic monitoring (Columbus Bizjournal, Columbus Dispatch, DOJ via Yahoo News).
Co-founder and former CEO Lance Poulsen and his co-defendant Karl Demmler will be sentenced today in connection with their witness tampering convictions. Poulsen’s trial on the fraud charges begins October 1.
In the first of three days of sentencing hearings relating to the collapse of National Century Financial Enterprises, US District Judge Algenon Marbley sentenced co-founder and former COO Donald Ayers to 15 years in prison and former CFO Randolph Speer to 12 years in prison for their roles in the 2002 collapse of the health care provider financing company in what prosecutors called a massive and complex fraud scheme. In their March trial, Ayers was convicted on one count of conspiracy, six counts of securities fraud and one count of money laundering, while Speer was convicted on one count of conspiracy, three counts of securities fraud, one count of wire fraud and six counts of money laundering. Marbley also ordered restitution of nearly $2.4 billion (Columbus Dispatch, Columbus Bizjournal).
Co-defendants Roger Faulkenberry and James Dierker will be sentenced today. Co-founder and former CEO Lance Poulsen has yet to stand trial on fraud charges but he will be sentenced tomorrow in connection with his witness tampering conviction. Convicted co-founder Rebecca Parrett remains at large.
In court documents filed last week in US District Court in Los Angeles, prosecutors recommended that Los Angeles attorney Richard Purtich be sentenced to one year of probation for his role in the Milberg Weiss kickback scheme. Guidelines called for a 21 to 27 months in prison but prosecutors cited his “substantial assistance” in the prosecution of Steve Cooperman, who acted as a lead plaintiff in some Milberg cases. Purtich pleaded guilty in April 2006 to a tax charge for failing to report to the IRS about $900,000 in payments he accepted from Milberg that he passed on to Cooperman, who pleaded guilty to a conspiracy count last year. Purtich will be sentenced on August 11 (National Law Journal).
Angela Isley of Atlanta, former COO of medical supplier Orthoscript, Inc., was sentenced on Monday to 70 months in prison by US District Judge Charles Pannell in Atlanta. A jury convicted Isley in April on 52 counts including health care fraud, mail fraud and money laundering in connection with two schemes (earlier). In one, she submitted $600,000 in fraudulently coded claims to Medicare, causing a loss to Medicare of $219,000. In a separate scheme, she embezzled $360,000 from Orthoscript to pay her and her partner’s credit card bills by falsely coding payments as legitimate business expenses. Arch Nelson, a partner in Orthoscript who testified against Isley, was also sentenced on Monday. He received 5 years probation for misprision of a felony (Forbes/AP, DOJ).
It may be months before the three-judge panel of the Third Circuit rules in the appeal of former Allegheny County Coroner Cyril Wecht, but if reports on Monday’s oral arguments are any indication, the outlook for Wecht is good. Jason Cato’s Pittsburgh Tribune-Review article quotes Senior Judge Franklin Van Antwerpen, who attended via conference call:
This isn’t the fault of the jury. This is the fault of the judge. For all we know, that jury could have been ready to acquit Wecht on all but one count that day. But we’ll never know.
He was referring to the failure of US District Judge Arthur Schwab to poll the jury before declaring a mistrial. He had done so five days earlier, but Wecht’s attorneys argued that they might have sought a partial verdict if the jury had been polled again. Schwab refused to let Wecht’s attorneys interrupt him as he declared a mistrial. Judges D. Brooks Smith and D. Michael Fisher also said that Schwab erred.
A St. Paul area pastor who called himself an apostle and his wife a prophetess was convicted on Friday of defrauding 519 people from Minnesota and Louisiana of $30 million in a Ponzi scheme which operated from April 2004 through December 2005. A federal jury in Minneapolis convicted Neulan Midkiff on eight counts of mail fraud, eight counts of wire fraud, one count of conspiracy and four counts of failure to file tax returns. Midkiff used his position as a minister to solicit investors with the typical promise of high rates of return on investments that were never made, using the funds to pay off earlier investors. He was initially part of a $390 million Ponzi scheme operated by Travis Correll of Atlanta, but Midkiff later started a separate operation of his own. Correll, who pleaded guilty and was sentenced to 12 years in prison, testified against Midkiff at the trial. Midkiff was immediately taken into custody following the verdict. His sentencing hearing has been scheduled for October 1 (Star Tribune, DOJ).
Martin Holtet of LaCrosse, Wisconsin, a former newspaper distributor for the NY Times, was arrested on Tuesday and charged with one count of mail fraud in a scheme which allegedly cost the paper about $325,000. Holtet is accused of creating a total of about 8500 fake customers under the Times’ policy of starting the subscription and billing later. He was paid for each subscription but allegedly just recycled the papers. The Times loss is estimated at about $227,000 in subscription fees paid to Holtet and another $98,000 in printing fees. He was arraigned in US District Court in Madison but the indictment is from the Southern District of New York, where he is scheduled to appear on September 9 (WEAU-TV, DOJ).
In Alexandria, Virginia on Friday, US District Judge Leonie Brinkema sentenced Yu Xin Kang of New Orleans to 18 months in prison for aiding and abetting an unregistered foreign agent. Kang, a Chinese citizen and resident alien, pleaded guilty in May, admitting that she acted as an intermediary in passing classified national defense information about Taiwan from a New Orleans businessman to an unregistered agent of the People’s Republic of China during the period from March 2007 to February 2008. The documents originated with Gregg Bergersen, a former DoD analyst who was sentenced to 57 months in prison on July 11 (earlier). He passed the classified documents to Tai Shen Kuo of New Orleans, a Taiwanese-born US citizen, who passed them to Kang. Kuo also pleaded guilty in May and faces a possible life sentence; he will be sentenced on August 8 (APF, DOJ).
James Walsh, former treasury manager at NBC Universal, pleaded guilty on Friday before US Magistrate Judge Theodore Katz in Manhattan to a two-count information charging him with conspiracy and wire fraud. Walsh admitted that he and his supervisor, former NBC treasurer Victor Jung, were involved in a scheme to embezzle more than $1 million from NBC Universal. The wire fraud count involves a single transfer of $238,000 to a dummy account controlled by Jung, who pleaded guilty in May in the same scheme. Walsh admitted that he and Jung used the money on personal expenditures. His sentencing is set for November 4 and is expected to be in the range of 21 to 27 months in prison (Reuters, DOJ).
The Chronicle’s Mary Flood reported Friday that US District Judge Sim Lake has denied Jamie Olis’ recusal motion (earlier here and here ), which was requested because Lake and the late USA Mike Shelby went to the same schools, served in the military and worked at the same law firm (all at different times) and that Lake swore in Shelby. In denying the motion, Lake ruled that the request was filed too late and wrote, “Olis does not point to any evidence showing that any of the court’s prior rulings in this case are based on an extrajudicial source or that they exhibit the degree of favoritism or antagonism required to warrant recusal.”
A three judge panel of the US Court of Appeals for the Third Circuit on Friday again overruled US District Judge Arthur Schwab in his machinations to keep the names of jurors secret in the public corruption trial of former Allegheny County Coroner Cyril Wecht. In January, ruling on an appeal by Wecht and news organizations, the Court ordered Schwab make the jurors’ names public before they were sworn in, but Schwab only allowed the seated jurors’ names to be read aloud once in court and later released a list of all prospective jurors without specifying which had been chosen.
In Friday’s ruling, the Court stated that juror identification is a “well-established part of American judicial tradition” and called Schwab’s reasons for disallowing it “conclusory and generic,” saying that his reasoning “would justify anonymity in virtually every jury trial, whether or not it attracts media attention.”
Wecht’s retrial is on hold pending appeal, and the same three judge panel will hear oral arguments today in that appeal. The primary issue is the defense motion for dismissal on grounds that a retrial would violate Wecht’s constitutional protection against double jeopardy (Pittsburgh Post-Gazette).
Hernán Arbizu, a former vice president in the private banking division at JPMorgan Chase,was arrested Monday in Argentina after the unsealing of a 15-count indictment in Manhattan charging him with embezzling almost $5.4 million from the accounts of bank customers at JPMorgan and UBS. He allegedly made 12 unauthorized transfers of funds between March 2007 and April 2008; that total includes 4 transfers totaling almost $2.8 million from a JPMorgan account on April 15, 2008 allegedly accomplished by forging a letter of authorization. He was fired in May and JPMorgan is also suing him for theft (Bloomberg, DOJ).
US Sen. Ted Stevens (R-Alaska) pleaded not guilty to charges of making false statements at his arraignment on Thursday afternoon before US District Judge Emmet Sullivan in Washington. Stevens’ attorney Brendan Sullivan requested a speedy trial and Judge Sullivan scheduled the trial to begin on September 24. Prosecutor Brenda K. Morris said that no plea deal has been offered (WaPo).
Julian Tzolov, one of two former Credit Suisse brokers known to be under criminal investigation for securites fraud in the Eastern District of New York, has disappeared. Prosecutors suspect that Tzolov has returned to his native Bulgaria. The investigation of Tzolov and Eric Butler is said to center on whether they lied to investors about what was backing the auction rate securities they sold. ($WSJ$ , Reuters).
Leslie Anderson and David Dalglish, both of Toronto, Ontario, were sentenced earlier this week to 280 months and 235 months in prison, respectively, by US District Judge William Stiehl in East St. Louis, Illinois for their roles in a multi-million dollar telemarketing scam. The sentencing of co-conspirator Lloyd Prudenza was rescheduled for October 1. Dalglish, Anderson and Prudenza operated the Toronto-based First Capital Consumers Group. The firm targeted US residents with substandard credit, promising them a credit card for an advance fee of between $189 and $219 but never delivering a credit card. Prosecutors said that about 40,000 victims paid the defendants and their co-conspirators about $8 million in fees. Anderson was convicted by a jury in March on one count of conspiracy, five counts of mail fraud and eighteen counts of wire fraud. Dalglish and Prudenza pleaded guilty to the same charges in February (Canwest, DOJ).
On Thursday, Steven Winter and Sean McVicar, both also of Toronto, surrendered to US authorities and pleaded guilty in US District Court in East St. Louis to one count of conspiracy and one count of mail fraud in a separate but similar Canadian-based scheme. In this case, their companies sold bogus “credit protection services” and collected advance processing fees for credit cards, allegedly bilking 37,000 consumers out of about $10.5 million. Their sentencing has been scheduled for November 2 (St. Louis Bizjournal, DOJ).
Prosecutors in the Southern District of Illinois won another conviction earlier this year in the Kyle Kimoto case, a $43 million fraud of the same type. His sentencing is scheduled for September 5.
The Mississippi Supreme Court on Thursday announced the permanent disbarment of Dickie Scruggs, Zach Scruggs and Sid Backstrom, as expected (Sun Herald).
Dickie and Zach Scruggs were compelled to give depositions last week in McIntosh v. State Farm. It was reported (to no one’s surprise) that they invoked their Fifth Amendment rights. They wanted the depositions sealed, which State Farm opposed. On Wednesday, the transcripts were made public, and many of the questions posed by State Farm attorneys were certainly eye-openers, alleging details of a wide ranging scheme involving Trent Lott, Jim Hood, the Rigsbys and others. Y’all Politics has the details and the Sun Herald also has a story. State Farm on Tuesday filed an emergency motion to compel testimony, but considering the possible further criminal implications for both Dickie and Zach Scruggs, it would be surprising if the motion were granted.
Meanwhile, in a rewrite of Tuesday’s story, the Sun Herald reported Wednesday that the Rigsbys have obtained new counsel in the qui tam case, Gilbert Randolph of Washington.
Following its July 18 decision in the case of David Finnerty (earlier), a three-judge panel of the US Court of Appeals for the Second Circuit reversed (.pdf) the convictions of specialists Michael Hayward and Michael Stern, both formerly of Van der Moolen Specialists USA. Both were convicted of securities fraud in January 2007 in connection with an interpositiong scheme; both were sentenced to six months in prison. As in Finnerty, the Court ruled that the evidence was insuffcient to prove deception (Reuters).
The full US Court of Appeals for the Tenth Circuit in Denver on Wednesday agreed to review the March 17 decision of the three-judge panel which reversed the insider trading convictions of former Qwest CEO Joe Nacchio and remanded the case for retrial before a different circuit court judge (earlier). The court will consider only the issue which caused the reversal, US District Judge Edward Nottingham’s exclusion of law professor Daniel Fischel, who would have been the key expert defense witness. Oral arguments are scheduled for September 24. Nacchio remains free on bond (Rocky Mountain News, Reuters).
It’s beyond our scope to delve into all the filings in ex rel. Rigsby, the qui tam case filed by Kerri Rigsby and Cori Rigsby Moran, formerly represented by Dickie Scruggs. But the latest ones are of importance because if true, they confirm what those of us without blinders have suspected all along: that the whole production was staged by Scruggs from the beginning, well before either he or the Rigsbys insist they met each other.
State Farm has filed a response opposing Provost Umphrey’s entry for the Rigsbys, as they earlier indicated they would. In support of certain of the arguments in that motion, State Farm also presented transcripts from adjuster Tammy Hardison and her assistant Dana Lee, former Rigsby coworkers at E. A. Renfroe. We won’t go into all the jaw-dropping details, but David Rossmiller has an excellent and hilarious review of the content. We agree with his assesment: “The Ride of the Rigsbys is definitely over, finished, bye-bye, ancient history, kaput, ausgespielt.” Anita Lee at the Sun Herald has a story here.
Debra Harrison of Trenton, New Jersey, a lieutenant colonel in the Army Reserves, pleaded guilty on Monday to honest services wire fraud before US District Judge Mary Cooper in Trenton. Harrison is yet another figure in the scheme to defraud the Coalition Provisional Authority – South Central Region (CPA-SC) by construction contractor Philip Bloom, who bribed persons connected with CPA-SC in exchange for the award of Iraqi reconstruction contracts to his firms. In her plea, Harrison admitted receiving a Cadillac Escalade from Bloom in 2004 and more than $300,000, some of which she used to make home improvements. She faces a stautory maximum of 20 years in prison when she is sentenced on November 19. Bloom is currently serving a 46 month prison sentence; his principal co-conspirator Robert Stein was sentenced to 9 years in prison (DOJ).
Former Refco Chairman and CEO Phillip Bennett, who was sentenced to 16 years in prison on July 3, will appeal his sentence — not his conviction — to the the US Court of Appeals for the Second Circuit. Bennett pleaded guilty in February to conspiracy, wire fraud, bank fraud, money laundering and making false SEC filings in connection with the October 2005 collapse of the company which caused investor and partner losses estimated at $2.4 billion (Reuters).
A grand jury in Washington has indicted US Sen. Ted Stevens (R-Alaska) on seven counts of making false statements on his Senate financial disclosure forms between 1999 and 2006. The indictment (.pdf) alleges that Stevens actively schemed for years to conceal over $250,000 in gifts he received from VECO Corporation, its CEO Bill Allen and two other unnamed parties. VECO is a now-defunct oilfield services company that was once the Alaska’s largest. Allen and former VP Rick Smith pleaded guilty to corruption charges in 2007 and have been cooperating with prosecutors (Bloomberg, McClatchy). We’ve covered other VECO-related corruption cases here.
Federal prosecutors in Miami on Friday announced that Dasford Demetrius of Broward County (home of the dimpled chad) has been indicted on 46 counts of mail fraud in connection with a “work-at-home” scheme he promoted. Demetrius allegedly offered customers opportunities to make money by mailing promotional materials from home, requiring upfront fees from $40 to as much as $299 and “guaranteeing” payments of $30 per package mailed.The indictment alleges that he collected over $1.5 million in upfront fees and never compensated any of the participants. The indictment also states that Demetrius has a history of engaged in fraudulent work-at-home schemes and has twice before been under a Consent Order with the USPS, promising to cease and desist (Sun-Sentinel, DOJ)
Attorney Paul Arparo of Hartford, Connecticut pleaded guilty on Thursday before US District Judge Alvin Thompson in Hartford to one count of conspiracy to commit financial institution bribery and one count of bank fraud in connection with a bid rigging scheme involving the sale of bank loans. Arparo admitted that between 2001 and 2007 he conspired with Kevin O’Keefe,a vice president of Fleet Bank (later acquired by Bank of America) and an unnamed real estate developer to rig the bidding process on portfolios of distressed loans that Fleet offered for sale. O’Keefe, who pleaded guilty in June, supplied Arparo and the developer with inside information and gave false information to other bidders so that the developer could submit the winning bid on the properties. Arparo acknowledged that he and O’Keefe shared $1.4 million in payoffs from the developer. Aparo faces a statutory maximum of 35 years in prison. His sentencing is scheduled for October 14 (Newsday, DOJ).
Jeremiah Mondello of Eugene, Oregon was sentenced to four years in prison on Wednesday by US District Judge Ann Aiken in Portland for criminal copyright infringement, aggravated identity theft and mail fraud. Mondello pleaded guilty to the charges in May. He admitted using computer viruses to install keystroke logging software which he used to steal financial data from at least 40 victims. He then used the stolen data to set up multiple bank, eBay and PayPal accounts under which he sold counterfeited software between 2005 and 2007. He made about $400,000 but the loss to the copyright owners was an estimated $1.2 million (Wired News, DOJ).
Deborah Lee Stinson and her son Mark Alan Stinson, both of Dallas, were indicted on Wednesday on counts of conspiracy to commit wire fraud and structuring transactions to evade reporting requirements. Deborah Stinson has been a support employee with the FBI in Dallas for 20 years. The charges arose from an unusual circumstance: Mark Stinson shot and killed a man in a home invasion last year. He was cleared, but investigators noticed a number of expensive vehicles at his house which were all titled to his mother. The indictment alleges that Mark Stinson gave his mother large sums of cash to set her up as a straw buyer of the vehicles and as a straw borrower on car loans which were based on falsified applications. Both Stinsons made their initial court appearance on Thursday and pleaded not guilty. There’s no word yet on where the large sums of cash came from (Dallas Morning News, DOJ).
Staten Island dentist Terrance Stradford was sentenced on July 21 to 10 years in prison by US District Judge Freda Wolfson in Trenton, New Jersey in connection with loan frauds totaling $2.76 million. A jury convicted Stradford in September 2007 on 24 counts including conspiracy, tax evasion, wire fraud and money laundering. Stradford obtained mortgages from two lenders totaling $1.36 million on a property in Berlin Township, New Jersey worth about 25% of that amount and already encumbered by first and second mortgages, by falsifying deed records to show that there were no other mortgages and having the proceeds wired to a title company he had established to carry out the scheme. He was assisted by Christina Hachadoorian, who pleaded guilty and testified against him; she is to be sentenced in November. The defendants spent the proceeds on themselves, including the purchase of a 46 foot yacht. Judge Wolfson also held Stradford responsible for $1.4 million in other fraudulent loan transactions (Courier-Post, DOJ).
In an interview published on Thursday by WHNT in Huntsville, former Alabama Governor Don Siegelman attacked Karl Rove for his defiance of the House Judiciary Committee’s subpoena ordering him to appear and accused Rove of weaseling in his written response to the committee: “Even his written non-answers were not under oath and clearly evasive.” Siegelman also announced the launch of a petition drive located on his website urging Congress to find Rove in contempt.
Sentencing dates for five former executives of National Century Financial Enterprises, previously scheduled for July 21-23 (earlier), have been rescheduled. Donald Ayers and Randolph Speer now will be sentenced on August 6 while Roger Faulkenberry and James Dierker will be sentenced on August 7. A new date has not yet been set for Jon Beacham,who pleaded guilty in July 2007 and testified against the others at their trial earlier this year (Columbus Dispatch).
Cecelia Grimes of Parkesburg, Pennsylvania, a former defense lobbyist and close friend of former US Rep. Curt Weldon (R-Pa.) pleaded guilty on Friday before US District Judge Henry Kennedy in Washington to a one-count information charging her with destruction of evidence. Grimes was served with grand jury subpoenas by the FBI in 2006 seeking documents about her association with Weldon. She admitted destroying the documents soon afterwards. She is now cooperating with prosecutors in the ongoing investigation of Weldon. Sentencing has been scheduled for January 23, 2009. She is expected to receive a sentence of 10 to 16 months in prison (Philadelphia Inquirer, DOJ).
Ken Silverstein at Harper’s has more here on the activities of Weldon and his daughter Karen, including a link to the LA Times article he co-authored in 2004 which prompted the investigation.
A federal jury in Greenbelt, Maryland on Thursday convicted former Prince George’s County Schools Superintendent Andre Hornsby on six of the 22 public corruption-related counts he faced: three counts of honest service wire fraud and one count each of evidence tampering, witness tampering and obstruction of justice. Hornsby was acquitted on one wire fraud count and one attempted witness tampering count; jurors were deadlocked on the remaining counts. An earlier trial last year ended in a hung jury.
Hornsby, who resigned in 2005 when the allegations arose after a Baltimore Sun investigation, was accused in two different schemes of illegally steering district contracts to favored parties in exchange for kickbacks. One party was the company operated by Hornsby’s now ex-girlfriend Sienna Owens, who pleaded guilty to impeding IRS laws and testified against him; she is awaiting sentencing. The other party was longtime business associate Cynthia Joffrion. The three wire fraud counts on which he was convicted all relate to Owens’ firm. Hornsby faces a statutory maximum of 90 years in prison, although guidelines will call for considerably less time. US District Judge Peter Messitte scheduled sentencing for October 20 (Baltimore Sun, WaPo).
“Spam King” Eddie Davidson, who escaped from a minimum security federal prison in Florence, Colorado on Sunday (earlier), shot and killed his wife and three-year-old daughter on Thursday morning and then killed himself. Their bodies were found at their former home in Bennett, east of Denver, in and beside the same vehicle his wife was driving Sunday night when he jumped in and forced her to drive off. The current homeowners were at work. His 14-year-old daughter escaped after being grazed in the neck and his seven-month-old son was found unharmed in the back seat.
USA Troy Eid said “What a nightmare, and such a coward. Davidson imposed the death penalty on family members for his own crime.” Davidson was sentenced to 21 months in prison on April 28 and began serving his sentence in late May (Rocky Mountain News, Denver Post).
Provost Umphrey of Beaumont, Texas, the law firm which has picked up some of the clients from the now-disqualifed Scruggs Katrina group in the Shows v. State Farm RICO lawsuit, has filed a Motion for Leave to discuss and consider representing the Rigsby sisters in ex rel. Rigsby, the qui tam case. They also ask for an extension of the deadline for the Rigsbys to obtain representation. Oddly, the motion was filed in connection with a different civil action, Alford v. State Farm, yet it seeks relief for Provost Umphrey, not Alford. Attorneys for State Farm quickly filed a notice of intent to respond in opposition to the firm’s attempt to represent the Rigsbys, but will not oppose giving the Rigsbys more time to obtain new counsel The Sun Herald story has links to both filings.
At a House Judiciary Committee hearing on Wednesday, AG Michael Mukasey said that results of the OPR probe into the prosecution of former Alabama governor Don Siegelman will be released to Congress, and depending on the results, may be released to the general public (Huntsville Times/AP).
During the hearing it was revealed that purported emails between jurors during the trial were determined to be false but that US District Judge Mark Fuller failed to notify defense attorneys (Birmingham News).
Karl Rove on Wednesday responded in writing to questions posed by HJC Republicans, denying that he had anything to do with the Siegelman prosecution, either directly or indirectly (NY Times, LA Times).
The Rocky Mountain News reported Wednesday that “Spam King” Eddie Davidson escaped from a minimum security prison in Colorado on Sunday. Davidson was sentenced in late April to 21 months in prison (earlier).
In Seattle on Tuesday, US District Judge Marsha Pechman sentenced “Spam King” Robert Soloway to 47 months in prison for violating the CAN-SPAM act. Soloway pleaded guilty in March to email fraud, mail fraud and tax evasion (Seattle Post-Intelligencer, DOJ).
And let’s not forget Adam Vitale, who was sentenced to 30 months in prison last week for spamming (earlier). Investigators and prosecutors crowned him the “Spam King” too.
Somebody stop the coronations, please! Not every spammer can be the Spam King. I suggest using Spam Dauphin, Spam Crown Prince or Spam Duke of Earl.
The Bureau of Prisons has ordered Dickie Scruggs to report to the low security federal prison in Ashland, Kentucky on August 4. Zach Scruggs has been ordered to report to the minimum security federal prison camp in Pensacola, Florida on August 15. Co-defendant Sid Backstrom was assigned earlier to the low security federal prison in Forest City, Arkansas, as he had requested; he reports on August 4. (Sun Herald).
Now that legal proceedings have concluded, disbarment of the three defendants is imminent (Sun Herald). The Mississippi Bar’s earlier motions to suspend were never acted upon, possibly because of the Mississippi Supreme Court’s limited schedule after sprinkler flooding damaged the Court’s offices in May.
Scott Horton at Harper’s interviews former USA David Iglesias about the DOJ scandal and what happened in New Mexico when he was pressured to bring voter fraud prosecutions he believed he couldn’t win. It’s worth noting that Iglesias does not include the case of Paul Minor when discussing possible politically motivated prosecutions. He brings up the cases of Don Siegelman, Cyril Wecht and Wisconsin employee Georgia Thompson, but says, “I am not aware of even the allegation of a ‘Faustian bargain’ with the remaining 81 US Attorneys.”
A federal grand jury in Richmond, Virginia on July 10 returned a superseding indictment in the case of Edward Okun of Miami, who was indicted in March (earlier) in connection with the theft of $132 million in client funds held in trust by 1031 Tax Group (1031TG), his qualified intermediary company. Okun allegedly converted the funds for his personal and business use, including the purchase of a $6.7 million house and a $15.5 million yacht. There are allegedly 577 victims in the case. The 27 count superseding indictment charges Okun and Lara Coleman of Richmond, his Chief Operating Officer,with conspiracy wire fraud, mail fraud, money laundering and bulk cash smuggling and forfeiture. Okun also faces one count of making false statements. Coleman made her initial appearance in the case on July 10. Both Okun and Coleman pleaded not guilty on July 18 (Richmond Times-Dispatch, DOJ).
Indadeeq Omar of Eden Prairie, Minnesota was sentenced on July 17 in Minneapolis to 72 months in prison for defrauding Medica Health Plans out of an estimated $1.7 million in medical assistance payments from 2001 to 2004. Omar, an immigrant from a prominent Somali family, owned Global Interpreter Corp., which contracted with Medica to provide translation services to Medica members who needed it when receiving care. These claims were processed by Medica on behalf of the Medicaid public health care benefit program. A jury convicted Omar in December 2007 on 46 counts of health care fraud, money laundering and related charges for submitting thousands of bills for translation services that were never rendered. Tou Chaiker Vang, a Medica employee, fed inside information to Omar which enabled phony billings to match clinic visits by plan members. Vang pleaded guilty to conspiracy and testified against Omar; he was sentenced in April to one year and one day in prison. Omar’s husband, Mohamed Essa was indicted along with Omar but he fled the US. He was captured in April in South Africa and has since been returned to face trial (Star Tribune).
Federal prosecutors in Philadelphia on Monday announced the filing of a one count information charging former KYW-TV news anchor Larry Mendte with intentionally accessing a protected computer without authorization. Mendte, who was fired last month after the FBI raided his house, is accused of hacking into former co-anchor Alycia Lane’s email accounts for over 2 years, including 537 times between January 1 and May 26, 2008, and leaking her personal information to a Philadelphia Daily News gossip columnist. He apparently accessed the account by installing a keystroke logger, although that is not specified in the information. The emails included attorney-client communications relating to criminal and civil litigation involving Lane. A hearing has been set for August 22, at which Mendte is expected to plead guilty. He faces a statutory maximum of five years in prison (Philadelphia Inquirer, DOJ Press Release, Information).
Adam Vitale of Brooklyn was sentenced to 30 months in prison last Tuesday by US District Judge Denny Chin in Manhattan for his role in a scheme that sent 1.2 million spam emails to AOL subscribers in one six-day period in 2005. Vitale was listed as a professional spammer on an industry watchlist operated by Spamhaus. He was caught because the spamming was done on behalf of a confidential informant. Vitale and co-defendant Todd Moeller, who was sentenced last November to 27 months in prison, used multiple servers to bypass AOL’s spam filters, indicating that they may have been operating a botnet. Ironically, the spam was for a computer security product. Vitale pleaded guilty in June 2007 to one count of conspiracy and two counts related to the illegal spamming (Reuters via Yahoo, DOJ).
In a unanimous decision published on Friday, a three-judge panel of the US Court of Appeals for the Second Circuit upheld (.pdf) the acquittal of David Finnerty, a former NYSE specialist trader at Fleet Specialist, now Banc of America Specialist. A jury in the Southern District of New York in October 2006 convicted Finnerty on three counts of securities fraud in a scheme known as interpositioning. But in February 2007 US District Judge Denny Chin acquitted Finnerty, holding that “the government did not … establish that Finnerty’s customers were misled or defrauded or otherwise deceived.” In upholding Chin’s ruling, the appellate panel acknowledged that Finnerty had violated NYSE rules but held that the violation “does not bespeak criminally fraudulent conduct within the context of the securities laws,” and agreed that the government failed to prove that Finnerty had engaged in deceptive conduct or misled his customers (Reuters).
“It is not my practice to accept guilty pleas from people who are not guilty.” So said US District Judge Saundra Armstrong, according to a transcript of a June 10 hearing in Oakland in the case of Chi Yang, as reported Friday by Dan Levine in the Cal Law Recorder (via Law.com). Yang and his biotech company SynPep were indicted in 2006 for allegedly falsifying information about their products. Although Yang was about to plead to making a false statement rather than fraud, Armstrong didn’t believe the government had a case against Yang after questioning him. The parties have not been able to reach a new plea agreement and Armstrong has now set a trial date of November 3. The rejected plea called for prison time for Yang but if the case were to go to a jury, the potential consequences for Yang could be far greater.
US District Judge Danny Reeves has set October 14 as a retrial date for William Gallion and Shirley Cunningham, Jr., two of the three attorneys who were tried for conspiracy to commit wire fraud against class action members in a lawsuit against fen-phen maker American Home Products. The trial is likely to be delayed due to defense attorneys’ commitments to other cases. The third defendant, Melbourne Mills, Jr., was acquitted on July 1 but US District Judge William Bertelsman declared a mistrial on July with jurors apparently deadlocked 10-2 in favor of acquitting Gallion and Cunningham. Bertelsman has since recused himself. A superseding indictment will be forthcoming which will omit Mills, and AUSA Laura Voorhees told Judge Reeves that additional charges may be brought against Gallion and Cunningham. Voorhees later said that there will be new calculations of the amounts the defendants allegedly took from their clients. Unable to win a conviction on one set of allegations, the USAO plans to move the goal posts (Lexington Herald-Leader).
Rhonda Harris of Wagoner, Oklahoma on Tuesday was sentenced to 168 months in prison by US District Judge Ronald A. White in Muskogee for embezzling millions from bank customers of Arvest Bank and its predecessors over a 25 year period. Harris pleaded guilty in March 2008 to one count of embezzlement by a bank officer and one count of money laundering; she also received 120 months on the money laundering count, to be served concurrently. From the sentencing press release:
On October 23, 2006, a bank customer went to the bank branch in Tulsa to cash a CD she had purchased at the Wagoner branch. Tulsa branch officers were unable to find evidence that the CD existed. The officials researched other accounts and determined that several accounts had been compromised.
An executive Vice President immediately confronted the defendant. She confessed that she had been stealing from the bank for 25 years. She was quickly removed from the bank and interviewed that day. She gave a partial list of affected customers, accounts, and amounts.
82 customers suffered losses and about $5.6 million has been paid to them by the bank and Chubb Insurance. That amount includes interest that would have been earned had the money not been stolen (The Oklahoman, DOJ).
In Anderson, South Carolina on Wednesday, Daryl Batts pleaded guilty before US District Judge G. Ross Anderson, Jr. to a two-count information charging him with securities fraud and mail fraud. Batts, owner of Comprehensive Financial Solutions Inc. in Easley, admitted defrauding about 150 investors of about $5 million in what prosecutors described as a classic Ponzi scheme. Batts took in about $6 million over a 6 year period to be invested in securities and life insurance products but never invested any of the money, keeping investors at bay with falsified statements and eventually paying out about $1 million to old investors with new investors’ money. Much of the remainder was converted to personal use, although as much as $2-3 million may be recoverable. Batts faces a statutory maximum of 50 years in prison; a sentencing date will be set later (Greenville News, DOJ).
Mark Turkcan, former president and CEO of St. Louis’ First Bank Mortgage, was indicted last Thursday by a federal grand jury on 11 counts in connection with a scheme that allegedly cost its parent First Bank an estimated $35 million. Turkcan faces eight counts of wire fraud and one count each of misapplication of bank money, making false bank entries and causing the filing of a false annual report. The scheme allegedly began as far back as 1987 when Turkcan worked for a bank later purchased by First Bank. He allegedly lost $5 million on unauthorized mortgage-backed securities investments, hid the losses, and spent the next 20-plus years doing more of the same in order to recoup his losses. Instead, the losses increased to about $35 million (St. Louis Post-Dispatch, DOJ).
In Washington on Friday, US District Court Judge Colleen Kotar-Kotelly sentenced Martin McLaren of Bethesda, Maryland to 37 months in prison for making false statements in relation to health care matters. McLaren, an anesthesiologist who owned the Pain Management Center based in Hyattsville, admitted to receiving at least $1.75 million as a result of fraudulent billings submitted to Medicare, Medicaid and private carriers between 2000 and 2006 (Washington Times, DOJ).
Ryan McCourt and Kenneth Hartley, both former managers for McCourt Construction Company, last Thursday pleaded guilty before US District Judge Joseph Tauro in Boston 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. Ryan McCourt’s plea agreement had been announced in February at the time McCourt Construction pleaded guilty (earlier). Both men admitted taking part in an overbilling scheme on the I-93 Tip O’Neill Tunnel project, in which subcontractors charged journeyman labor rates for work actually done by apprentices. Judge Tauro scheduled sentencing for October 1; Ryan McCourt and Hartley face a statutory maximum of five years in prison. McCourt Construction’s sentencing date is August 22 (Boston Herald, DOJ).
US District Judge John E. Jones III on Friday refused to dismiss the tax fraud and conspiracy indictment in the Middle District of Pennsylvania against Adelphia Communications founder and former CEO John Rigas and his son, former Adelphia CFO Timothy Rigas. In this case, they are accused of evading about $300 million in personal income taxes. Both men were convicted of securities fraud, bank fraud and conspiracy in the Southern District of New York and are currently serving sentences of 12 and 17 years, respectively (earlier).The Rigases sought dismissal on grounds of double jeopardy and that their acquittal on one wire fraud count in the New York case meant that they didn’t convert Adelphia funds for personal use. But Jones ruled that the Pennsylvania case essentially covers separate offenses and that the acquittal on the wire fraud count did not mean the jury concluded they didn’t defraud Adelphia (Harrisburg Patriot-News).
Atul Malhotra of Santa Barbara, California, a former Hewlett-Packard vice president who had previously worked for IBM, pleaded guilty on Friday to one count of theft of trade secrets before US District Court Judge Jeremy Fogel in San Jose. Malhoutra admitted that in March 2006, while he was a sales director at IBM, he requested confidential documents containing trade secrets about pricing and product costs; in July 2006, two months after joining HP, he passed the documents to two senior vice presidents at HP. Malhotra faces a statutory maximum of 10 years in prison; sentencing is scheduled for October 9. IBM and HP fully cooperated in the investigation (Reuters via IHT, DOJ).
Attorney Paul Seltzer on Monday became the final Milberg Weiss (now Milberg LLP) defendant to plead guilty in the racketeering and money laundering case against the firm and its former principals. Seltzer pleaded guilty before US District Judge John Walter in Los Angeles to one count of corruptly endeavoring to obstruct the IRS code. He admitted accepting almost $50,000 from the firm and failing to tell the IRS that he transferred $19,000 of it to Seymour Lazar, the convicted dummy plaintiff in many of Milberg’s class action shakedowns suits. Sentencing is scheduled for November 3. Seltzer faces a statutory maximum of three years in prison but prosecutors will recommend probation (AP/San Jose Mercury News).
The trial of former National Century Financial Enterprises CEO Lance Poulsen on securities fraud and related charges has been postponed. It was scheduled to begin August 4 but US District Judge Algenon Marbley rescheduled the start date to October 1. He granted the delay because Poulson’s attorneys need more time to review 40 boxes of evidence they have recently received from the government. Poulsen was to have been tried with five other executives, all of whom were convicted on March 13, but his trial was delayed because he was indicted for witness tampering; he and an associate were convicted on all those counts on March 26. The delay pushes back the fraud trial of a seventh National Century executive, James Happ, from October 1 to December 1 (Columbus Dispatch).
Emperors Club VIP booking agent Tanya Hollander will become the fourth and final defendant connected with the club to plead guilty in the prostitution ring case that ensnared Eliot Spitzer. Although she pleaded not guilty in US District Court in Manhattan on Monday, her attorney said she would plead guilty to to one count of conspiracy to violate the federal Travel Act at a hearing scheduled for August 25. The other three defendants, Mark Brener, Cecil “Katie” Suwal and Temeka Lewis, pleaded guilty to money laundering conspiracy in addition to prostitution-related conspiracy, indicating that Hollander is likely to receive a lighter sentence. There’s still no word from prosecutors about any possible charges against Spitzer (Reuters).
In Alexandria, Virginia on Friday, US District Judge Leonie Brinkema sentenced Gregg Bergersen of Alexandria to 57 months in prison for conspiracy to disclose national defense information to persons not entitled to receive it. Bergersen, a former weapons systems policy analyst at an agency within the Department of Defense who had a top-secret clearance, pleaded guilty on March 31. He admitted passing classified national defense information about Taiwan to a Taiwanese-born US citizen, Tai Shen Kuo of New Orleans. He was unaware that Kuo was passing the information to Yu Xin Kang, also of New Orleans, and that she was passing the information to an unregistered agent of the People’s Republic of China. Kuo and Kang pleaded guilty in May and will be sentenced in August (Reuters via WaPo, DOJ).
All in the family: Chad Wickline and his father Dan Wickline, both of Pickerington, Ohio, pleaded guilty on Thursday in connection with a so-called debt-elimination service they ran. The pleas came in the middle of their trial before US District Judge Algenon Marbley in Columbus. Chad Wickline pleaded guilty to one count of mail fraud and one count of conspiracy to commit money laundering; Dan Wickline pleaded guilty only to the conspiracy count. The Wicklines’ company, Liberty Resources, advertised a “100% legal” and “100% successful” plan to eliminate credit card debts, charging a $7,500 fee to reveal the “little-known fact that federally insured banks really don’t have the authority to issue credit.” And about 400 idiots people actually fell for it, going further in debt, dmaging their credit and in some cases going into bankruptcy. Sentencing will be scheduled later (Columbus Dispatch, DOJ).
Following the June 30 guilty plea of Anthony Tesvich, a second former Home Depot employee has pleaded guilty in the kickback scheme. James P. Robinson of on Friday pleaded guilty to one count of conspiracy to commit wire fraud and two counts of tax evasion before US District Judge Richard Story in Atlanta. Robinson admitted taking kickbacks from foreign flooring suppliers who wanted to do business with Home Depot. The tax counts include $765,000 in unreported income from 2005 and 2006. Sentencing is scheduled for October 14 (Atlanta Journal-Constitution, DOJ).
“Justice should be dispensed just as surely to the powerful and well-connected as anyone else.” Guest columnist Craig Ziemba has an excellent op-ed in The Meridian Star.
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 by USA Alice Martin, has filed a formal complaint with the OPR alleging misconduct by Martin. Latifi and Axion were awarded legal fees and other costs in an April ruling by US District Judge Inge Johnson. Latifi’s attorney Henry Frohsin said the DOJ has told him that the investigation has begun (Birmingham News).
NPR reports that Deputy Special Counsel James Byrne, the number two man in the US Office of Special Counsel behind controversial Special Counsel Scott Bloch, announced his resignation on Thursday. The resignation was said to be “in protest over the way the office has been run” under Bloch, who is currently under federal investigation. Our earlier Bloch coverage: 1 2 3.
Being Mary Beth Buchanan’s sock puppet must be tiring. Stephen Stallings, the lead prosecutor in the severely misguided public corruption case against former Allegheny County Coroner Cyril Wecht, has left the Western District of Pennsylvania to go into private practice. He says it’s not about his failure to convict Wecht (Pittsburgh Tribune-Review).
78-year-old John Cowdery, a Republican state sentaor from Anchorage and the oldest member of the Alaska legislature, is the latest politician to be indicted in the state’s ongoing public corruption investigation. And once again, it involves officials of VECO Corporation, the now-defunct oilfield services company that was once Alaska’s largest. A federal grand jury on Wednesday indicted Cowdery on one count of bribery and one count of conspiracy. The indictment alleges that Cowdery and his co-conspirators, including VECO CEO Bill Allen and VP Richard Smith, “corruptly offered and agreed to give financial benefits to another state legislator (State Senator A) to influence and reward State Senator A in exchange for State Senator A agreeing to perform official acts as a member of the Alaska State Legislature.” The unnamed state senator was allegedly offered $25,000 in 2006 to vote in favor of oil and gas legislation favored by VECO. The $25,000 was allegedly mischaracterized as campaign contributions. Cowdery’s attorney has identified the mystery senator as Donny Olson, a Democrat from Nome who was then running for lieutenant governor (Anchorage Daily News, DOJ).
Allen and Smith have already pleaded guilty in the investigation and are cooperating with prosecutors. They have implicated US Sen. Ted Stevens and his son, former Alaska state Senate President Ben Stevens; both have denied wrongdoing. US Rep. Don Young is also under investigation.
Mark Lay, chief executive and founder and CEO of now-defunct MDL Capital Management of Pittsburgh, was sentenced on Tuesday to 12 years in prison by US District Judge David Dowd in Akron. A jury convicted Lay last October of investment advisory fraud, two counts of mail fraud and conspiracy. The charges arose from his allegedly unauthorized investment of $216 million on behalf of the Ohio Bureau Of Workers Compensation.The bureau was the only investor in a highly leveraged hedge fund which failed. Lay contended there was no criminal intent. He was taken into custody immediately following sentencing. It’s the latest conviction in the Ohio corruption investigation that started with former Republican fundraiser Tom Noe (Columbus Bizjournal, DOJ).
Dr.William W. Hampton of Orange County was sentenced to 10 years in prison on Monday by US District Judge Audrey Collins in Los Angeles for his involvement in a scheme where patients were recruited for unnecessary surgery for “sweaty palm syndrome” and other bogus procedures. He was also ordered to pay nearly $2.5 million restitution to insurance companies he defrauded, although the total amount of the fraud was alleged to be over $9 million. A jury convicted Hampton on one count of health fraud last November, acquitted him on another and deadlocked on other counts which were later dropped by prosecutors. In the scheme, marketers working for Hampton and another doctor would recruit patients for the surgeries in exchange for cash or discounts on cosmetic surgeries. The other doctor, Mamdouh Bahna, pleaded guilty to health care fraud last year and is serving a 58 month prison sentence (OC Register, DOJ).
Hampton, two other doctors and 16 other defendants including marketers and hospital administrators have been indicted on state charges alleging over $150 million in unnecessary surgeries (Orange County DA, KABC video).
Karen Baer of Westminster, Maryland on Monday pleaded guilty to bank fraud before US District Judge Andre M. Davis in Baltimore. Baer was a teller and teller supervisor from 1998 to 2007 at PNC Bank and its predecessors, Westminster Union Bank and Mercantile Bank. After PNC bought Mercantile last September, auditors uncovered a long running scheme in which Baer allegedly stole from the branch where she worked, $10,000 at a time. In the plea agreement, she admits to stealing “at least $400,000″ but the alleged total amount is $1.05 million. Baer has agreed to asset forfeiture; she faces a statutory maximum of 30 years in prison. Sentencing is scheduled for October 3 (DOJ).
Ronald Peteka, a former Morgan Stanley client service representative, pleaded guilty on Wednesday in US District court in Manhattan to possessing stolen proprietary information about the company’s hedge fund clients. Peteka is the co-conspirator referred to as CC-1 in the indictment of Ira Chilowitz, an IT consultant who pleaded guilty last year to stealing and transporting proprietary data and other counts. He and Peteka planned to use the stolen data to start their own firm (Reuters).
Abraham Lesnik of Valley Village, California has pleaded guilty to unauthorized possession of defense information for taking documents classified as secret and top secret from his office. Lesnik, a former engineer at a Boeing facility in El Segundo, pleaded guilty on July 1 before US District Judge Florence-Marie Cooper in Los Angeles. He was charged on June 16, nearly two years after the investigation into his activities began. Lesnik, who held a Top Secret DOD security clearance, admitted repeatedly downloading the classified documents to a USB thumb drive so he could work on them at home. He also admitted retaining 11 documents including one top secret document. Judge Cooper scheduled sentencing for October 6. Lesnik faces a statutory maximum often years in prison. but the plea agreement calls for no more than five years (LA Times, DOJ).
Gustavo Smith of Miami, now a fugitive, was sentenced on July 2 to 130 months in prison by US District Judge Marcia Cooke in Miami. Smith was convicted by a jury in April on 17 counts including conspiracy, seven counts of health care fraud, seven counts of false claims, one count of money laundering conspiracy and one count of money laundering. His Miami-based durable medical equipment companies, Medstar Services and Orthotics Fitters, billed $4.6 million in claims to Medicare from 2005 to 2007 using names and Medicare numbers of patients who never heard of him and Medicare provider numbers of doctors who never heard of him and never prescribed the equipment. Smith was allowed bond with home confinement and electronic monitoring, but he fled the US on June 14 (Miami Herald, DOJ).
Two of the three principals in a notorious diploma mill operation were sentenced to prison on July 2 by US District Judge Lonny R. Suko in Spokane, Washington. Dixie Randock, who operated Saint Regis University with her husband Steven Randock, was sentenced to three years in prison. Their daughter, Heidi Lorhan, was sentenced to one year in prison. Steven Randock’s sentencing was postponed until August 5 as he is recovering from open-heart surgery. All three pleaded guilty in March to conspiracy to commit wire and mail fraud. They sold degrees ranging from high school diplomas through Ph.D. degrees, as well as phony transcripts and professorships, from Saint Regis and other imaginary universities. Officials in Liberia were bribed to say the schools were acccredited. In addition, they sold counterfeit diplomas purporting to be from legitimate universities, including University of Maryland, George Washington University, Missouri University and Texas A&M University. From August 1999 to August 2005, about $6.3 million of fraudulent products were sold to about 10,000 people (Seattle Times, DOJ).
Attorneys for Zach Scruggs yesterday filed a motion (h/t folo) asking the court to recommend that the Bureau of Prisons assign him to serve his sentence at the minimum security Federal Prison Camp in Pensacola. This was not requested at sentencing because his attorneys were sure he wouldn’t be sentenced to prison. This is the same facility Dickie Scruggs has requested. As previously noted, Paul Minor is already housed there, and Dickie Scruggs testified against him.
Michael Kyereme of Piscataway, New Jersey pleaded guilty in US District Court in Newark last Wednesday to a two count information charging him with mail fraud and tax evasion, in connection with a scheme which defrauded Cisco Systems of $6.9 million in computer networking equipment. It’s a case with disturbing similarities to the Kent Andrews case. Kyereme was an independent contractor for the City of Newark who handled IT support for city employees. He was authorized to order replacement equipment under its contract with Cisco, which allowed the city to order replacement parts and return the defective parts later. He allegedly ordered 280 pieces of equipment from Cisco under false pretenses, only returning a defective part in about half the cases — and most of those were different parts of much lower value. He admitted fencing the parts to a third party in California. The specific mail fraud count involves a single part he ordered worth $260,000, for which he returned a different part worth $2,000. When he was arrested, he had over $3 million in Cisco parts in his home and car. He faces a maximum of 20 years in prison on the mail fraud count. US District Judge Katharine Hayden scheduled sentencing for November 5 (DOJ press release, information). Again, where were Cisco’s auditors?
US District Judge William Bertelsman, who presided over the wire fraud conspiracy trial of three fen-phen class action attorneys, on Monday recused himself from the case. Defendant Melbourne Mills,Jr. was acquitted but Bertelsman declared a mistrial last Thursday in the case against William Gallion and Shirley Cunningham Jr., who will be retried. The case will be transferred to US District Judge Danny Reeves. A retrial date has not yet been scheduled (Lexington Herald-Leader).
Former Allegheny County Coroner Cyril Wecht and five jurors who voted to acquit him got together on June 27 for a tailgate party and Pittsburgh Pirates baseball game, the Pittsburgh Tribune-Review reported on Saturday. These were the same jurors who spoke out after the mistrial was declared, despite US District Judge Arthur Schwab’s clumsy attempt to silence them. The jurors’ families and members of Wecht’s defense team also attended. Good publicity for Wecht = negative publicity for sore losers Schwab and USA Mary Beth Buchanan. Wecht is asking the Third Circuit to dismiss all charges; oral arguments are scheduled for July 25.
Greg Jaunich pleaded guilty in US District Court in Minneapolis last Tuesday to one count of mail fraud for falsely billing almost 2 million kilowatt hours of non-existent wind turbine generated electricty. Xcel Energy was defrauded of about $400,000 in the scheme. Jaunich managed an alternative power company in southwest Minnesota. Xcel is required under the law to buy wind generated energy. Jaunich admitted instructing employees to bill 1.84 million kwh from 2 generators in 2003 and 2004 when he knew they only produced a total of 20,000 kwh between them during the period. US District Judge Paul Magnuson accepted the plea but has not yet scheduled a sentencing date (Star Tribune).
Here’s the Zach Scruggs sentencing transcript. Judge Biggers determined that “with a total offense level of 16 and a criminal history category of one, the guideline range of imprisonment is 21 to 27 months…” He departed downward to reach the level 16 offense and then departed downward to the 14 month sentence, making the likelihood of a successful appeal of the sentence highly unlikely. Mike Moore’s performance can charitably be called oblivious — see pages 6 thru 11 of the transcript. He apparently relied on AUSA Thomas Dawson’s reiteration of the government’s probation recommendation to protect his client from a prison sentence, despite the umistakable language in the plea agreement, the court’s clear warning in the plea hearing and the court’s specific reference to Zach Scruggs’ role during Dickie Scruggs’ sentencing last week. Yet sources quote Moore saying on public radio,”We had no expectation that the judge would sentence him to jail today. None.” Judge Biggers has set August 15 as Zach Scruggs’ surrender date.
The Louisville Courier-Journal’s story about the mistrial has a number of observations from jury foreman Donald Rainone. He strongly criticized federal prosecutors and said the jurors were 10-2 for acquittal during most of the deliberations.
After the acquittal of the third defendant, Melbourne Mills Jr., earlier in the week, attorneys for William Gallion and Shirley Cunningham Jr. sensed the jury’s direction:
Yesterday, after learning jurors were deadlocked, defense attorneys made the extremely rare offer to accept a less-than-unanimous verdict, as long as at least nine of the 12 jurors agreed. The request, which Bertelsman said he had never heard of before, would have needed the approval of prosecutors, who objected.
“The very essence of a free government consists in considering offices as public trusts, bestowed for the good of the country, and not for the benefit of an individual or a party.” — John C. Calhoun, Speech (February 13, 1835)
“He that would make his own liberty secure must guard even his enemy from oppression; for if he violates this duty he establishes a precedent that will reach to himself.” — Thomas Paine, First Principles Of Government (1795)
“If a nation expects to be ignorant and free, in a state of civilization, it expects what never was and never will be.” — Thomas Jefferson, Letter to Colonel Charles Yancey (January 6, 1816)
“Real Patriots, who may resist the intrigues of the favourite, are liable to become suspected and odious; while its tools and dupes usurp the applause and confidence of the people, to surrender their interests.” — George Washington, Farewell Address (1796)
“The only maxim of a free government ought to be to trust no man living with power to endanger the public liberty.” — John Adams, Notes for an oration at Braintree (Spring 1772)
“I believe there are more instances of the abridgment of the freedom of the people by gradual and silent encroachments of those in power, than by violent and sudden usurpation.” — James Madison, Speech at the Virginia Convention to ratify the Federal Constitution (June 6, 1788)
“Those who would give up essential liberty, to purchase a little temporary safety, deserve neither liberty nor safety.” — Benjamin Franklin, Historical Review of Pennsylvania (1759)
“The whole aim of practical politics is to keep the populace alarmed (and hence clamorous to be led to safety) by an endless series of hobgoblins, most of them imaginary.” — H. L. Mencken, In Defense of Women (1917)
“I would remind you that extremism in the defense of liberty is no vice. And let me remind you also that moderation in the pursuit of justice is no virtue.” — Barry Goldwater, Acceptance Speech at the 1964 Republican Convention
US District Judge William Bertelsman has declared a mistrial in the case against two Kentucky lawyers charged with conspiracy to commit wire fraud against class action members in a lawsuit against fen-phen maker American Home Products. William Gallion and Shirley Cunningham Jr. were again denied bail and were returned to jail pending a retrial. The mistrial came after jurors ended their eighth day of deliberations without reaching a verdict, as Judge Bertelsman had indicated yesterday morning. The third defendant, Melbourne Mills Jr., was acquitted on Tuesday (Lexington Herald-Leader).
US District Judge Naomi Reice Buchwald has sentenced former Refco Chairman and CEO Phillip Bennett to 16 years in prison. Bennett pleaded guilty in February to conspiracy, wire fraud, bank fraud, money laundering and making false SEC filings in connection with Refco’s 2005 collapse which cost investors an estimated $2.4 billion. Bennett will begin serving his sentence on September 4 and will be under house arrest until then (Reuters via Yahoo News).
After turning himself in yesterday, convicted Bayou Group co-founder and suicide faker Samuel Israel III asked to be sent directly to the Fort Devens federal medical prison facility in Massachusetts, where he had been scheduled to turn himself in June 9 to begin serving his 20 year prison sentence. However, he was taken to Manhattan to face US District Judge Colleen McMahon, who had sentenced him in April. This morning, McMahon ordered him to begin his term immediately and said she would seek to forfeit his $500,000 bail. Israel now also faces a federal bail-jumping charge which could result in additional prison time (Bloomberg).
Over objections from federal prosecutors, US District Judge William Terrell Hodges on Wednesday approved actor Wesley Snipes’ motion (earlier) to be allowed to go to London to do post-production work on one movie and then to Bangkok to start work on another. Snipes is appealing his February conviction on three failure to file misdemeanor tax counts; he was sentenced in April to three years in prison. Judge Terrell also ordered that Snipes be supervised by the Central District of California (Ocala Star-Banner).
A Chicago doctor and businessman connected to Stuart Levine, the government’s star witness against convicted Illinois developer and Democratic fundraiser Tony Rezko, has been indicted by a federal grand jury in a case involving Levine. Robert J. Weinstein was indicted last Thursday on three counts: one count each of wire fraud, mail fraud and making false statements. He is accused of joining with Levine to siphon and pocket millions of dollars from two organizations, the Rosalind Franklin University of Medicine and Science, formerly the Chicago Medical School, and the Northshore Support Organization, a charity he founded allegedly to support the medical school. He and Levine were trustees of both organizations; the loss to the Northshore Support Organization alone is alleged to be $6 million. The false statement count arose from statements he made to FBI agents in the Rezko case which were contradicted by his conversations with Levine which were wiretapped. Levine has pleaded guilty in the case and is cooperating with prosecutors (Chicago Tribune, DOJ).
Attorneys for former Enron Broadband Services division CEO Joseph Hirko and former divison software executive Rex Shelby on Tuesday asked US District Judge Vanessa Gilmore to dismiss charges against them because a prosecutor allegedly ignored exculpatory evidence. Also on Tuesday, attorneys for former division strategic planning executive Scott Yeager filed a separate motion asking Gilmore to dismiss charges against him. The Houston Chronicle has Kristen Hays’ story here. Hirko and Shelby will be retried on November 3, 2008, while Yeager’s retrial is set for January 12, 2009. The retrials were scheduled after the Fifth Circuit in March upheld Gilmore’s refusal to dismiss the remaining charges (earlier).
A subpoena issued last Friday by the House Judiciary Committee to AG Michael Mukasey for a number of previously requested documents includes a demand for “complete and unredacted versions” of all documents relating to the prosecutions of former Allegheny County Coroner Cyril Wecht and former Alabama Governor Don Siegelman. See paragraphs 13-21 of the subpoena. The deadline is July 7; don’t hold your breath.
The jury in the trial of fen-phen class action attorneys William Gallion, Shirley Cunningham Jr. and Melbourne Mills Jr. began its seventh day of deliberations by telling US District Judge William Bertelsman that they were hopelessly deadlocked on the conspiracy to commit wire fraud charges against Gallion and Cunningham. They acquitted Mills on Tuesday. Bertelsman was ready to declare a mistrial but attorneys for the remaining two defendants objected. Jurors again finished the day without reaching a verdict. Bertelsman said he would not jurors continue beyond Thursday (Louisville Courier-Journal).
Fugitive convicted Bayou Group co-founder Samuel Israel III turned himself in to authorities in Massachusetts this morning and is now in federal custody (Bloomberg). Israel disappeared the morning he was to turn himself in and begin serving his 20-year prison sentence. His girlfriend has been charged with aiding and abetting his escape.
Apparently Zach Scruggs and attorneys Mike Moore and Todd Graves were stunned. Despite the government’s recommendation of probation, the sentence does not surprise us considering Judge Biggers’ comments at Dickie Scruggs’ sentencing last Friday concerning Zach’s involvement. Tom (NMC) Freeland at folo from the courtroom here and here, Clarion-Ledger. As in the sentencings of Dickie Scruggs and Sid Backstrom, Judge Biggers imposed a $250,000 fine which is an upward departure to include the cost of incarceration.
Anthony Tesvich of Atlanta, a former Home Depot global products buyer who was indicted May 29 in connection with a massive vendor kickback scheme (earlier), on Monday pleaded guilty to one count of conspiracy to commit wire fraud and three counts of tax evasion. While the indictment alleged $1.4 million in unreported income, the amount of loss to Home Depot is now said to be more than $2.5 million. The larger figure apparently includes amounts paid to unindicted co-conspirators still employed at Home Depot after Tesvich left the company. His sentencing is scheduled for September 2 before US District Judge Richard Story in Atlanta (Reuters, DOJ).
US District Judge Joan Lenard in Miami on Tuesday granted a DOJ motion to authorize the IRS to issue a John Doe summons to Switzerland-based UBS. The summons will seek the banking records and identites of US citizens with Swiss bank accounts. The move came less than two weeks after former UBS banker Bradley Birkenfeld pleaded guilty to conspiring to help US clients of UBS evade taxes by hiding assets in Switzerland and Liechtenstein. Birkenfeld is cooperating in the investigation (Reuters, DOJ).
In its sixth day of deliberations in the trial of fen-phen class action attorneys William Gallion, Shirley Cunningham Jr. and Melbourne Mills Jr., jurors acquitted Mills and resumed deliberations, finishing the day without reaching a verdict on Gallion and Cunningham. The three attorneys were indicted in June 2007 on one count each of conspiracy to commit wire fraud. They were accused of pocketing $65 million more than they were entitled to under terms of the class action settlement with American Home Products on behalf of 440 Kentuckians harmed by the drug. All three defendants maintained there was no intent to defraud. Mills was released immediately; all three had been in custody as flight risks since last August (Lexington Herald Leader).
The Sun Herald has the story and the presentencing memorandum. Zach Scruggs will be sentenced tomorrow. He pleaded guilty on March 21 to misprision of a felony (earlier). While prosecutors recommended probation, his plea agreement and the plea hearing transcript make it clear that the court is not bound by the recommendation. While the US Probation Office’s presentence report is not public, it can be deduced from today’s memorandum that some prison time was recommended. US District Judge Neal Biggers can sentence him to as much as three years in prison, and given Judge Biggers’ remarks in the Dickie Scruggs sentencing transcript last Friday, Zach Scruggs has reason to be concerned.
Former Enron Broadband CFO Kevin Howard will be tried for a third time; US District Judge Vanessa Gilmore on Monday scheduled his trial to begin March 24, 2009. Howard’s first trial in 2005 resulted in a hung jury. His second trial in 2006 resulted in his conviction on five counts including conspiracy, falsifying books and records and three counts of wire fraud. However, Judge Gilmore dismissed the conviction in January 2007 after the Fifth Circuit ruled in a separate Enron case that the government’s “honest services fraud” theory was improper. In February 2008, prosecutors lost their appeal of her dismissal of one of the counts (earlier). Now AUSA Jonathan Lopez says Howard will be retried on all five counts without seeking a new indictment; the government will instead edit the indictment used in his second trial to erase all references to honest services. The Houston Chronicle has Kristen Hays’ story here.
In Columbus on Monday, US District Judge Algenon Marbley scheduled sentencing for five former executives of National Century Financial Enterprises. Four of the five who were convicted on March 13 will be sentenced: Donald Ayers and Randolph Speer on July 21 and Roger Faulkenberry and James Dierker on July 22. The fifth defendant from that trial, Rebecca Parrett, remains AWOL. The five were convicted on securities fraud and related counts in the 2002 collapse of the company which caused investor losses of $1.9 billion. On July 23, former director of securitizations Jon Beacham will be sentenced; he pleaded guilty in July 2007 to conspiracy and wire fraud counts (Columbus Dispatch).
Mississippi attorney Paul Minor, whose judicial bribery case is currently under review by the OPR amid accusations of selective prosecution (earlier), has appealed his conviction to the US Court of Appeals for the Fifth Circuit. The Sun Herald has a story with link (.pdf) to the massive brief, which was actually filed on June 18 by his attorney Abbe Lowell, now with McDermott Will. After his first trial ended in an acquittal on some counts and a hung jury on others, Minor was convicted in March 2007 on six counts of honest services mail fraud, one count of honest services wire fraud, two counts of bribery and one RICO count; his co-defendants former state chancery court judge Walter Teel and former state court circuit judge John Whitfield were also convicted. The appellate brief contends that exculpatory evidence was improperly excluded, that prejudicial evidence was improperly admitted, that the jury instructions improperly allowed the jury to convict without evidence of quid pro quo and that the prosecution was selective.
Since Minor was far less prominent than high profile targets Don Siegelman and Cyril Wecht, it’s much more difficult to believe that he was prosecuted for his political beliefs. A US Attorney prosecuting a member of the opposing party does not prove political intent. But in light of convincing evidence of prosecutorial and perhaps judicial misconduct in the cases of Siegelman and Wecht, an investigation of this case is understandable. However, the biggest question here is not why Minor was prosecuted, but rather why Dickie Scruggs was not, since Scruggs was up to his neck in the same activities. A certain former US senator is believed to have a Lott to do with persuading USA Dunn Lampton not to indict his brother-in-law.
In Tacoma on Wednesday, US District Judge Benjamin Settle sentenced Edna Fiedler of Olympia, Washington to two years in prison for her role as an accomplice in a Nigerian check scam. This is the all-too-familiar scheme in which a mark who has goods for sale is paid with a phony check for more than the amount and asked to return some of the proceeds, eventually winding up on the hook for the whole amount. Fiedler had pleaded guilty in March to conspiracy to commit bank, wire and mail fraud. She worked in connection with a man from Lagos, Nigeria who shipped counterfeit checks and money orders to her with instructions on how to fill them out and where to ship them. When she was arrested in December she had already shipped out over $600,000 in phony checks and money orders and had $1.1 million more ready to ship. No word on whether the people who fell for the scam will be investigated for terminal idiocy (Seattle Times).
Attorneys for actor Wesley Snipes on Wednesday filed a motion in US District Court in Ocala, Florida requesting that US District Judge William Terrell Hodges grant permission for Snipes to go to London to do post-production work on one movie and then to Bangkok to start work on another. Snipes was convicted in February on three failure to file misdemeanor tax counts and sentenced in April to three years in prison. He is free on bond pending appeal but the USAO is challenging that ruling, so expect them to fight this tooth and nail (Ocala Star-Banner).
The Sun Herald has the Dickie Scruggs sentencing transcript in plain text, Folo has a partial transcript from the Backstrom sentencing. The Clarion-Ledger has reactions from various parties, including Judge Henry Lackey. Alan Lange at Y’all Politics criticizes the questionable post-sentencing comments of AG Jim Hood and former AG Mike Moore. The Sun Herald points out that the minimum security Pensacola prison Scruggs has requested is the same one that houses Paul Minor whom Scruggs testified against; the Bureau of Prisons is unlikely to allow both men in the same facility. Alan Lange’s editorial is outstanding, and the Sun Herald’s editorial is also worthwhile. UPDATE: here’s the official transcript of Dickie Scruggs’ sentencing hearing; the Backstrom transcript is here. (h/t folo).
There has been some confusion in the reporting of the length of the sentence, but both the Daily Journal and folo are reporting that Sid Backstrom was sentenced to 28 months in prison this afternoon by US District Judge Neal Biggers in Oxford. That’s two months less than the maximum under his plea agreement, which capped his sentence at no more than half of whatever sentence Dickie Scruggs received. As with Scruggs, Backstrom was fined $250,000 and ordered to pay for the cost of his incarceration. He was ordered to report to prison on August 4. The court accepted a defense request to ask for imprisonment at Forrest City, Arkansas. UPDATE: here’s the transcript (h/t folo).
The Sun Herald reports that US District Judge Neal Biggers has sentenced Dickie Scruggs to five years in prison, the maximum under the plea agreement, plus a $250,000 fine. He was ordered to report to prison on August 4 “in a facility that offers mental health and drug treatment.” Tom (NMC) Freeland at folo reports that in response to Ole Miss Chancellor Robert Khayyat’s letter (earlier), which among other things called imprisoning Scruggs “a waste of taxpayers’ money”, Judge Biggers increased the fine to account from the cost of incarceration.
US District Judge Paul Huck in Miami on Wednesday reduced the sentence of former Jack Abramoff associate Adam Kidan from 70 months to 35 months in prison because of his extensive cooperation in the SunCruz Casinos case which resulted in his and Abramoff’s convictions. Kidan pleaded guilty in December 2005 (followed by Abramoff’s plea in early 2006) to conspiracy and wire fraud in the case, admitting that he and Abramoff counterfeited a $23 million wire transfer which induced lenders to fund loans toward their purchase of the gambling ships from Gus Boulis. They were sentenced in March 2006; Kidan has already served 20 months in prison (Miami Herald).
Boulis was murdered in an apparent mob hit in 2001; the Herald story says that Kidan was attacked in prison in New Jersey after he was deposed by lawyers in the pending trial of three men accused in Boulis’ murder. Here’s the Washington Post’s extensive background article from 2005, including congressional connections.
In a decision filed on Tuesday and released on Wednesday, the US Court of Appeals for the Eleventh Circuit for the third time denied former HealthSouth CEO Richard Scrushy’s motion for bail pending appeal. Scrushy had asked for reconsideration because the court in March granted his co-defendant, former Alabama Governor Don Siegelman, release on bond pending appeal (earlier). However, the court ruled that Scrushy still “had not met his initial burden…of demonstrating by clear and convincing evidence that he is unlikely to flee if he is released pending resolution of this appeal.” The court made it clear that this is a separate issue from whether his appeal has a substantial chance of success (AP).
Representatives from the Sun-Herald (here and here), folo, the Daily Journal, and others were allowed to examine the sentencing recommendation letters from the public on behalf of Dickie and Zach Scruggs and Sid Backstrom. Tom (NMC) Freeland at folo called the positive letters “pretty standard: most accept the gravity of the offense and guilt, but try to explain positive things they have seen about the various defendants over the years.” That’s to be expected from family, friends and associates.
The lowlight: a letter from Ole Miss Chancellor Robert Khayyat on University stationery enthusiastically fawning over Dickie Scruggs, calling him a “model citizen” and calling any incarceration “an absolute waste of a great deal of talent and ability.” We’re talking about an admitted judge briber here, someone who attempted to corrupt justice, and the university’s chancellor thinks that’s excusable in a major financial contributor.
The missing: nothing from Jim Hood, Trent Lott, Mike Moore or P.L. Blake.
The opposition: criticism from Mississippi Bar president Robert Bailess and an unnamed retired Oxford police officer.
Those who examined the letters were not allowed to copy them, which prompted this outstanding response from commenter Fyodor1 at Y’all Politics: “Can we just send in Sandy Berger to help get copies of all the letters? He has a good track record at getting documents.”
UPDATE: Anita Lee at the Sun Herald has more excerpts from the letters.
In a sentencing memorandum filed on Wednesday, attorneys for Dickie Scruggs asked the court to impose a 30 month sentence instead of the maximum 60 months allowed under his plea agreement. His primary argument is that the potential benefit from the bribe has been grossly mischaracterized by the US Probation Office (also argued by Backstrom) and that the value of the bribe should only be the amount of the bribe. By his calculation, Scruggs claims a 30-37 month range is called for by the guidelines. While Scruggs does acknowledge his offense, the document is remarkably void of any sense of remorse, and he continues to argue about his role in the conspiracy, as he did at his plea hearing. Whatever the merits of his arguments, the tone of the memorandum is not likely to impress Judge Biggers.
The government response (to both Dickie Scruggs and Sid Backstrom) argues that the intent of the bribe determines the benefit and that even at the $50,000 bribe amount Scruggs’ guideline would be 46-57 months; further, that Backstrom’s argument is moot because even just using the bribe amount, his range would more than the 30 month cap under his plea agreement. The government is seeking the maximum allowed under the plea agreements for both defendants (Sun Herald).
UPDATE: The government has subpoenaed John Jones’ attorney Grady Tollison to testify at the sentencing hearing. He expects to be asked about the amount of legal fees at stake in Jones v. Scruggs (Sun Herald).
Raffaello Follieri, recently-dumped longtime beau of Anne (Agent 99) Hathaway, has been charged with with one count of conspiracy, six counts of wire fraud, and five counts of money laundering in connection with a real estate investment scheme he operated from 2005 to 2007. The DOJ press release (.pdf) alleges that Follieri solicited investors by 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, but that in reality he only had limited Vatican connections and no such authority. He allegedly converted investor funds for his personal use, including a $37,000-a-month lease on his Manhattan apartment. Follieri made an initial appearance on Tuesday before US Magistrate Judge Henry Pitman in Manhattan; he did not enter a plea (Reuters).
A three-judge panel of the US Court of Appeals for the Seventh Circuit on Wednesday unanimously affirmed the mail fraud convictions of former Hollinger Inc. CEO and chairman Conrad Black, as well as the convictions of his co-defendants Jack Boultbee, Peter Atkinson and Mark Kipnis.The court also upheld Black’s obstruction conviction which arose from his removal of boxes of documents from his Toronto office in violation of a court order. The Canadian Press covers the decision here. Black was sentenced in December to 78 months in prison; he began serving his term on March 3 after the Seventh Circuit denied his request to remain free on bond during his appeal. Boultbee, Atkinson and Kipnis have been free on bond during the appeal.
US District Judge Leonard Sand on Wednesday reduced the sentences of Adelphia Communications founder and former CEO John Rigas and his son, former Adelphia CFO Timothy Rigas by three years each. Sand resentenced John Rigas, now 83, to 12 years in prison and Timothy Rigas to 17 years in prison. The resentencing came about after the US Circuit Court of Appeals for the Second Circuit in May 2007 reversed their conviction on one count of bank fraud, citing insufficient evidence. Judge Sand ruled that “a minimal adjustment is appropriate” in light of that reversal. An attorney for the Rigases said they plan an immediate appeal, calling the revised sentences “harsh beyond measure.” However, the Second Circuit did uphold their convictions on 22 of 23 counts and the US Supreme Court in March 2008 rejected their appeals without comment (Reuters, earlier here and here ).
In Camden, New Jersey on Monday, Glyn Richards of Haddon Heights pleaded guilty before US District Judge Renée Marie Bumb to a two-count information charging him with mail fraud and money laundering in connection with the operation of a Ponzi scheme. Richards operated a company called Air Freight Logistics. He allegedly solicited investors by telling them his company had Defense Department contracts to ship military equipment overseas and needed funds to pay up-front costs, typically promising 44% return on a 120-day $25,000 investment. However, his business never had any such contracts and he was simply operating a typical Ponzi scheme. The overall loss amount has not been determined but he is said to have taken in over $10 million from more than 100 investors. Sentencing is scheduled for October 14 (Philadelphia Inquirer, DOJ).
Modern Continental Corporation, the largest contractor on Boston’s Big Dig project, was charged late last Friday in US District Court in Boston with making false statements in connection with its execution of construction documents certifying the quality of the work it performed on certain contracts, submitting false time and materials slips on contracts, and with wire fraud. The DOJ press release alleges that the company was aware of numerous defects including the one that caused the accident which killed a motorist in 2006 after a ceiling panel fell. The company called the charges “completely unfounded and without merit.” The charges were in the form of a 49-count information. Although an information usually indicates a forthcoming plea, in this case it came after negotiations broke down (Boston Globe).
Yesterday Modern Continental filed Chapter 11 bankruptcy in Boston. A bankruptcy lawyer not involved in the case called the filing “skeletal” and believes it was rushed because of the criminal charges (Boston Globe).
Recent results in the DOJ and FBI’s “Operation Bot Roast”:
Robert Matthew Bentley of Panama City, Florida, on June 11 was sentenced to 41 months in prison and ordered to pay $65,000 in restitution by US District Judge Richard Smoak in Pensacola. Bentley pleaded guilty in March to conspiracy and computer fraud counts; he admitted overloading Newell Rubbermaid’s computer network by using his botnet to install ad-serving software on over 100 computers; he was paid to do it by a now-defunct Dutch adware company. Others companies were targeted and unnamed co-conspirators are under investigation (Techworld, DOJ).
Gregory King of Fairfield, California on June 10 pleaded guilty to two counts of transmitting code to cause damage to a protected computer before US District Judge Lawrence Karlton in Sacramento. King admitted using a 7,000-computer botnet he controlled to launch distributed denial-of-service (DDoS) attacks against Killanet and CastleCops. The latter is a well-respected online security community which specializes in analyzing, exposing and fighting malware, phishing and other computer security concerns. King agreed to serve two years in prison, although the court is not bound by the recommendation; sentencing is scheduled for September 3 (Wired, DOJ).
In US District Court in Covington, Kentucky on Monday, jury instructions were given and closing arguments were completed in the trial of fen-phen class action attorneys William Gallion, Shirley Cunningham Jr. and Melbourne Mills Jr. The three attorneys were indicted in June 2007 on one count each of conspiracy to commit wire fraud. They allegedly pocketed $65 million more than they were entitled to under terms of the class action settlement with American Home Products on behalf of 440 Kentuckians harmed by the drug. The Louisville Courier-Journal has a overview here.
US District Judge Neal Biggers on Monday denied Sid Backstrom’s motion to reconsider his June 20th order allowing prior press and public access to sentencing recommendation letters written on behalf of the US v. Scruggs et al defendants (earlier). This time he cites US v. (Scooter)Libby as a public interest precedent and also cites US v. Halat, a federal murder case from Mississippi. Barring further objections, the Sun Herald will be allowed to view the letters on Wednesday and to make them public in advance of this Friday’s sentencing of Backstrom and Dickie Scruggs (h/t folo). UPDATE: at least three others will be granted access, including Tom (NMC) Freeland of folo. Stay tuned.
Former Chicago Bears fullback Roland Harper pleaded guilty last Tuesday to one count of mail fraud for allowing his landscaping business to be used as a front by a white-owned firm to land contracts from the Chicago Public Schools that were set aside for minority-owned businesses. Harper, who is black, admitted that he allowed the real contractor, Monahan Landscape, to use his Rohar Construction to secure $1.5 million in contracts between 2003 and 2006. Harper’s plea came six days after Aidan Monahan, owner of Monahan Landscape and a Democratic Party fund-raiser, pleaded guilty to one count of mail fraud in the case.
Both pleas were entered before US District Judge John Darrah. Harper will be sentenced on October 14 and prosecutors will ask for approximately 16 months in prison. Monahan has agreed to pay $100,000 restitution and is also facing prison time; his sentencing is scheduled for September 30 (Chicago Sun-Times on Harper, Monahan).
Wasting no time, US District Judge Neal Biggers on Friday granted the Sun Herald’s motion to allow prior press and public access to presentencing recommendation letters written on behalf of Dickie Scruggs and his co-defendants (earlier). The paper will be allowed to examine the letters on Wednesday June 25, two days prior to the sentencing of Dickie Scruggs and Sid Backstrom (story, order). This should make for an interesting week. UPDATE (h/t dmwriter via folo): Backstrom’s attorneys have now asked Judge Biggers to reconsider.
In other Scruggs news, US District Judge L.T. Senter on Monday denied the Rigsby sisters’ motion to reconsider his May 19 order disqualifying Kansas City lawyers Todd Graves, Chip Robertson and their respective law firms from Ex rel. Rigsby and granted them 45 days to get new counsel or proceed pro se (Sun Herald).
Judge Senter on Friday also upheld US Magistrate Judge Robert Walker’s May 15 order compelling Dickie Scruggs to turn over a raft of documents in the McIntosh v. State Farm case (earlier); h/t Y’all Politics.
Sentencing for former Refco Chairman and CEO Phillip Bennett is now rescheduled (again) for July 3 before US District Judge Naomi Reice Buchwald in Manhttan. Bennett pleaded guilty in February to conspiracy, wire fraud, bank fraud, money laundering and making false SEC filings (earlier). Prosecutors are seeking a sentence in the same range as the 25 year sentence of former WorldCom CEO Bernie Ebbers. Bennett’s attorneys are asking for a non-guidelines sentence in the range of the 10 year sentence former Drexel Burnham Lambert junk bond ace Michael Milken received, noting Bennett’s cooperation with shareholders in their civil suit (New York Law Journal).
Paragraph 32 of the indictment of former Bear Stearns hedge fund traders Ralph Cioffi and Matthew Tannin has this alleged quote from Tannin to another member of the portfolio management team: “[b]elieve it or not – I’ve been able to convince people to add more money. . . .” Bess Levin at Dealbreaker thinks she knows what that really means (NSFW language).
Debra Ryan, the girlfriend of AWOL convicted Bayou Group co-founder Samuel Israel III, was arrested yesterday and charged with aiding and abetting his failure to turn himself in. The charge carries a maximum 10 year sentence. She was released on bond after an appearance before US Magistrate Judge Lisa Margaret Smith in White Plains, New York. Karen Freifeld’s Bloomberg story describes her apparently admitted role in helping Israel, who may have escaped on a motor scooter. Until yesterday she had repeatedly denied any knowledge of what happened (earlier here and here).
In a motion filed on Tuesday, the Sun Herald asked US District Judge Neal Biggers to allow prior press and public access to presentencing recommendation letters written on behalf of Dickie Scruggs and co-defendants Zach Scruggs, Sid Backstrom, Tim Balducci and Steve Patterson. The motion claims a legitimate public interest and cites a Ninth Circuit case in support. Dickie Scruggs and Backstrom are to be sentenced on June 27, Zach Scruggs on July 2. Sentencing has not been scheduled for Balducci and Patterson (motion, story).
Judge Biggers already noted that the court had received numerous letters solicited by the defendants asking for leniency, and ruled that each defendant would only be allowed three character witnesses each. However many letters there are, Judge Biggers is obviously not going to let the sentencing hearings be turned into a sideshow. But it certainly would be interesting to see which recipients of campaign contributions, other public officeholders and community leaders have recommended leniency for defendants who admittedly tried to bribe a judge.
A federal jury in Dallas on Friday convicted longtime blowhard self-proclaimed civil rights activist Darren Reagan on five counts of theft of public money for collecting $45,000 in rent subsidies from the Dallas Housing Authority which he wasn’t entitled to. Despite signing documents stating that renting to a relative is prohibited under Section 8 rules and affirming that he had no blood, marital, or other familiar relationship to his tenant, Reagan rented a house to his mother-in-law and collected rent subsidies from 2002 to 2007. He claimed he never read the fine print. Then when investigators approached his mother-in-law and she admitted they knew what they were doing was illegal, the Housing Authority notified him in early 2007 that benefits were terminated. Reagan claimed he never got the letter although he admitted receiving every check sent to the same PO box address. And when checks were mistakenly sent for several months after the termination, Reagan cashed them instead of depositing them. Reagan faces a statutory maximum of 10 years on each count. Sentencing is scheduled for October 4 before US District Judge Barbara Lynn (Dallas Morning News, DOJ).
But this is only the beginning of Reagan’s legal woes. He is one of 14 persons indicted last fall in a major bribery and extortion scandal at Dallas City Hall. He is charged with one count of conspiracy to commit extortion, two counts of extortion by public officials, one count of conspiracy to commit money laundering and four counts of tax evasion for allegedly helping extort money from a developer on behalf of former Dallas Mayor Pro Tem Don Hill. That trial is scheduled to begin in January 2009.
On June 10 in Cleveland, US District Judge Donald C. Nugent sentenced Kent S. Andrews of Middleburg Heights, Ohio to 33 months in prison for defrauding Cisco Systems of almost $2 million. Andrews pleaded guilty in February to a criminal information charging him with a single count of wire fraud. He admitted running a scheme which exploited a Cisco program allowing service contract holders to get replacement networking parts and equipment without having to return the defective equipment for another 30 days. Andrews managed to get Cisco to ship him 241 pieces of equipment between December 2003 and May 2006 even though he didn’t return any defective equipment because he didn’t own any and wasn’t authorized to submit claims under the program anyway. He then turned around and sold the equipment on eBay. Why Cisco’s auditors took so long to find this is not known (DOJ).
James Sandlin of Sherman, Texas, former business associate of US Rep. Rick Renzi (R-Ariz.) who was indicted with Renzi in February (earlier), was convicted June 11 by a federal jury in Texas in an unrelated case on two counts of submitting a false statement to a federally insured financial institution. Sherman was indicted in November 2007 for submitting financial statements to the Independent Bank of Sherman which allegedly failed to disclose $996,000 in loans from a retired Sherman couple. The maximum penalty on each count is 30 years in prison; a sentencing date was not disclosed (Houston Chronicle, DOJ).
Sandlin has pleaded not guilty in the Renzi case, which is scheduled to go to trial on October 14. He is named in 27 counts in that indictment including conspiracy, wire fraud and honest services wire fraud, money laundering and extortion under color of official right. He and Renzi are accused of using Renzi’s office to extort investors trying to obtain mineral rights.
Former DOJ civil rights division head Bradley Schlozman is apparently the subject of the first grand jury referral in the investigation arising from the 2006 US Attorneys scandal. The referral of Schlozman, who also served for a year as interim USA for the Western District of Missouri after the firing of Todd Graves, is said to involve possible perjury, and that may stem from his 2007 testimony before the Senate Judiciary Committee which sparked some outrage over his admittedly partisan tactics. The ongoing investigation of the scandal is being handled by the OPR and the OIG (WSJ, WaPo). Scott Horton at Harper’s offers perspective here.
William Dundon, a spokesman for the US Marshals Service, on Monday said that “suicide has been ruled out” in the case of AWOL convicted Bayou Group co-founder Samuel Israel III (earlier here and here). However, no explanation was given by Dundon or USA Michael Garcia for the change in status (Bloomberg).
Meanwhile, on eBay, bidding on a genuine Sam Israel III Business Card has reached $46.00 with two days left.
In a letter sent on Monday to Karl Rove’s attorney, US Rep. John Conyers (D-Mich.) made it clear that Rove’s anticipated July 10 testimony before the House Judiciary Committee cannot be limited to questions about the prosecution of former Alabama Governor Don Siegelman. Conyers’ letter states that “the Siegelman matter, other selective prosecution matters, and the U.S. Attorney firings are clearly related as part of the concerns regarding politicization of the Justice Department under this Administration that the Committee has been investigating.” The letter was also signed by Rep. Linda Sanchez (D-Calif.), chair of the administrative law subcommittee (h/t White Collar Crime Prof Blog).
The law firm now known as Milberg LLP reached a non-prosecution agreement on Monday with the DOJ which settles the criminal charges against the firm. The former Milberg Weiss Bershad & Schulman LLP was indicted in 2006 on counts including conspiracy, racketeering, mail fraud, money laundering and filing false tax returns. Milberg admitted wrongdoing by its former principals Melvyn Weiss, William Lerach, David Bershad and Steven Schulman involving illegal kickbacks paid to class action plaintiffs in 165 cases over 25 years and agreed to pay $75 million in fines. The government said it believed that no current partners engaged in or knew about the illegal scheme.
Milberg also admitted llegally paying class action expert witness John Torkelsen on a contingency basis and paying kickbacks to several stockbrokers who referred clients to serve as plaintiffs. The firm also agreed to compliance monitoring for two years (NY Law Journal, DOJ via LawFuel).
James A. Brown, one of three former Merrill Lynch executives still possibly facing retrial in the Enron Nigerian Barge case after their convictions were reversed on appeal (here and here ), is now asking that a former Enron Task Force prosecutor be investigated for misconduct on grounds that he wrongly withheld exculpatory evidence and knowingly misled the judge and jury in the November 2004 trial. And the former prosecutor? None other than Matthew Friedrich, Acting Assistant AG of the Criminal Division of the DOJ. Brown has asked Senate Judiciary Committee, the OPR and the Virginia Bar to investigate Friedrich’s conduct, and Brown’s attorney Sidney Powell said that similar complaints will be made against other prosecutors in the case (Bloomberg).
Joy Jackson of Fort Washington, Maryland, owner of the Metropolitan Money Store of Lanham, Maryland, was indicted on Thursday along with seven others on 25 counts including conspiracy, mail fraud and money laundering. The others include Jennifer McCall, said to be the architect of the scheme, her husband Clifford McCall and Jackson’s husband Kirk Fordham. The charges stem from a so-called foreclosure rescue scheme operated by the defendants which allegedly defrauded homeowners and lenders out of $35 million. In such a scheme, homeowners are persuaded to temporarily turn over titles to their homes so their credit can be repaired. Prosecutors say that the defendants used paid straw buyers with falsified credit histories to to obtain fraudulent new mortgages based on inflated appraisals, borrowed against the equities and never paid the mortgages. The proceeds were allegedly diverted to fund the defendants’ lavish lifestyles (Baltimore Sun, DOJ).
In Tampa on Wednesday, US District Judge Steven Merryday sentenced Luis Uribe to 102 months in prison for his role in a $6 million “equity stripping” mortgage fraud scheme that included identity theft. Uribe, a licensed mortgage broker, pleaded guilty on March 27 to one count of wire fraud and one count of aggravated identity theft. He was accused of obtaining 32 mortgage loans under false pretenses through a shell contracting company, using stolen identities, on the premise of additional construction work to be done, but no work was ever performed by the contracting company (earlier, DOJ, Tampa Tribune). On March 28, licensed title agent Andrea Batronie was sentenced to 30 months in prison for her role in the same scheme. In January, Uribe was sentenced to 34 months in prison in US District Court in Chicago for his role in a similar scheme.
Attorneys for Sid Backstrom on Wednesday filed a 16-page objection to the presentencing report from the US Probation Office. While the report itself has not been made public, Backstrom has objected to the calculation that he would have received $5.3 million from a successful bribe of Judge Henry Lackey and has disputed the claim that he “recruited, supervised or managed” co-defendants Tim Balducci and Steve Patterson. Backstrom and Dickie Scruggs are to be sentenced on June 27 (Daily Journal). The attempted bribe was to get Judge Lackey to send Jones v. Scruggs to arbitration, not to decide Jones’ $26.5 million suit in Scruggs’ favor, so the objection is at least understandable though not convincing.
The DJ story also says the motion “suggests the PSR seeks a punishment three times greater than he thinks it should be.” Since the maximum sentence Dickie Scruggs can receive under his plea agreement is 5 years in prison, and since Backstrom’s plea agreement allows no more than half of Scruggs’ sentence, this suggests either that Backstrom is pushing for a 10 month sentence or that the Probation Office is recommending sentencing enhancements even though both plea agreements have been accepted by the court.
In Scruggs Katrina Group news, US District Judge L.T. Senter on Thursday denied State Farm’s move to disqualify the Provost-Umphrey law firm from representing former SKG clients in the Shows v. State Farm RICO lawsuit (earlier), but with stipulations to insure that there will be no participation, fee sharing or any kind of financial arrangement between Provost-Umphrey and any of the disqualified SKG firms (Sun Herald, Judge Senter’s ruling).
As expected, Emperors Club VIP operator Mark Brener pleaded guilty on Thursday, becoming the third defendant to reach a plea agreement in the case which snared Eliot Spitzer. Brener pleaded guilty to conspiracy to commit prostitution offenses and conspiracy to commit money laundering before US District Judge John Sprizzo in Manhattan. The plea agreement calls for Brener to serve 24 to 30 months in prison but does not stipulate any requirement to cooperate with prosecutors. Sentencing is scheduled for September 16 (Reuters).
In Manhattan on Tuesday, US District Judge Leonard Sand set a trial date of April 6, 2009 in the case of Joseph Collins, former longtime attorney for Refco Inc. Collins was indicted in December 2007 on 11 counts including conspiracy, securities fraud, wire fraud, bank fraud and making false statements to the SEC. The charges arose in connection with the October 2005 collapse of the company which caused investor and partner losses estimated at $2.4 billion. Collins, a partner at Mayer Brown LLP in Chicago, is accused of creating fraudulent documents to help hide Refco’s losses from investors, auditors and and Thomas H. Lee Partners, which had purchased a majority interest in Refco (Reuters).
Former Refco Chairman and CEO Phillip Bennett and CFO Robert Trosten pleaded guilty in February, and former President Tome Grant was convicted by a jury in April. Bennett’s sentencing, originally scheduled for May 20, has been moved to June 19; the New York Law Journal recently reported that Bennett has been cooperating with shareholders in their civil suit; these are the same investors he has admitted defrauding, and he is a defendant in that suit. US District Judge Naomi Reice Buchwald, who will sentence Bennett, has been informed of his cooperation; he faces a possible maximum of 315 years in prison.
In White Plains on Wednesday, US District Judge Kenneth M. Karas issued an arrest warrant for the AWOL convicted Bayou Group co-founder Samuel Israel III. Interpol has been notified and a wanted poster is also being prepared. Perhaps the authorities have realized that in M*A*S*H (the movie), “Painless” The Dentist didn’t actually commit suicide (WNBC).
Another plea is expected to be entered today in connection with the Emperors Club VIP escort service patronized by Eliot “Client 9″ Spitzer: Mark Brener, the man who operated the service, will plead guilty to money laundering, prostitution and conspiracy. His will be the third guilty plea, follwing booker Temeka Lewis and operations manager Cecil “Katie” Suwal, who apparently is Brener’s girlfriend. CBS reports that Brener was not offered a plea deal and speculates that Spitzer will be charged, while AP says Brener negotiated a plea agreement similar to Suwal’s.
Meanwhile, Reuters and other sources report that Spitzer is courting investors for his next career: operating a vulture fund targeting distressed real estate. A self-proclaimed fighter for the people would seek his fortune off the misfortune of former constituents? How predictable.
Samuel Israel III, co-founder of now-defunct hedge fund Bayou Group LLC who was sentenced to 20 years in prison in April, has disappeared. He was scheduled to report to a federal prison in Massachusetts on Monday but failed to show, and his 2006 GMC Envoy was found in Westchester County, New York by the Bear Mountain Bridge with keys in the ignition and “suicide is painless” written in the dust on the hood. Has he committed suicide, as Kirk Wright recently did? Or has he pulled a Rebecca Parrett? No body has yet been found. WNBC reports that a surveillance camera appears to show a second vehicle pulling alongside the Envoy but that it’s not clear if he entered it. AP reports that the FBI, state police and victims of his fraud are skeptical. Bloomberg has more.
Levonda Selph, a Virginia resident and retired Army National Guard lieutenant colonel, pleaded guilty on Tuesday in US District Court in DC to a two count criminal information charging her with conspiracy and bribery. She admitted that when she was serving in Baghdad in 2005 and heading a selection board that awarded an annual $12 million contract to build and operate Defense Department warehouses in Iraq, she leaked confidential information about the contract to an unnamed contracting company and conspired with the owner to rig the bidding. The contractor was allowed to submit bids in the names of six companies he controlled to create the appearance of bid competition. In return, she accepted a $4000 payment and a trip to Thailand worth $5000. Selph agreed to cooperate with prosecutors in the continuing investigation and agreed to sentencing guidelines calling for up to 33 months in prison. Sentencing is scheduled for October 14 before US District Judge Reggie Walton (AP, DOJ).
On June 2 in Raleigh, North Carolina, former Brunswick County (Cape Fear area) Sheriff Ronald Hewett pleaded guilty to a criminal information charging him with one count of obstruction of justice, specifically that he obstructed a federal grand jury investigation into allegations of corruption in his office. The federal grand jury began investigating him in December 2006 amid allegations that he had deputies perform manual labor on his property, demanded that deputies campaign for him and failed to prosecute prominent residents. After the grand jury subpoenaed 25 former and current sheriff’s office employees last June, Hewett reportedly harrassed, threatened and intimidated them before and after their grand jury testimony. He resigned this April 15 after being suspended March 27 and indicted March 31 on state charges of embezzlement and obstruction. US District Judge W. Earl Britt accepted Hewett’s plea and scheduled sentencing for September 8. Hewett could receive up to 10 years in prison (Wilmington Star-News, DOJ).
In Baltimore on Thursday, Curtis Jones of Annapolis pleaded guilty to one count of accepting an illegal gratuity for the performance of his official duties. Jones was a DC-based equipment program manager for the FBI whose duties included negotiating and approving a purchase agreement for up to $2 million in new shredders to meet new national security standards for classified documents. He admitted accepting a Caribbean cruise valued at $7500 from an unnamed company shortly after approving their contract. That could cost him up to two years in prison. US District Judge Benson Everett Legg scheduled sentencing for September 18 (Annapolis Capital, DOJ).
Carleen Hawn thinks it could happen, and Prof. Malcolm Salter likes Jeff Skilling’s chances (Financial Week).
Andrew Yao of Bryn Mawr, Pennsylvania, former CEO and sole owner of bankrupt Delaware-based Student Finance Corp., last Wednesday pleaded guilty in US District Court in Philadelphia to 10 counts including wire fraud, mail fraud, making false statements and money laundering; the plea came the day his trial was to start. Yao admitted lying about his income and assets between 1998 in 2002 to obtain $40 million in loans for his company and personal expenses including his jet and a $3 million mortgage refinance. Prosecutors said the charges carry a guideline sentence of about four to five years; US District Judge Petrese Tucker released Yao on bond and set sentencing for September 5. Yao was convicted of bankruptcy fraud last year in US District Court in Delaware last year and was sentenced to one year and one day in prison. He has been free on bond pending appeal in that case, and he faces civil fraud suits in connection with the bankruptcy, which left over $400 million in debt (AP/Forbes, Journal News).
In Madison on Wednesday, US District Judge Barbara Crabb sentenced Daniel TePoel of Barnes, Wisconsin to 11 1/2 years in prison for defrauding 22 investors of more than $2.5 million. TePoel was convicted by a jury in March on one count of conspiracy, four counts of mail fraud, two counts of wire fraud and one count of lying to the FBI. TePoel and his business partner Gary Milosevich allegedly solicited the money from friends and neighbors over a ten year period promising high rates of return at low risk in a purported prime bank scheme but never actually invested any funds. Instead, the funds were converted for personal use, including travel and personal living expenses and construction materials and equipment for a failed resort project in Grenada. Both men were indicted in 2007 but Milosevich remains at large. TePoel, who represented himself, blamed everything on his former partner (Capital Times, DOJ).
A jury in US District Court in Providence, Rhode Island on May 30 acquitted former CVS senior VP John Kramer and former CVS VP Carlos Ortiz of bribing former Rhode Island state senator John Celona. Kramer and Ortiz were indicted in January 2007 on one count of bribery, one count of conspiracy and 21 counts of mail fraud for offering Celona a $1000 per month consulting job which prosecutors alleged was a scheme to influence his votes on legislation favorable to the pharmacy chain. Celona, who was sentenced to 30 months in prison in 2007 after pleading guilty to public corruption corruption charges in 2005, was the prosecution’s star witness.
But the jury obviously did not believe Celona or the government’s case. Jurors took only 90 minutes to acquit Kramer and Ortiz on all counts. Afterwards, Ortiz’ wife blasted prosecutors for “putting together this sham case” and Kramer refused to shake USA Robert Corrente’s hand when he offered it (Providence Journal, Reuters).
Reports from the Thursday hearing before a three-judge panel of the Seventh Circuit in Conrad Black’s appeal (earlier) indicate that oral arguments did not go well for Black’s defense team. As expected, Black’s appellate attorney Andrew Frey argued that Black didn’t intend to obstruct justice when he removed boxes of documents from his Toronto office in violation of a court order, that the money Black and his co-defendants took was a legimate arrangement that didn’t hurt Hollinger shareholders and that US District Judge Amy St. Eve erred in giving the jury the so-called “ostrich” instruction. But the judges, especially US Appeals Court Judge Richard Posner, were unusually aggressive in their questioning of Frey. Former AUSA Eric Sussman, who led the team that prosecuted Black, said he heard “a lot more skepticism from the Court of Appeals than in the ordinary appeal.” Posner called the document removal “bizarre” and said “the bulk of the evidence has to do with pretty naked fraud” (Chicago Tribune, Canadian Press).
In February, US District Judge Roger Vinson dismissed with prejudice the US v. Scruggs Northen District of Alabama case in which Dickie Scruggs was being prosecuted for criminal contempt of court (earlier). While Judge Vinson clearly did not believe Scruggs,he ruled that Scruggs was not criminally responsible.
US District Judge William Acker is clearly peeved by that ruling and more than peeved at Scruggs and the Rigsby sisters. On Thursday, he found Scruggs and the Rigsbys in civil contempt in the case and ordered them to pay $65,000 in attorney fees to E. A. Renfroe within 30 days. His order makes it clear that proceedings will not be stayed unless the Eleventh Circuit orders it. But that’s the tame part. His memorandum is a withering and intemperate attack on Scruggs, the Rigsbys and Mississippi AG Jim Hood. Some examples: what Scruggs did is called “too cute by half.” Hood is called a so-called ‘law enforcement official’.” “Scruggs and the Rigsbys were as ‘joined-at-the-hip’ as any set of Siamese twins.”
While all that may well be true, it’s shocking to see it officially expressed that way. It almost seems like an attack deliberately timed to embarrass Scruggs three weeks ahead of his sentencing. Judge Acker has let his anger get the best of him.
The heat from the OPR and congressional investigations into the Siegelman/Scrushy case may be having some effect. The puppets prosecutors who were appealing the 88 month prison sentence for former Alabama Governor Don Siegelman and the 82 month sentence for former HealthSouth CEO Richard Scrushy as too lenient have suddenly decided to drop their cross-appeal. The motion filed with the Eleventh Circuit earlier this week gives no expanation, simply saying “the government has elected not to proceed with its cross-appeal as to either defendant.” Unfortunately, they will still be opposing the defendants’ appeals (AP). Scott Horton at Harper’s has an overview of recent events in the case here.
The Chicago Sun-Times has it here.
A three-judge panel of the US Court of Appeals for the Seventh Circuit will hear oral arguments today in the appeal of former Hollinger Inc. CEO and chairman Conrad Black, as well as the appeals of his co-defendants Jack Boultbee, Peter Atkinson and Mark Kipnis. Black was convicted last July on three counts of mail fraud and one count of obstruction of justice; he and his three co-defendants were accused of defrauding Hollinger and its shareholders of $60 million. He was sentenced in December to 78 months in prison; he began serving his term on March 3 after the Seventh Circuit denied his request to remain free on bond during his appeal (Canadian Press).
One day after indicted Rep. William Jefferson (D-La.) endorsed Sen. Barack Obama for President, three of Jefferson’s relatives were charged in a 31-count federal indictment made public on Wednesday in New Orleans. Betty Jefferson, a publicly elected district tax assessor, her brother Mose Jefferson and her daughter Angela Coleman have been indicted on counts of conspiracy to commit mail fraud, federal program fraud, aggravated identity theft, substantive program fraud, mail fraud and conspiracy to commit money laundering, for allegedly looting charitable organizations under their control (Times-Picayune, DOJ).
After 13 days of deliberation, a federal jury has convicted Illinois developer and Democratic fundraiser Tony Rezko on six counts of mail fraud, six counts of wire fraud, two counts of aiding and abetting bribery and two counts of money laundering, while acquitting him three counts of wire fraud, four counts of aiding and abetting bribery and one count of attempted extortion. The charges arose from a series of influence peddling and kickback schemes. Rezko’s ties to Illinois Gov. Rod Blagojevich were at issue in the trial, but his connections to Sen. Barack Obama will surely be campaign fodder in the Presidential race. Rezko was taken into custody immediately; US District Judge Amy St. Eve scheduled sentencing for September 3 (Chicago Tribune/AP).
Cecil “Katie” Suwal, who ran the daily operations of the Emperors Club VIP escort service patronized by Eliot “Client 9″ Spitzer, pleaded guilty yesterday to a two-count federal information charging her with conspiracy to commit money laundering and conspiracy to promote prostitution. The former charge is based on her admission that she opened a series of bank accounts to launder proceeds from the club. Suwal entered her plea before US District Judge Barbara S. Jones in Manhattan. She remains free on bond until her sentencing in September. The plea agreement calls for her to receive 21 to 27 months in prison and does not mention a requirement for her to cooperate with prosecutors. Suwal’s plea follows booking agent Temeka Lewis’ guilty plea last month (earlier); still no word on possible charges against Spitzer (AP).
Due to a scheduling conflict, US District Judge Neal Biggers on Tuesday moved the sentencing date for Dickie Scruggs, Zach Scruggs and Sid Backstrom from July 2 to June 27. Dickie Scruggs moved to reschedule because his lead attorney John Keker had a scheduling conflict, and the other defendants did not object (AP).
UPDATE (h/t folo): It seems the chip doesn’t want to follow the old block. Zach Scruggs objected to moving up sentencing five days, so his sentencing date stays at July 2.
The Rigsby qui tam “trailer lawyers” from Kansas City have filed a motion to reconsider their disqualification from Ex rel. Rigsby by US District Judge L.T. Senter (earlier). It’s yet another over-the-top motion, this time attacking Judge Senter as well as State Farm. Rossmiller’s analysis is well worth the read.
In McIntosh v. State Farm, State Farm responds to Scruggs’ objections to US Magistrate Judge Robert Walker’s order requiring him to turn over a host of documents.
In all the much-needed publicity surrounding the politically motivated prosecution of former Alabama Governor Don Siegelman, little attention has been paid to the other defendant: former HealthSouth CEO Richard Scrushy, whose prosecution in this case can easily be seen as payback for his 2005 acquittal on all counts in his accounting fraud case. Although Siegelman was granted bond in late March pending his appeal, Scrushy remains in prison serving a term of 6 years and 10 months; like Siegelman, he was taken into custody immediately after his sentencing last June.
However, late Monday afternoon attorneys for Scrushy filed an apellate brief with the US Court of Appeals for the Eleventh Circuit in Atlanta, asking the court to reverse his conviction or order a new trial. The appeal covers six claims: the government’s failure to establish a quid pro quo, juror misconduct, failure of US District Judge Mark Fuller to disclose conflict of interest, improper denial of Scrushy’s jury composition challenge, admission of erroneous and prejudicial hearsay from a non-witness and the barring of the bribery counts by the statute of limitations. An AP article has more here.
John Albaugh, former chief of staff for former US Rep. Ernest Istook (R-Okla.), pleaded guilty on Monday to a one count criminal information charging him with conspiracy to commit honest services wire fraud. His plea was entered before US District Judge Ellen Segal in DC. Albaugh admitted receiving things of value from an associate of convicted lobbyist Jack Abramoff in exchange for official favors. The lobbyist was not named but it appears to be Kevin Ring, a former aide to Rep. John Doolittle (R-Calif.) who later went to work for Abramoff.
Albaugh has agreed to cooperate with prosecutors. The plea agreement calls for 18 to 24 months in prison but it could be reduced depending on the level of cooperation. Istook said he was “as surprised and as shocked as anyone” and claimed that he is not a target in the continuing investigation (AP,DOJ).
Anthony Tesvich of Atlanta, a former Home Depot global products buyer, was indicted on Thursday on charges of tax evasion and conspiracy to commit wire fraud. An attorney for Tesvich said he plans to plead guilty. The charges stem from an alleged kickback scheme he operated: he is accused of taking payoffs from foreign flooring vendors in exchange for ensuring that their products were placed in Home Depot stores. The tax evasion counts allege a total of over $1.4 million in unreported income from the scheme in 2003, 2004 and 2005. He left the company in 2005 and allegedly continued the scheme into 2007 by paying kickbacks to two flooring buyers on behalf of the suppliers. The two buyers were fired last year but have not yet been charged (DOJ, Atlanta Journal Constitution).
Former Credit Suisse investment banker Hafiz Muhammad Zubair Naseem was sentenced on Friday to 10 years in prison by US District Judge Robert Patterson in Manhattan. A jury convicted Naseem in February on one count of conspiracy and 28 counts of insider trading for tipping off a colleague in Pakistan who traded on inside information of upcoming mergers, resulting in a gain of $7.5 million (earlier). The colleague, Ajaz Rahim, is fighting extradition from Pakistan (Bloomberg).
Melvyn Weiss, pioneer of shareholder class action lawsuits and former name partner of the firm now known as Milberg LLP, was sentenced today to 30 months in prison by US District Judge John Walter in Los Angeles. In March Weiss agreed to plead guilty to a single count of racketeering, admitting that he engaged in a pattern of racketeering activity covering the period of 1979 to 2005 by paying kickbacks to plaintiffs (earlier). He must report to prison by August 28 (Bloomberg, AP).
More positive news for former Alabama Governor Don Siegelman: Fifty-four former state attorneys general, both Democratic and Republican, have filed a brief with the US Court of Appeals for the Eleventh Circuit asking that Siegelman’s conviction be overturned. Following the primary argument in Siegelman’s appellate brief, the new brief states: “Completely absent from the trial record is any evidence that Governor Siegelman and Mr. Scrushy entered into an explicit agreement whereby Mr. Scrushy’s appointment to the CON board was conditioned upon Mr. Scrushy’s making the political contributions in question” (NYT, AP). Another AP article here has a complete list of the signatories.
Although he is lesser known than the principal defendants in the cases related to convicted former Rep. Duke Cunningham, financier Thomas Kontogiannis received a significant sentence: 97 months in prison for for his involvement in laundering bribe money from hundreds of defense contractors for Cunningham. The sentencing took place on May 16 before US District Judge Larry A. Burns in San Diego. Burns previously sentenced Cunningham to 8 years and 4 months and defense contractor Brent Wilkes to 12 years in prison. Kontogiannis had pleaded guilty in February 2007 to a single count of money laundering in connection with a fraudulent mortgage that allowed Cunningham to buy his mansion in Rancho Santa Fe; at the sentencing hearing, AUSA Jason Forge alleged that Kontogiannis had continued to make fraudulent mortgages after his guilty plea (DOJ, San Diego Union-Tribune).
Joseph Brunson, Timothy McQueen and Tony Pough, the the self-styled “Three Hebrew Boys” of the Capital Consortium Group, were arrested Wednesday in Columbia, South Carolina and charged with conspiracy to commit mail fraud. The charges stem from a scheme in which prosecutors say the three men collected about $80 milliion from about 7,000 investors. They allegedly sold various debt elimination schemes, primarily through military bases and churches, by telling investors that their funds would be invested in the foreign exchange (forex) currency trading market and claiming return yields of between 200% and 500% per night. They allegedly operated a Ponzi scheme, with some early investors being paid off with later investor funds, but prosecutors said that $1 billion is owed (on paper) by the end of this year and that less than $40,000 was actually invested. Investor funds were said to be used to fund lavish purchases, including a $5 million jet and a $1 million motor coach.
The three men are pastors at African-American churches; since pleading not guilty last year to state charges of selling investments without a license, they have denied any wrongdoing and have claimed their financial work is religious and exempt from securities laws. They have been out on bond on the state charges but were jailed after their arraignment Wednesday before US Magistrate Judge Joseph R. McCrorey in Columbia. A detention hearing is scheduled for June 3; the men each face up to 20 years in prison (The State, AP, FBI).
Harry Siskind, the former Mark Nutritionals CEO who pleaded guilty on May 19 to making a false statement to the FTC for lying about the value of his assets (earlier), is in more hot water. He was back in court on Thursday in San Antonio before US District Judge Orlando Garcia, who demanded to know why Siskind got a public defender when he appears to have the means to pay for his own attorney. It turns out that at the time he was pleading indigence, he was traveling around the country playing in high stakes poker tournaments which had $10,000 to $25,000 entry fees. And he owns a house valued at over $500,000 with no mortgage. Judge Garcia has not yet ruled whether Siskind will be required to reimburse taxpayers for the cost of his public defender, but he did tell Siskind that he is to “have nothing to do with poker whatsoever” and that he no longer can travel freely about the country. His sentencing hearing is scheduled for August 28 (Express-News).
US District Judge Neal Biggers on Thursday set July 2 as the sentencing date for Dickie Scruggs, Zach Scruggs and Sid Backstrom. His initial order set the sentencing hearing on June 18 but rescheduled after Dickie Scruggs objected because he had only received his presentencing report from the US Probation Office on Tuesday and said the earlier date would not give him adequate time to review it. Biggers also noted that the court had received numerous letters solicited by the defendants asking for leniency, and ruled that each defendant would only be allowed three character witnesses each (Judge Biggers’ Order, Sun Herald).
The Renfroe defendants in Ex rel. Rigsby (adjusting firm E.A. Renfroe and its owners Gene and Jana Renfroe) have now moved for summary judgment. The basis for the motion is the this case is that the allegations in the qui tam case were publicly disclosed on at least four separate occasions beginning more than seven months before the Rigsby sisters filed their original complaint and that the Rigsbys offered no independent and original knowledge of the allegations. The motion also alleges that the Rigsbys have failed to present any specific records that show fraudulent claims handling. State Farm made a similar argument in its earlier motion to dismiss, but the Renfroe motion goes into more detail. The Sun Herald has a story here.
In McIntosh v. State Farm, US Magistrate Judge Robert Walker has stayed his May 15 order (earlier) requiring Dickie Scruggs to turn over number of documents to State Farm by today, pending resolution of objections by Scruggs. NMC at folo has a good analysis here.
Martin Weisberg, a former partner in the New York law office of Chicago-based Baker & McKenzie, has been indicted on 10 counts of wire fraud and one count of money laundering for allegedly stealing $1.6 million from a $30 million escrow account he set up for a corporate client. The indictment, made public on Tuesday, charges that Weisberg told his client that he would put the money into either a non-interest bearing or an IOLA interest bearing account, but instead put the money into a non-IOLA interest bearing account which earned $1.6 million, which he allegedly converted for personal use. Weisberg pleaded not guilty at his Tuesday arraignment before US Magistrate Judge Robert M. Levy in Brooklyn (New York Law Journal, DOJ).
As the New York Law Journal article notes, Weisberg was also indicted last October along with five other men (including two Israeli nationals) on securities fraud, money laundering and conspiracy counts; those charges stem from a short selling scheme which allegedly generated $55 million in illegal profits for the Israelis, who allegedly paid several million in kickbacks to Weisberg and the other defendants. And a WSJ Law Blog article from last fall here notes his involvement and eventual acquittal in a 1991 case.
It sounds like a scheme that could have been cooked up in Nigeria: Elias Muñoz, Jr. of El Paso, a former unsuccessful candidate for county judge and county commissioner, was indicted May 7 on one count of wire fraud and three counts of government seals wrongfully used. The indictment came to light last week when Muñoz was arrested by US Immigration and Customs Enforcement (ICE) after promising a 10-to-1 return on a $65,000 loan to an ICE undercover special agent that he believed to be a potential investor. He allegedly represented himself as an investment banker, telling potential investors that the Department of Homeland Security (DHS) had seized $25 million of his money at the El Paso International Airport and that he needed loans to pay fees to retrieve the funds. He allegedly used official DHS seals and other federal seals on letters and emails to convince potential investors, typically promising a 3-to-1 return on investment. As of his bond hearing on Tuesday before US Magistrate Judge Richard Mesa, ICE now believes at least 33 investors in El Paso, Juárez, San Angelo and Albuquerque have been defrauded of at least $303,000. Muñoz faces up to 20 years in prison; his bond was set at $75,000 (El Paso Times, ICE News Release) .
Recent developments in matters related to Dickie Scruggs:
We noted earlier that the disqualified former SKG attorney Don Barrett had written his clients on April 18 to advise them that the Provost-Umphrey law firm (headquartered in Beaumont, Texas) had agreed to take over their cases. Both firms share a Nashville office. A May 10 Sun Herald story indicated that Provost-Umphrey had picked up about 200 of the firm’s approximately 400 former Katrina clients. However, State Farm contractor E. A. Renfroe on May 20 asked the court to determine if Provost-Umphrey is an “associated firm” in connection with the disqualification order. This was followed by a May 22 State Farm motion objecting to Provost-Umphrey’s appearance and asking the court to compel compliance with its previous motion of disqualification. In light of the associations between the two firms alleged in the memorandums supporting the motions, and the fact that Barrett provided client information to Provost-Umphrey and actively worked to move clients, it’s hard to see Judge Senter allowing Provost-Umphrey’s appearance to stand (Renfroe memorandum, State Farm memorandum, Sun Herald).
At former Sen. Jean Carnahan’s Fired Up Missouri, Howard Beale takes Rigsby qui tam “trailer lawyer” Todd Graves to task, blasting his lack of ethics and suggesting that he may be subject to bar complaint in Missouri due to his conduct in Mississippi:
It really shouldn’t be so surprising that the same man who as U.S. Attorney would have been responsible for investigating or prosecuting a Governor whose acts took place in his District but who saw no problem with his wife’s accepting a lucrative patronage plum from the very same Governor would also see no ethical barrier to cashing in by turning a blind eye to the unethical and inappropriate situation arranged by his fellow attorneys in the Rigsby imbroglio. All of a piece.
Eaton v. Frisby is a civil trade secrets case not directly related to Dickie Scruggs as far as we know, but it is being investigated by the FBI in connection with public corruption allegations against Hinds County Circuit Judge Bobby DeLaughter and former Hinds County DA Ed Peters (earlier here and here), who are also under investigation in connection with at least one Scruggs case, Wilson v. Scruggs. Last week both Peters and DeLaughter were subpoenaed after senior Hinds County Circuit Judge Swan Yerger, who is presently handling the case, issued an order allowing the subpoenas “to determine whether Ed Peters attempted to or did improperly influence any judicial officer and to determine whether any other person or entity participated in or had knowledge of any such efforts” (Clarion Ledger). Peters has moved to quash, but DeLaughter has responded, and his response is telling. While he claims not to have much of the requested information and objects to other requests on grounds of relevancy or confidentiality, he in effect admits furnishing Ed Peters with draft orders and opinions in this case: “Respondent is not aware of an particular opinion or order that may have been furnished to Ed Peters, but any such opinion and/order would not have been any different than that also furnished to all attorneys in the case.” He makes a similar statement regarding information requested re Wilson v. Scruggs. Keeping in mind that Peters had never made an appearance in either case and that his behind-the-scenes involvement was unknown until Joey Langston’s guilty plea, this is quite an ominous admission.
The US Supreme Court on Tuesday rejected without comment the appeals of former Illinois Governor George Ryan and his co-defendant, businessman Larry Warner. The two men were convicted in April 2006 on 18 counts including conspiracy, racketeering, mail fraud, tax fraud and making false statements to the FBI. The charges arose from alleged favoritism and kickbacks for state contracts and property leases that unjustly enriched Ryan, Warner and others when Ryan was Illinois secretary of state. Ryan and Warner appealed, arguing that they did not receive a fair trial due to judicial error, including allegedly improper deliberations because two jurors were replaced after deliberations had begun. However, the US Court of Appeals for the Seventh Circuit upheld their convictions last year by a 6-3 margin, and Ryan begin serving his 6 1/2 year sentence last November after Justice John Paul Stevens denied bond. Former Illinois Governor Jim Thompson of Winston & Strawn, which handled Ryan’s defense pro bono, indicated that he will ask the President for executive clemency (Reuters, Chicago Tribune).
More woes for former CIA executive director Kyle "Dusty" Foggo, once the agency’s third-ranking official: a second superseding indictment filed last Tuesday in US District Court in Alexandria, Virginia adds new charges on top of the 30 conspiracy, wire fraud, honest services wire fraud and money laundering counts he already faces. The new counts include making false statements on his federal financial disclosure form for allegedly failing to disclose the gifts he received from Brent Wilkes, owner and founder of defense contractor ADCS; conflict of interest, including an allegation that Foggo tried to steer to Wilkes a contract worth more than $100 million to provide air support to the CIA, even as Foggo stood to benefit financially; and a charge that Foggo received sexual companionship and "enrichment of a mistress" for allegedly pressuring CIA managers into hiring his mistress and making false statements about her qualifications (WaPo, AP).
Foggo was originally indicted in February 2007 in connection with the bribery case of former US Rep. Duke Cunningham; Wilkes and Foggo were named in a superseding indictment in May 2007. Both previous indictments were handed down in the Southern District of California; but when Wilkes was sentenced to 12 years in prison in February 2008 for bribing Cunningham (earlier), US District Judge Larry Burns approved an agreement to drop the charges against Wilkes in the corruption case against Foggo and to move the prosecution of Foggo on the same counts to the Eastern District of Virginia. Cunningham was sentenced to 8 years and 4 months in prison in March 2006.
At a resentencing hearing in Manhattan on Thursday, an attorney for imprisoned Adelphia Communications founder and former CEO John Rigas and his son, former Adelphia CFO Timothy Rigas asked US District Judge Leonard Sand to reevaluate their sentences. The Rigases participated in the hearing by video hookup from prison. Both were convicted of securities fraud, bank fraud and conspiracy in 2004; John Rigas, now 83, was sentenced to 15 years in prison, while Timothy Rigas received a 20 year sentence. The US Circuit Court of Appeals for the Second Circuit upheld their convictions on 22 of 23 counts in May 2007; they began serving their sentences last August, and the US Supreme Court in March 2008 rejected their appeals without comment (earlier). But the Second Circuit reversed their conviction on one count of bank fraud, citing insufficient evidence, which led to the resentencing hearing.
Attorney Lawrence McMichael argued the reversal of the single count was due to a substantive error and therefore all counts should be reevaluated. He also asked the court to consider new sentencing rules and new evidence from civil proceedings that has come to light since the original trial. However, Judge Sand said the reversal was on a lesser count of bank fraud and not the bigger conspiracy charge, and he has already rejected a motion to reconsider based on new evidence. He could choose to let the sentences stand since the reversed count was being served concurrently; McMichael asked for both sentences to be reduced to only 12 months. Judge Sand declined to rule immediately, indicating that he would publish a written decision in the coming weeks. But he stated, “There’s no acceptance of any responsibility for what occurred at Adelphia, and I don’t think that’s an overstatement. I think the defendants are in total denial, and that’s very disturbing” (Reuters ).
Four days after a federal jury in Atlanta convicted him on 47 counts including mail fraud, securities fraud and money laundering in a massive hedge fund fraud (earlier), former IMA and IMAAG head Kirk Wright was found hanged in his jail cell in Union City (Atlanta area), where he was being held pending sentencing. He was 37. Betty Honey, an investigator with the Fulton County Medical Examiner said it was a suicide and that no foul play is suspected. Wright faced a statutory maximum of 710 years in prison (AP, Atlanta Journal-Constitution).
The US Court of Appeals for the Third Circuit has scheduled oral arguments for July 25 in the appeal of former Allegheny County Coroner Cyril Wecht. The primary issue on appeal is the defense motion for dismissal on grounds that a retrial would violate Wecht’s constitutional protection against double jeopardy (Pittsburgh Post-Gazette).
US District Judge Arthur Schwab last Monday canceled the retrial, which had been scheduled to begin tomorrow, and released about 250 prospective jurors back into the pool for future jury duty (Pittsburgh Tribune-Review). On Friday, to no one’s surprise, Schwab denied defense motions to acquit Wecht, to dismiss all charges and to suppress certain evidence at the second trial (Tribune-Review).
Attorneys for former Alabama Governor Don Siegelman on Thursday asked the US Court of Appeals for the Eleventh Circuit to reverse his conviction and acquit him. Siegelman was ordered released on bond in March (earlier here and here). Siegelman was convicted of bribery and related charges for appointing former HealthSouth CEO Richard Scrushy to the Alabama hospital Certificate Of Need board, allegedly in exchange for Scrushy arranging $500,000 in donations to Siegelman’s campaign to institute a state lottery. The appeal rests heavily on the argument that the trial court fundamentally erred by failing to recognize that proof of a criminal violation requires an explicit quid pro quo linkage between a campaign contribution and official action (AP).
Meanwhile, as the House Judiciary Committee investigates allegations that the prosecution of Siegelman was politically motivated, on Thursday US Rep. John Conyers (D-Mich.) released a May 5 letter from the Office of Professional Responsibility (OPR) of the DOJ confirming that the OPR is currently investigating allegations of selective prosecution of Siegelman as well as the cases of former Allegheny County Coroner Cyril Wecht, former Mississippi Supreme Court Judge Oliver Diaz and attorney Paul Minor, and former Wisconsin state employee Georgia Thompson (Atlanta Journal-Constitution, Bloomberg).
After a two week trial, a federal jury in Atlanta on Wednesday convicted former hedge fund manager Kirk Wright on multiple counts including mail fraud, securities fraud and money laundering. Wright’s firms IMA and IMAAG took in over $155 million in investor funds which purportedly were to be invested in marketable securities and cash, but he allegedly used part of the funds in a Ponzi scheme and diverted most of the rest for personal use over a period of at least five years. Only a small portion was actually invested and that lost value. As of late 2005, Wright had represented to investors and the SEC that over $150 million was under management, but when firms collapsed in early 2006 it was discovered that only about $500,000 was left and investors had typically received statements showing 1000 times what they actually had, including falsified brokerage statements from Ameritrade for non-existent accounts. Wright could face up to 710 years in prison; sentencing is scheduled for August 26 before US District Judge Clarence Cooper. He has been in custody since his May 2006 arrest following two months in hiding (Atlanta Bizjournal, DOJ).
In Ocala, Florida on Thursday, US District Judge William Terrell Hodges granted bond for actor Wesley Snipes pending his appeal of his conviction and sentence. He had been scheduled to surrender to federal prison authorities during the first week of June to begin serving his sentence. Snipes was convicted February 1 on three misdemeanor counts of failure to file federal income tax returns for 1999-2001 but was acquitted on two felony counts and three other misdemeanor failure to file counts. He was sentenced to three years in prison on April 24. Judge Hodges expressed doubt about the merits of Snipes’ appeal but determined that he was not a flight risk (Orlando Sentinel).
In Dallas on Tuesday, James Retz of Fort Worth, former president of oil and gas exploration company Big Rock Ranches, Inc., pleaded guilty before US Magistrate Judge Paul Stickney to an information charging one count of mail fraud. Retz admitted that from 1999 to 2005, he ran an investment scheme in which he concealed well production data from his employees and investors. He allegedly sent fraudulent royalty payment checks, financial statements and newsletters to mislead investors about their investments. He sold percentages of 245 oil and gas wells in Texas and Wyoming which were represented as drilled and producing but only a handful were actually drilled and none were producing. Investor losses were not disclosed. Sentencing is scheduled for September 2 before US District Judge Sam Lindsay; Retz faces a statutory maximum of 20 years in prison (Dallas Bizjournal, DOJ).
Lou Pearlman, the sadist pop music promoter who gave the world N’Sync and the Backstreet Boys, was sentenced on Wednesday to 300 months in prison by US District Judge G. Kendall Sharp in Orlando. Pearlman pleaded guilty in March (earlier) to two counts of conspiracy, one count of money laundering and one count of making a false claim in a bankruptcy in connection with a series of long-running fraud schemes which caused losses to 250 investors estimated at $200 million and losses to 10 financial institutions estimated at $100 million. His schemes included enticing individuals and banks to invest millions of dollars in two airline companies which existed only on paper, a Ponzi scheme involving the sale of “employee investment savings accounts,” a bank fraud involving faked financial statements, and a plot to siphon frozen assets from a bankruptcy case. Sharp offered Pearlman the opportunity to shorten his sentence by one month for every $1 million repaid to his bankruptcy trustee, but the assets recovered to date (including his mansion and Rolls) will not count toward the incentive (Reuters, MTV).
Remember Body Solutions? Their Evening Weight Loss Formula, huckstered by radio DJs nationwide, allegedly would let you lose weight while you sleep. All you had to do was drink it and you would burn fat and gain lean muscle without diet or exercise, just like magic! Some dupes people actually believed it for a while, to the tune of $155 million in sales; but Mark Nutritionals Inc. of San Antonio, the company that made it, filed for bankruptcy in 2002 after being sued by the FTC for making false and unsubstantiated claims.
On Monday in San Antonio, former Mark Nutritionals CEO Harry Siskind pleaded guilty before US Magistrate Judge Nancy Nowak to a single count of making a false statement to the FTC. The charge arose from a deposition he gave the FTC in connection with its suit against him and his company and in connection with the bankruptcy. Specifically, he admitted lying about the value of his assets. After being ordered by a federal court to disclose all assets, “under oath, Siskind falsely stated that certain assets owned by him were valueless stock when in fact they were valuable loans owed to him which he expected to be repaid.” Siskind faces up to five years in prison; sentencing is scheduled for August 28 before US District Judge Orlando Garcia (AP, DOJ).
In Dallas on Tuesday, Oscar Black of Weatherford, Texas pleaded guilty to an information charging one count of mail fraud in connection with an investment scheme that caused $6.7 million in losses to investors and two banks. Black, who operated OB Cattle, promised investors a guaranteed 12% rate of return, but when his cattle company started losing money, he mailed false statements to his investors to keep them from withdrawing funds and also made false representations to Wells Fargo Bank and First National Bank of Weatherford. In all, investors lost about $3.1 million and the two banks lost $3.6 million when the scheme collapsed. Sentencing is scheduled for September 2 before US District Judge Sam Lindsay; no sentencing agreement was announced but Black faces a maximum of 20 years in prison (AP, DOJ).
Say goodnight, Todd. Say goodnight, Chip. To almost no one’s surprise except themselves and a small band of delusional Scruggs true believers, US District Judge L.T. Senter on Monday disqualified Todd Graves, Chip Robertson and their respective Kansas city area law firms from representing the Rigsby sisters in Ex rel. Rigsby, the qui tam case. The firms are Graves, Bartle & Marcus and Bartimus, Frickleton, Robertson & Gorny.
In granting State Farm’s motion, Judge Senter ruled that their association with Dickie Scruggs was not on a substantially different footing from the members of SKG which he has already disqualified (earlier); that their role in representing the Rigsby sisters was “a cooperative effort equivalent to a joint venture under Mississippi law;” and that they failed to take requisite action upon learning of Scruggs’ misconduct.
While he did not rule on State Farm’s motion for summary judgment or specifically disqualify the Rigsby sisters, Judge Senter left little doubt where he stands, referring to the documents the Rigsbys took as “purloined” and their consulting arrangement with Scruggs as a “sham.”
An AP article cites Anthony DeWitt of Bartimus, Frickleton as indicating he and his colleagues are likely to appeal, but apparently Mr. DeWitt is not aware of Richardson-Merrell v. Koller. An interlocutory appeal of the disqualification decision is not allowed.
In Baltimore on Friday, Alex Fabian of Cockeysville, Maryland pleaded guilty on Friday before US District Judge Richard D. Bennett to one count of mail fraud and one count of filing a false tax return. The charges arose in connection with two schemes in which he 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 when he was indicted last August on 26 counts including bankruptcy fraud, mail fraud, money laundering, obstruction of justice and perjury. From 2001 to 2004 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. Then between 2005 and 2007 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. Fabian faces up to 30 years in prison on the mail fraud count and three years on the tax fraud count. Sentencing is scheduled for September 22 (Baltimore Sun, Baltimore Bizjournal).
“This Bird Has Flown” news: Jodi Andes of the Columbus Dispatch has an interesting article here about Rebecca Parrett, the convicted co-founder of National Century Financial Enterprises who has been at large since mid-March (earlier). Although three of her convicted co-defendants are suspected of planning to flee to Aruba (earlier here, here and here), her son Rob Parrett says that after being indicted in 2006, she said she “wasn’t going to jail for something she didn’t do” and said that she would head for Costa Rica. It appears that her flight was well-planned; she told relatives she was going back to Arizona for a few days to clear her head, then picked up two months of prescription drugs before disappearing. Her son called the bed and breakfast where she was to be staying and was told she was there under a “do not disturb” request, but it now seems that she was never there. And in the Yeah, Right department: the last person known to have seen her (on March 16) was her sixth husband Gary Green, who told her son he was in a motorcycle accident that day and can’t remember a thing.
In yet another defeat for Dickie Scruggs in the McIntosh v. State Farm case, US Magistrate Judge Robert Walker on Thursday ordered Scruggs to turn over a number of documents to State Farm within 15 days:
- All communications between Scruggs and the first engineer who found wind damage, Brian Ford, who State Farm maintains was unethically offered compensation by Scruggs;
- Any communications between Scruggs and any State Farm employee that are related to the McIntosh claim;
- Any communications between Scruggs and the media about Hurricane Katrina and the McIntosh claim, including any engineering report shared with ABC news;
- Any documents Scruggs picked up from a “highly placed source” at State Farm in Bloomington, Ill.;
- All documents related to any financial interest Scruggs has in Katrina litigation against State Farm.
Edward Chua of Montebello, California was sentenced to 37 months in prison on Wednesday by US District Judge Richard W. Roberts in the District of Columbia for defrauding the Export-Import Bank of the US of more than $10 million. Chua, former owner of exporting companies EMMCCO and EMCO, pleaded guilty in July 2007 to one count of conspiracy and one count of mail fraud. Chua admitted acting as a purported exporter in over $10 million worth of fraudulent loan transactions, falsifying documents sent to US banks and to the Ex-Im Bank, and misappropriating approximately $10 million in loan proceeds. He also admitted transferring approximately $9 million to bank accounts owned or controlled by a co-conspirator in the Philippines. The transactions occurred between November 1999 and January 2005 and are part of a larger fraud investigation involving 11 men, 10 of them Filipino nationals, and a total estimated at $80 million. Seven defendants have pleaded guilty to date, and Chua became the fifth to be sentenced to prison. See our entry here on the February sentencing of another defendant, David Villongco (DOJ, Philippines ABS-CBN News).
US District Judge L.T. Senter on Wednesday issued an order disqualifying Lumpkin & Reeves, PLLC from representing Thomas and Pamela McIntosh in McIntosh v. State Farm. The order was the latest pursuant to his April 16 opinion and order disqualifying the SKG firms and “any other associated counsel.”. He acknowledged that he intentionally used broad language in his April 16 order because it was unclear at the time to what extent other lawyers were involved, and that he would consider requests for relief on a case-by-case basis. In this case, he made it quite clear that Lumpkin was involved, and he sharply criticized the firm for “two glaring omissions” which failed to honestly describe its previous role in the litigation. He concluded:
This Court is not going to turn what should be straightforward litigation into a continuing and time-consuming exercise of reviewing attorney conduct. There is sufficient involvement with the KLG-State Farm Katrina litigation cases to qualify Lumpkin as “other attorneys associated as counsel for the plaintiffs by these [disqualified] firms.”
Fomer Alaska Republican state Representative Vic Kohring was sentenced last week to 42 months in prison by US District Court Judge John Sedwick in Anchorage for taking bribes as part of a scheme to keep Alaska oil taxes down. In November 2007 a jury convicted Kohring of bribery, attempted extortion, and conspiracy for soliciting and receiving multiple cash payments from executives of VECO Corporation, the now-defunct oilfield services company that was once the state’s largest, in exchange for his vote on a key oil production tax proposal and his agreement to lobby other legislators. Kohring is the third state Republican legislator to be sentenced to prison in the ongoing corruption investigation. Two top VECO executives and one former
lobbyist have already pleaded guilty. The VECO executives, former CEO Bill Allen and VP Rick Smith, are also cooperating and have implicated US Sen. Ted Stevens and his son, former Alaska state Senate President Ben Stevens; they have denied wrongdoing. US Rep. Don Young is also under investigation.
Kohring’s defense strategy was to claim the money he accepted was just gifts from friends, not bribes. At the sentencing hearing, he was defiant in proclaiming his innocence. His attorney characterized him as being like Andy Griffith, to which AUSA Joe Bottini responded, “”I don’t remember any episode of that show where Andy Griffith took cash from anybody” (Anchorage Daily News, DOJ).
At the request of the US Attorney’s Office, on Monday in Los Angeles US District Judge Robert Takasugi dismissed all charges against Eutiquio Sauceda of Downey, California and Gabriel Camacho of El Monte, California. The two men had been indicted in 2003 on counts of conspiracy and making false statements to a US government agency for allegedly falsely certifying the quality of parts used by commercial aircraft, NASA and the Pentagon; the alleged incidents date back to 1999. They had been scheduled to go on trial next month. No reason was given for the dismissal, but Camacho had turned down a plea that would have involved no prison time. Both men were managers at Temperform USA, a subsidiary of Hydroform USA. The men had been accused of ordering their employees to falsely state that parts had been properly heat treated. Temperform and Hydroform were also indicted; Temperform pleaded guilty in September 2004, paid a fine and closed down, but all charges against Hydroform were later dropped (San Francisco Chronicle).
US District Judge Arthur Tarnow last Thursday denied the request of acquitted former federal prosecutor Richard Convertino to order the government to pay his legal fees and to sanction prosecutors for disclosing records Tarnow had ordered sealed. Convertino was indicted in 2006 on conspiracy, obstruction of justice and perjury counts in connection with his alleged presentation of false evidence and concealment of exculpatory evidence in the prosecution of two Detroit men accused of being terrorists. The men were convicted but the verdicts were thrown out by government request after the USAO investigated and determined that the terrorism charges were baseless.
After Convertino was acquitted on all counts by a jury last October, he moved in January to have his defense costs reimbursed on grounds that the DOJ’s decision to prosecute him was “vexatious, frivolous or in bad faith.” However, Tarnow ruled that Convertino had failed to meet “the defendant’s heavy burden” to show that the government acted in bad faith by indicting him. He also noted that his order sealing the records applied to the trial, and that the sealed records had been introduced after the trial in response to Convertino’s attorney fee request. The records allegedly showed that Convertino had repeatedly lied about his credentials (ABA Journal, Detroit News).
As expected (earlier), Emperor’s Club booking agent Temeka Lewis pleaded guilty on Wednesday to conspiracy relating to prostitution and money laundering, in connection with the prostitution ring operated out of the club which serviced Eliot “Client 9″ Spitzer. Her plea was entered in Manhattan before US Magistrate Judge Theodore Katz; she read a prepared statement admitting that prostitutes traveled across state lines to meet with clients. Her plea agreement calls for cooperation with prosecutors; her attorney said that she has not yet testified before a grand jury and is “ready to receive direction from the government.” She could be sentenced to as much as 25 years in prison but under sentencing guidelines she could serve 16 months or less depending on the level of her cooperation. It is still not known if Spitzer will be charged, but as the NYT notes, with her co-defendants apparently close to plea deals, Lewis’ cooperation could very well take the form of testimony against Spitzer or others not yet indicted. More here from Reuters.
“Few could run with him, and none were better.” — Dan Rather, who hired Stone at KHOU in 1961. The Houston Chronicle has the obituary here.
US District Judge Vanessa Gilmore on Monday scheduled retrials for former Enron Broadband Services executives Joseph Hirko, Rex Shelby and Scott Yeager. Hirko and Shelby will be retried on November 3, 2008, while Yeager’s retrial is set for January 12, 2009. 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. Attorneys for all three defendants indicated on Monday that they will appeal the Fifth Circuit ruling to the US Supreme Court and will ask Gilmore to delay the retrials if a hearing is granted (Houston Chronicle).
In an opinion published Monday, the US Court of Appeals for the Eleventh Circuit upheld the convictions and prison sentences of Joya Williams and Ibrahim Dimson for conspiracy to commit theft of trade secrets. Williams, an executive assistant at Coca-Cola in Atlanta, was convicted in February 2007 of taking confidential trade information from Coke and trying to sell it to Pepsi through her friend Edmund Duhaney and Dimson. Pepsi contacted the FBI after being contacted by Dimson. Williams was sentenced to eight years in prison; Dimson received a five year sentence. Duhaney, who pleaded guilty and cooperated with prosecutors, was sentenced to two years in prison.
The appellate court rejected Williams’ claims that the presiding judge violated her Sixth Amendment rights by limiting her cross-examination of Duhaney and improperly instructed the jury on the meaning of reasonable doubt. The court also rejected Williams’ and Dimson’s claim that their sentences were unreasonable compared to Duhaney’s two-year sentence (AP/Forbes).
Temeka Lewis, primary booking agent for the Emperor’s Club, reportedly will plead guilty in US District Court in Manhattan this week to charges of money laundering conspiracy and conspiracy to commit interstate travel in aid of racketeering, in connection with the prostitution ring operated out of the club. Three others have been charged and two of them are also said to be near plea deals. The fate of favorite customer Eliot “Hoist by His Own Petard” Spitzer apparently has not yet been decided (NYT).
The US Court of Appeals for the Ninth Circuit has upheld the dismissal of a 64-count indictment against Daniel Chapman and Sean Flanagan, two attorneys charged in 2003 in what was described as a complex securities trading scheme, because the prosecution withheld 650 pages of potentially exculpatory evidence, lied about it, and turned it over only after the indictment had been dismissed. US District Judge James Mahan dismissed all the charges in 2006 and ruled that a retrial would prejudice the defendants. The appellate court also refused to order a retrial. In the decision, Judge Kim Wardlaw called the Nevada USAO’s actions “prosecutorial misconduct in its highest form; conduct in flagrant disregard of the United States Constitution; and conduct which should be deterred by the strongest sanction available” (National Law Journal).
Andrew Parker of San Antonio, the equipment exporter recently indicted for defrauding the Export-Import Bank of the US (earlier), was dating an employee of the bank. Parker was seen in public in DC with Mary Beth Adamchik “together in a very affectionate way.” And her title at the bank? “Relationship Manager.” No, really. She has not been charged, but federal authorities have been investigating her background and finances, and she resigned in February after being placed on administrative leave in January because of “a possible inappropriate relationship” between her and Parker. A bank spokesman claimed that she had no authority to approve or underwrite transactions, but the position paid $98,000 annually. Apparently a “Relationship Manager” doesn’t come cheap (San Antonio Express-News).
On Friday, US Magistrate Judge Nancy Nowak denied Parker’s request for release on bond pending trial. The Express-News described the hearing details as “worthy of a movie script,” including Parker’s alleged attempt to recruit an accomplice to “break legs” of his enemies and an alleged threat made against the attorney of a co-conspirator who is now cooperating with the FBI. The FBI agent who testified at the hearing identified Mary Beth Adamchik as a cooperating witness in the case and said that Parker gave her hush money.
Jerry Mitchell’s Sunday Clarion Ledger story asserts that DOJ officials are considering racketeering charges against Dickie Scruggs in connection with the Wilson v. Scruggs asbestos fee dispute case involving the alleged corruption of Hinds Circuit Judge Bobby DeLaughter. The article is short on detail but the investigation has been active. Joey Langston pleaded guilty in January to offering a bribe to DeLaughter on behalf of Scruggs in the case.
Lest we forget, in Scruggs’ March plea hearing in the Lackey bribery case, AUSA Thomas Dawson stated “I want to make it painfully clear that the investigation with respect to the Wilson matter that is currently under investigation — that this plea agreement and this plea has no affect with respect to any charging decision or subsequent prosecution with respect to that case.” Mitchell does report that Scruggs apparently rejected a plea deal in March that would have included the Wilson case along with his plea in the Lackey case.
Stay tuned.
Two former principals of now-defunct Brooklyn-based Olympia Mortgage Corporation were indicted on Thursday by a federal grand jury in Brooklyn in two separate mortgage fraud schemes. In one, Leib Pinter was charged with conspiracy and wire fraud in connection with the theft of $44 million of payoff proceeds for 257 refinanced home mortgage loans funded by Fannie Mae and serviced by Olympia; he allegedly misappropriated the funds that were to be used to pay off the original loans. In the second, Barry Goldstein 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; the amount of loss was not specified. Each count carries a possible maximum sentence of 30 years in prison. Both Pinter and Goldstein pleaded not guilty at their arraignment before US Magistrate Judge Joan Azrack and were released on bond (Newsday, Reuters).
US Office of Special Counsel head Scott Bloch, whose office and home were raided on Tuesday by the FBI, ordered his agency’s own task force to stop an investigation it had begun into the prosecution of former Alabama Governor Don Siegelman. The task force was formed at the agency last year to pursue political investigations in Washington, including whether the White House played politics in firing nine US Attorneys and whether the White House improperly sponsored political briefings at federal agencies. The previously undisclosed investigation came to light in a memo (.pdf) written in January by the four task force attorneys and their three senior advsors and obtained last week by the nonprofit Project on Government Oversight. The memo states that in September and into October 2007, the task force worked to obtain publicly available evidence about the allegations, including the sworn statement and testimony before Congress of former Alabama Republican Party operative Jill Simpson, and had created an investigation plan to include information to be requested from the DOJ. But on October 11, Bloch ordered the investigation closed immediately because he did not authorize it. On October 15, “after concerns are expressed that OSC simply cannot close a file without conducting an investigation,” the task force was directed “to not further investigate this case and to wait for further instructions from the Special Counsel.” As of the January 18 memo, the task force was still requesting authorization to continue.
The AP/Birmingham News story quotes Siegelman: “The question is who told them to shut it down. Why would you start an investigation and let it proceed and then shut it down? The logical conclusion is that somebody intervened and told them to shut down the investigation.” The WaPo story here also discusses other investigations covered in the memo.
A three-judge panel of the US Court of Appeals for the Third Circuit on Thursday voted unanimously to stay indefinitely the retrial of former Allegheny County Coroner Cyril Wecht while it considers defense motions in the case. The ruling is a slap in the face of U.S. District Court Judge Arthur Schwab, who presided over Wecht’s trial. The retrial was scheduled to begin on May 27. The principal issue on appeal is the defense motion for dismissal, which contends that Schwab failed to follow proper federal procedures in declaring a mistrial and immediately ordering a retrial, violating Wecht’s constitutional protection against double jeopardy. Among other pending issues are a defense motion to remove Schwab and a local media appeal to force Schwab to follow an earlier Third Circuit order to release juror names (Pittsburgh Tribune-Review, Pittsburgh Post-Gazette).
US District Court Judge Robert Blackburn on April 29 sentenced 72-year-old Norman Schmidt of Denver to a mind-boggling 330 years in prison and ordered him to forfeit more than $38 million for his central role in a $56 million high-yield investment scam that allegedly defrauded about 1,000 investors. A jury convicted Schmidt in May 2007 on 37 counts including conspiracy, mail fraud, wire fraud, securities fraud and money laundering. Schmidt and his co-defendants — his wife Jannice and 5 others — allegedly used most of the investor funds for their own personal gain. In written response to an earlier government recommendation for such a sentence, Schmidt’s attorney Thomas Hammond called it outrageous and unreasonable and said it “threatens to make a mockery of the federal sentencing process” (Denver Post, Denver Bizjournal, DOJ).
One day later, 72-year-old defendant Charles Lewis was sentenced by Judge Blackburn to 30 years in prison for his role (Denver Post). Blackburn previously sentenced Jannice Schmidt to nine years in prison.
Hat tip to AUSA Mark Barrett for forwarding this story to us.
According to court filings made on Thursday, State Farm has settled Hurricane Katrina lawsuits out of court with 13 homeowners who were formerly represented by Dickie Scruggs or other member firms of the former Scruggs Katrina Group (now known as the Katrina Litigation Group). Scruggs is now a convicted felon and the remaining firms were disqualified in April by US District Judge L.T. Senter, whose order also applied to any law firm even peripherally involved with SKG. The negotiations were initiated or reopened by State Farm, and the 13 homeowners all represented themselves. Terms of the settlements were not disclosed (Houston Chronicle/AP).
On April 22, as we noted here, the Pittsburgh Tribune-Review, Pittsburgh Post-Gazette and WPXI-TV asked the US Court of Appeals for the Third Circuit to overturn US District Judge Arthur Schwab’s decision not to release the identities of jurors in the case of of former Allegheny County Coroner Cyril Wecht until after the case is resolved. That appeal was successful, but attorneys for the three media organizations on Monday filed an emergency appeal with the Third Circuit because Schwab allegedly has not followed through with the appellate court order. This would apply to jurors who heard the first trial and to the voir dire for the second trial, still scheduled to begin May 27 (Post-Gazette).
A jury in US District Court in Miami on Monday convicted Nicholas Bachynsky on one count of conspiracy, three counts of wire fraud and one count of securities fraud after a six and a half week trial. The charges arose from a cancer cure marketing scheme that raised $6 million from investors, most of whom lost all their money. Bachynsky was cofounder and medical director of Helvetia Pharmaceuticals, which was launched in 2001 to administer and develop a cancer treatment in Europe known as intracellular hyperthermia therapy. Helvetia solicited investors with significant misrepresentations, including falsifying results of unsuccessful laboratory and clinical trials to claim that the therapy was successful, and making false claims that Helvetia owned exclusive rights to the therapy when Bachynsky had actually sold the rights years before to a former business partner. Most of the $6 million in investor funds was converted for personal use by Bachynsky and his three co-defendants, all of whom have previously pleaded guilty. Bachynsky is scheduled to be sentenced on September 5 before US District Judge Adalberto Jordan (South Florida Business Journal, DOJ).
Since US District Judge Sim Lake refused to answer last week’s private letter from attorney Lloyd Kelley asking him to recuse himself and gave the letter to the USAO instead (earlier), attorneys for convicted former Dynegy executive Jamie Olis on Tuesday filed a recusal motion in US District Court in Houston.
The Houston Chronicle/AP story notes that Olis is scheduled for release in August 2009. Due to the repeated and obstinate delays by the both the USAO and Lake, we would be surprised if the appeals process is completed by then.
“She walked into the vault and took stacks and stacks of money.” That’s how AUSA Susan Dowd described the actions of Patricia Sherman of New Albany, Indiana, former head teller for Obelisk Federal Credit Union in New Albany. Willie Sutton would have pointed out that that’s where they keep it. Sherman, who had pleaded guilty to a single count of embezzlement by a credit union employee, was sentenced on April 25 to 97 months in prison by US District Judge David Hamilton in New Albany. She admitted embezzling $7 million from Obelisk over a 46 month period starting in 2003 until she was caught in early 2007. According to the DOJ press release:
She accomplished her embezzlement by taking large amounts of currency from the vault, secreting it on her person and taking it out of the credit union. She was able to conceal the embezzlement by making journal entries to the Vault Cash account whenever there was an audit or cash count by the credit union supervisory committee and then making adjusting entries after those counts were completed. In addition, when Sherman was going on vacation or had jury duty, she would make an entry to the cash account before she left so that it would properly reflect the amount of cash in the vault; when she returned, she would reverse the entry. As Head Teller she was responsible for ordering and accounting for all cash replenishments for the credit union. She was also responsible for reconciling and overseeing vault activity. She also was responsible for the general ledger and reconciling the vault cash account to the physical count of cash on hand.
As a direct result of Sherman’s actions, Obelisk had to merge with another credit union in July 2007 after the NCUA placed it into conservatorship and determined that it was no longer viable. Judge Hamilton stated “This is a theft, a case of grand theft, on an astonishing scale, driving what had been a healthy credit union into insolvency” (News and Tribune).
In Philadelphia on Friday, Carl Spitko, former CEO of two suburban Philadelphia area electronics companies, pleaded guilty to to 11 counts of bank fraud and two counts of aiding and abetting in connection with a scheme to defraud Wachovia Bank and a predecessor of nearly $1.5 million between 2001 and 2005. He was indicted in January 2007. Spitko’s Maintech Inc. manufactured and distributed laminators for the printed circuit board industry. He had a line of credit with Wachovia secured largely by Maintech’s accounts receivable. He admitted lying about the amount of money in Maintech’s accounts, hiding money and property from the bank and opening up a second company, Sentek, to use and sell Maintech’s assets without paying back the bank. Spitko is scheduled to be sentenced on July 31;he faces a sentence in the range of 46 to 71 months in prison, according to the USAO in Philadelphia (Philadelphia Business Journal, DOJ).
FBI agents today executed search warrants at the Office of Special Counsel in Washington, shutting down the office’s email service and seizing computers and documents. Scott Bloch, who heads the Office, is apparently the target of the raid. Bloch’s suburban Virginia home was also raided.
The independent agency has the responsibility of enforcing protection of federal civil service employees from politicization. Bloch has been under investigation since 2005 in connection with employees’ claims that he retaliated against them after it was leaked that he refused to investigate whistleblower cases which claimed sexual orientation-based discrimination. He is also under investigation for obstruction of justice in connection with hiring of an outside contractor to scrub his computer in December 2006. At the same time, his office has been investigating the firings of eight US Attorneys and he has complained to AG Michael Mukasey that the DOJ is impeding his office’s investigation. WSJ, AP, NPR.
Attorneys for convicted former Dynegy executive Jamie Olis on Friday filed a Response to the government’s answer to his §2255 Motion To Vacate. From the Introduction:
The government’s Answer starts with the cynical assertion that Olis should suffer a procedural default because the United States Attorney’s Office (“USAO”) successfully deceived Olis and his attorneys by concealing its interference with Olis’s lawful access to defense funding. From there, the Answer devolves downward. Contrary to the government’s contentions, the record establishes that (1) the USAO violated Olis’ fundamental rights by interfering with his access to defense funding; (2) the government constructively and impermissibly amended the indictment; (3) the government presented false testimony from Jeffrey Heil, a key government witness; (4) the petit jury included an admittedly biased and unrehabilitated juror; (5) the jury instructions erroneously defined the elements of wire fraud and mail fraud; and (6) Olis received ineffective assistance of counsel.
The response also asks for reconsideration of his motion for discovery in connection with the §2255 motion; US District Judge Sim Lake denied the motion for discovery in March. Also pending is last week’s request by Olis’ attorney Lloyd Kelley that Lake recuse himself.
There has been no news of late in the ongoing federal bribery investigation of Judge Bobby DeLaughter, former Hinds County DA Ed Peters and Dickie Scruggs in connection with the Wilson v. Scruggs state asbestos fees case, but there is an April 22 filing in the fees case which is of interest. Wilson’s motion for sanctions filed by his attorney Vicki Slater lays out the allegations of bribery in much greater detail than previously revealed in Joey Langston’s guilty plea in January. Of particular interest is a description of how information was allegedly passed between Scruggs’ associates and DeLaughter via Peters and how the rulings were previewed and worked out in advance. The motion asks that all Scruggs’ pleadings after January 2006 be stricken from the case and that all DeLaughter’s rulings after January 2006 favoring Scruggs be declared null and void.
Laura I. Flores of Arlington, Virginia, a former congressional office manager for House Democrats Jane Harman of California and Neil Abercrombie of Hawaii, was sentenced on Friday to six months in prison for wire fraud by US District Judge Leonie M. Brinkema in Alexandria. Flores, who pleaded guilty to a single wire fraud count in January (earlier), admitted receiving approximately $200,000 from false expense vouchers she submitted during 2005 and 2006 and diverting the funds to her personal account.
The Washington Post story here reports that prosecutors filed petitions to reduce her sentence because she is helping them with a previously unreported investigation into whether members of Congress used phones, supplies and staff time for campaign purposes. The motions were filed under seal.
John Torkelsen of Princeton, New Jersey, a former expert witness in
numerous class action securities cases for several law firms including the former Milberg Weiss (now Milberg LLP), on Thursday pleaded guilty to a single count of perjury in US District Court in Philadelphia. A plea agreement had been reached in February (earlier). The single perjury count arose from a case filed in US District Court in San Jose,California in which Torkelsen submitted a false declaration that he was an independent agent under a non-contingent arrangement with plaintiff’s counsel, when he was actually being paid on a contingency basis under a secret agreement.
Torkelsen is currently serving a 70 month prison sentence for stealing SBA funds in an unrelated case. He faces up to five years in prison on the perjury count; sentencing has been scheduled for August 5 (Law.com, Reuters).
Convicted former Dynegy executive Jamie Olis’ §2255 Motion to Vacate is pending before US District Judge Sim Lake (earlier). The Houston Chronicle’s Legal Trade blog reports that Olis’ attorney Lloyd Kelley has written Lake a seven-page private letter asking him to recuse himself:
Kelley’s basic argument seems to be that Lake was too close to the late Mike Shelby, who was the local U.S. Attorney when Olis was prosecuted. Shelby suffered greatly with cancer and eventually took his own life. Kelley notes that Lake and Shelby went to the same schools, served in the military and worked at the same law firm (all at different times) and that Lake swore in Shelby. Kelley argues that Shelby’s demise must cloud Lake’s judgment on the Olis case.
Kelley had requested that Lake respond by Friday (Olis’ reply to the government’s response to his motion is due Monday), but Lake on Thursday filed an order giving the letter to the US Attorney’s office and asking for a response within 20 days.
Andrew Parker of San Antonio, who owns an equipment exporting company called San Antonio Trade Group, Inc., was indicted this week by a federal grand jury in San Antonio in connection with an alleged scheme to defraud the Export-Import Bank of the US. The 28-count indictment includes one count of conspiracy, nine counts of wire fraud, two counts of use of a false document, 12 counts of money laundering, two counts of tax evasion, and two counts of filing a false income tax return.
The Ex-Im Bank helps US companies export products by guaranteeing loans made by private banks to foreign businesses who use the proceeds to buy the products. Parker is accused of causing multi-million dollar losses to the Ex-Im Bank by falsifying loan applications, submitting false reports that goods were bought with the loans, and diverting millions of the loan proceeds for his personal use. In some cases, associates in Mexico allegedly received the proceeds as direct cash payments; in other cases, the businesses allegedly did not exist. Investigators say Parker and his company are involved in more than $163 million in loans and allege that none have yet been found to be legitimate (San Antonio Express-News, DOJ).
Convicted spammer Eddie Davidson of Louisville, Colorado was sentenced to 21 months in prison on Monday by US District Judge Marcia Krieger in Denver. He was also ordered to pay $714,000 to the IRS. Davidson was indicted in May 2007 in connection with a 5 year long operation during which he allegedly sent hundreds of thousands of spam emails on behalf of 19 clients who paid him at least $3.5 million. The spam, which promoted penny stocks and merchandise such as cheap watches and perfume, was sent with fake email headers to disguise the source. He pleaded guilty in December to charges of tax evasion and falsifying email headers in violation of the CAN-SPAM Act (PC World, DOJ).
It’s slo-pitch season at the Biloxi Sun-Herald. Anita Lee’s Sunday interview with Cori and Kerri Rigsby lobbed such softballs at the sisters that the paper acted as their mouthpiece, allowing them to deliberately misrepresent what occurred and failing to ask some very pertinent questions.
“I guess they’re going to get away with hiding the truth,” Kerri Rigsby said. “That’s what they’ve been trying to do the whole time. There is no justice. How is State Farm now the good guy?”
In fact, no one is claiming State Farm is the “good guy.” State Farm may possibly have unfairly denied some claims or even engaged in a pattern of unfair claims practices. But that has not been established one way or the other in a court of law. And why not? Because the whole modus operandi of Dickie Scruggs and his stooges has been to extort settlements from companies before cases are heard, preventing evidence from being examined and facts from being established. He files class action lawsuits with the intention of intimidating companies into settling; he operates hand-in-hand with cronies who present themselves to the defendants as shakedown artists “facilitators” to negotiate settlements. The Rigsby Sister Act was an essential part of the process in the Katrina cases.
The Rigsbys wish they had known what they were getting into. They found out after the fact that whistle-blowers suffer a common fate: retaliation, lost wages, stress and more stress.
In fact, the Rigsbys are not whistleblowers. On April 4, US District Judge L.T. Senter ruled that they wrongfully appropriated the documents. He excluded the documents and disqualified the sisters from testifying. The effect of his ruling is that their actions were not protected whistleblower actions under the False Claims Act. If ex rel. Rigsby somehow is allowed to continue, which is highly doubtful since the US Attorney has so far declined to join the case, it will be in spite of the Rigsbys.
The report’s conclusions about the timing of surge and wind dovetailed with a State Farm “wind-water protocol” vetted and edited by corporate executives and attorneys in Bloomington. The protocol, an internal company document…
In fact, the anti-concurrent causation clause is part of the standard policy language, not some secret company plot to ignore policy language.
The sisters said they were naive in February 2006 when they first reported in a meeting with policyholders’ attorney Dickie Scruggs…
The Rigsbys …went to Scruggs, taking with them records from State Farm files. They had begun saving and copying the records in the fall of 2005.
In fact, they used a list of Dickie Scruggs’ clients to determine what documents to steal, months before they allegedly first met him. It’s in their own depositions. Yet Ms. Lee repeatedly fails to challenge them.
In a related puff-piece, the Sun-Herald reports here on the Rigsbys’ latest response in the qui tam case.
Attorneys for James Dierker, one of the five National Century Financial Enterprises executives convicted on March 13, on Tuesday filed a motion for acquittal based on claims of newly discovered evidence; alternatively they asked that he be granted a new trial. Dierker testified during the trial that he was unaware of any fraud. Tuesday’s motion asserts that prosecutors withheld SEC documents that would have supported his defense. The documents allegedly show that Dierker relied on opinions of outside auditors who failed to properly evaluate company records, leading him to believe the company was sound (Columbus Business First).
Dierker is the only one of the four rearrested executives who was allowed out on bond pending sentencing. He was National Century’s associate director of marketing and vice president of client development, a lesser position than the other convicted executives, and he faced fewer charges. He was found guilty on one count of conspiracy to commit securities/wire fraud and three counts of money laundering.
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.T. 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.
John Kim faces a maximum of 20 years in prison. Sentencing is set for July 17. Yung Kim pleaded guilty to fraud charges in July and is awaiting sentencing; Lee is still at large (South Florida Business Journal, DOJ).
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).
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.
In a stunning decision on Friday in Gulfport, Mississippi, US District Judge L.T. 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.
That didn’t take long: here is the Mississippi Bar’s response to Dickie Scruggs’ motion to dismiss disbarment proceedings, and separately, the Mississippi Bar’s motion to suspend Scruggs immediately (h/t folo). The former argues that a plain reading of the rules contemplates that a disbarment proceeding is triggered upon the entry of a guilty plea, and therefore is not “fatally flawed” even if a formal acceptance of the plea has not yet been entered; and if it is premature, that Scruggs should immediately be suspended until the plea is entered. The latter is motion to do just that. Of course, if the general counsel of the Bar had been reading the blogs, he would know that Scruggs’ guilty plea has in fact been accepted by the court (earlier here and here).
After a hearing in Los Angeles on Monday, US District Judge John Walter refused to dismiss the money laundering conspiracy indictment of the former Milberg Weiss firm (now renamed Milberg LLP), ruling that the firm was correctly charged. An attorney for the firm had argued that the count was a separate offense from the secret kickback scheme that has resulted in guilty pleas from current and former principals of the firm. The trial is scheduled for August 12 (ABA Journal).
The US Supreme Court on Monday declined to review last August’s decision by a three-judge panel of the US Court of Appeals for the DC Circuit regarding the FBI raid on the Washington office of Rep. William Jefferson (D-La.). The appellate court ruled that the raid violated the Speech and Debate Clause of the US Constitution and that Jefferson was entitled to the return of privileged legislative documents. Jefferson was indicted last June on 16 counts including including bribery, racketeering, money laundering and obstruction of justice. His trial is currently delayed while he seeks to suppress certain evidence and statements arising out of the search of his Washington home (earlier). The Washington Post story is here.
Two Arizona men pleaded guilty last week in US District Court in Phoenix in connection with a scheme that defrauded First Data Corp. of $2.3 million between August 1997 and February 2006. Anthony McCutcheon of Gilbert and his brother-in-law Warren Rice Jr. of Tucson each pleaded guilty to one count of conspiracy to commit mail and wire fraud and one count of wire fraud. Colorado-based First Data is the country’s largest credit card processor. McCutcheon was the director of the corporation’s First Data Resources data center in Chandler and oversaw payment authorization for goods and services provided to the center. Rice represented Andalusia Companies, allegedly a provider of telecommunications and networking hardware but which actually was a dummy company. McCutcheon and Rice worked together to charge First Data Resources for products that were never delivered. Sentencing is scheduled for June 16; each faces a possible maximum sentence of five years on the conspiracy count and 20 years on the wire fraud count. The Arizona Republic has the story here.
Here is Dickie Scruggs’ Motion To Dismiss the disbarment proceedings which were initiated by the Mississippi Bar following his guilty plea, and here is the “criminal minutes” document from Scruggs’ March 14 plea hearing (h/t folo). The latter states: “Defendant appeared before the Court and Plead Guilty to Count 1 of Indictment; Plea Accepted [emphasis added].” Scruggs’ motion argues that a certified copy of the plea agreement was attached to the complaint, but not a certified copy of a judgment of conviction or an order accepting a guilty plea, as required by statute; and that the plea agreement is not in itself evidence that the plea has been accepted.
In other words, Scruggs does not appear to be claiming that his plea has not been accepted, only that the complaint does not contain evidence that his plea has been accepted. Even so, at best this is only a delaying tactic that may buy him an extra few days. Since Judge Biggers has yet to sentence him, the possible consequence of such a move could be severe.
Last month we posted here concerning a 5-part series at folo about Keith Shelton, an attorney in Mississippi who was framed and disbarred in what can best be characterized as an outrageous miscarriage of justice by a former district attorney and a corrupt judge. We are pleased to note that the Mississippi Supreme Court on Friday reinstated Keith Shelton (.pdf) to the Mississippi Bar. The decision is well worth reading as an official confirmation of the underlying facts; note especially the concurring opinion of Justice Dickerson. The Clarion-Ledger story here fails to accurately report the background of the case. Congratulations to Mr. Shelton, and a hat tip to folo.
A two paragraph addendum to this Sun Herald story about the suspension of Judge Bobby DeLaughter indicates that Dickie Scruggs has asked the Mississippi Supreme Court to dismiss disbarment proceedings against him subsequent to his guilty plea “because U.S. District Judge Neal B. Biggers Jr. has not yet accepted his plea.”
However, on page 16 of the transcript of Scruggs’ March 14 plea hearing, Judge Biggers says [emphasis added] “the Court will accept your guilty plea and enter a judgment of guilty on your plea.”
Despite signing a plea agreement, Scruggs had to be prodded by his attorney John Keker into admitting his guilt in open court. Now this. It’s hard to figure out what he hopes to accomplish by this move, but once Judge Biggers learns of it, we shall probably hear more in short order.
Andrea Batronie, a licensed title agent from Land O’Lakes, Florida, was sentenced on Friday to 30 months in prison by US District Judge Richard Lazzara in Tampa for her part in a $6 million “equity stripping” mortgage fraud scheme that included identity theft. Batronie was found guilty of conspiring to commit mail, bank and wire fraud last October. A day earlier, licensed mortgage broker Luis Uribe pleaded guilty to single counts of wire fraud and aggravated identity theft in the same scheme. Uribe is said to have obtained 32 mortgage loans under false pretenses through a shell contracting company using stolen identities, apparently on the premise of additional construction work to be done. However, no work was ever performed by the contracting company. At closing Batronie would divert the funds into bank accounts under their control. Tampa Tribune, Tampa Bay Business Journal.
A March 19 ruling in the case of former Bristol-Myers Squibb CFO and senior VP Frederick Schiff has limited the scope of the prosecution’s case and delayed the trial which was to have begun last week in US District Court in Newark, New Jersey while the government appeals the ruling. Schiff and former Bristol-Myers executive VP Richard Lane were indicted in 2005 on charges of conspiracy and securities fraud in connection with a “channel stuffing” scheme to inflate sales. US District Judge Faith Hochberg’s ruling prevents prosecutors from tying Schiff’s alleged activities to investor losses when Bristol-Myers Squibb’s stock price dropped when the practice was disclosed. Judge Hochberg also criticized prosecutors for repeatedly changing the theory of the crime, saying “the court will permit no further ‘legal theory morphs’ in this case.” Lane’s trial will also be delayed. NY Times, Newark Star-Ledger.
In Columbus, Ohio on Thursday evening, US District Judge Gregory Frost issued a bench warrant for the arrest of Rebecca Parrett, one of the five executives of National Century Financial Enterprises convicted on March 13 on fraud charges in connection with the company’s 2002 collapse (here and earlier). Parrett, a co-founder of the company and vice chairwoman, secretary, treasurer and director, was found guilty of one count of conspiracy, six counts of securities fraud, one count of wire fraud and one count of money laundering. After the verdicts were announced, US District Judge Algenon Marbley allowed all five convicted executives to remain under house arrest with electronic monitoring pending sentencing. Parrett was supposed to report to the Pretrial Services Office near her home in Carefree, Arizona, for installation of an electronic ankle bracelet but she failed to show up and her whereabouts are unknown. The US Marshal’s Office has begun a search. Columbus Business First, Bloomberg.
In response to the petition by the Mississippi Commission on Judicial Performance for an interim suspension of Circuit Judge Bobby DeLaughter (earlier here and here), the Mississippi Supreme Court on Friday suspended DeLaughter indefinitely. The commission has charged DeLaughter with willful misconduct in two cases, Wilson v. Scruggs and Kirk v. Pope. In the former case, Joey Langston has pleaded guilty to bribing DeLaughter via former Hinds County DA Ed Peters on behalf of Dickie Scruggs. No one else has yet been indicted but DeLaughter is known to be under federal investigation in the case (Clarion-Ledger, Sun Herald).
Just hours after the House Judiciary Committee asked the DOJ to release former Alabama Governor Don Siegelman under guard to allow him to testify before Congress in May (Montgomery Advertiser, AP) — a move brought about by the DOJ’s refusal to cooperate with the HJC — the US Court of Appeals for the Eleventh Circuit on Thursday granted Siegelman’s motion for release on bond pending appeal, finding that his appeal raises substantial questions of law or fact. Since this issue had twice before been remanded to district court, the decision can be viewed as a direct repudiation of US District Court Judge Mark Fuller’s actions. Siegelman may be released as early as today (NYT (with link to order), AP). Scott Horton at Harper’s has editorial commentary here. In related news, the 11th Circuit has has given attorneys for Siegelman and HealthSouth founder Richard Scrushy until May 23 to file appellate briefs. Siegelman’s attorney Vince Kilborn estimated oral arguments on the case could be heard in late 2008 (AP).
In Newark, New Jersey on Thursday, US District Judge Stanley Chesler sentenced former Suprema Specialties Inc. President and CEO Mark Cocchiola to 15 years in prison for his role in a fraud that caused the Paterson, New Jersey cheesemaker to collapse in 2002. He was also ordered to pay $115 million restitution to investors and banks; the total loss has been estimated at more than $177 million. Cocchiola and Suprema Specialties CFO Steve Venechanos were convicted in April 2007 on 38 counts including conspiracy, bank fraud, making false statements to the SEC,wire fraud and mail fraud. The charges arose from a complex and long-running scheme to increase the company’s stock price by fraudulently inflating inventories and by billing $400 million in non-existent sales. Venechanos is scheduled for sentencing on April 7. New Jersey Star-Ledger, AP.
The US Court of Appeals for the Eleventh Circuit on Thursday granted former Alabama Governor Don Siegelman’s request to be released from prison pending the outcome of his appeal (Birmingham News).
A three-judge panel from the US Court of Appeals for the Second Circuit on Tuesday heard arguments in the government’s attempt to reinstate the indictments of 13 former KPMG LLC executives in what was once the largest criminal tax shelter prosecution in US history. In July 2007 US District Judge Lewis Kaplan dismissed the indictments of 13 out of an original 19 defendants in US v. Stein et al because the government threatened to indict KPMG if the company did not stop paying the defendants’ legal costs despite contractual obligations to do so. The Bloomberg News story indicates that the judges were highly critical of the government’s arguments. While AUSA Karl Metzner contended that a fair trial was still possible and that dismissal of the indictments was “too drastic a sanction” despite Kaplan’s ruling that the government’s actions violated the defendants’ rights, Chief Circuit Judge Dennis Jacobs noted that “time has moved forward” and Judge Peter Hall likened a reinstatement to “putting toothpaste back in the tube”.
Predictably, the government response to Jeff Skilling’s supplementary appellate brief denies that the Enron Task force withheld material exculpatory information from the former Enron CEO’s defense team. The government’s brief, filed on Tuesday, asserts, “Skilling’s claims rely on isolated snippets culled from 420 pages of handwritten notes and stripped of their context.” It accuses Skilling of using “hyperbolic rhetoric” and says that the Andrew Fastow interview notes that Skilling cites in his supplemental brief either contain information that Skilling had prior to the trial in the summaries of the notes “or would have had minimal value in impeaching Fastow.” Houston Chronicle here (with link to the brief), our earlier posts here, here and here. The US Court of Appeals for the Fifth Circuit has scheduled arguments in the appeal for April 2.
Six days after the Mississippi Commission on Judicial Performance filed a petition with the Mississippi Supreme Court asking for an interim suspension of Judge Bobby DeLaughter for judicial misconduct in two cases, one of them involving Dickie Scruggs (earlier), DeLaughter delivered a letter to the Commission stating that he will not challenge a temporary suspension pending a decision after a hearing if it is so ordered. SunHerald, DeLaughter letter.
After about 6 hours of deliberation yesterday and today, a federal jury in Columbus, Ohio has convicted former National Century Financial Enterprises CEO and co-founder Lance Poulsen and his associate Karl Demmler on one count each of conspiracy to obstruct justice, witness tampering, witness tampering by influencing testimony and corruptly persuading a federal witness. They face a possible maximum of 55 years in prison. The charges arose from their attempt to pay former National Century Executive VP for compliance Sherry Gibson $500,000 to $1 million to have a “memory lapse” when called to testify against Poulsen in his fraud trial in connection with National Century’s 2002 collapse. Poulsen’s trial on 47 counts including conspiracy, wire fraud, securities fraud and money laundering is now scheduled to begin August 4.
US District Judge Algenon Marbley has not set a date for sentencing but ordered Demmler held without bond because of threats he made against two local judges and an attorney in the taped conversations which were entered into evidence at the trial. Poulsen is already in custody because his bond on the original fraud charges was revoked after he was indicted on the witness tampering charges. Columbus Business First, Bloomberg, our earlier trial coverage here, here and here.
Charles Head of La Habra, California, alleged leader of a nationwide mortgage fraud scheme, and 18 others have been charged in two separate indictments unsealed on Monday by the US Attorney’s Office in Sacramento; charges include mail fraud, conspiracy to commit mail fraud, conspiracy to commit money laundering, bank fraud and identity theft. In the first, Head and 15 others were indicted on 13 counts These charges arise from an alleged “foreclosure rescue” scam involving $6.7 million taken from 47 homeowners, mostly in California. Homeowners in distress were convinced to add the name of an investor to their titles for purposes of repairing their credit while paying less than their mortgage amounts in rent to the investor, but Head and his associates allegedly switched the titles to their own names, refinanced and took the equity. In the second, Head and 6 others (including two also charged in the first scheme) were indicted on 5 counts in connection with a similar “equity stripping” scheme in which $5.9 million in equity was allegedly stolen from 68 homeowners nationally, recruited with the help of mortgage brokers. Prosecutors indicated that more indictments are likely. San Francisco Chronicle, DOJ.
A mother and daughter who formerly operated a travel agency in McKinney, Texas were sentenced to federal prison on Monday by US District Judge Richard Schell in Sherman, Texas. Carol Ribaudo of Clearwater, Florida received a 57 month prison sentence; her daughter Sonia Ritz, also of Clearwater, received 37 months in prison. Both were convicted by a jury last August on one count of conspiracy, five counts of mail fraud and nine counts of wire fraud in connection with a scheme to sell bookings for a cruise that never existed. The travel agency they operated between July 2003 and January 2004 sold at least $210,000 in bookings to about 50 people for a charter cruise that was to sail in February 2004 out of Miami, but they never actually planned a trip or contracted with any cruise line.
The KTVT-CBS 11 Dallas story states that Judge Schell “announced in court on Monday that Ribaudo told a probation officer that she and her daughter had no intention of serving any time in prison” and ordered both women taken into immediate custody as flight risks. DOJ Press Release.
Following the news that the three former Merrill Lynch executives still possibly facing retrial in the Enron Nigerian Barge case have filed a motion asking US District Judge Ewing Werlein to order the government to give them the Andrew Fastow notes (earlier here; Chronicle here), Tom Kirkendall at Houston’s Clear Thinkers posts here on the motion filed by Sidney Powell, attorney for defendant James A. Brown, to dismiss the indictment on grounds of egregious prosecutorial misconduct, Brady violations and double jeopardy, and links here to the motion, which he has bookmarked. It’s a stunning motion which goes well beyond the Fastow notes in its allegations.
The defense rested on Monday in the in the witness tampering trial of former National Century Financial Enterprises CEO and co-founder Lance Poulsen and his associate Karl Demmler (earlier here and here). The government rested on Friday after playing tapes of conversations between Poulsen and Demmler which appear to confirm that Poulsen suggested to Demmler that former Executive VP for compliance Sherry Gibson should plead unfamiliarity with the fraud charges against Poulson and other executives (AP here). The defense had contended that it was all a misunderstanding and that Poulson was merely seeking to help Gibson; however, when Poulson took the stand in his own defense Monday, he alleged that Gibson was an abusive employee “both sexually and physically” and that she had stabbed him in the back by agreeing to become a government witness. The case is expected to go to the jury today Columbus Business First here.
Two Miami-Dade county men, Rodrigo Molina and Marcos Macchione, were indicted on Thursday by a federal grand jury in Miami on 16 counts including conspiracy and money laundering. The charges stem from their alleged involvement as money launderers in an international stock fraud scheme headquartered in Brazil. They were arrested February 25 along with 18 others in Brazil. The alleged scheme was an “advance fee” fraud which caused investor losses estimated at more than $50 million, mostly from investors in the UK. It involved a series of fictitious companies including Heritage Financial of Trenton, New Jersey, which offered to buy low value stock at above market value; fictitious brokers — actually “boiler room” telemarketers located in Brazil — would require advance fees from the investors and then would abandon the transactions after the fees were paid. Funds were allegedly wired to Florida accounts controlled by the defendants. The Brazilian suspects allegedly stole identities of real US brokers and created well-designed websites to convince investors they were legitimate US securities dealers. AP, DOJ (via PR Newswire).
Lotus and NMC at folo have put together a remarkable narrative here, here and here, going back more than a decade to examine the trail of machinations and alleged public corruption attempted and sometimes achieved by Dickie Scruggs and associates. The winding tale concerns the asbestos litigation legal fees suits filed by attorneys Alwyn Luckey and William Roberts Wilson against their former partner Scruggs, and the actions taken by Scruggs over the years to thwart them and prevent the cases from ever being heard. While Luckey did eventually prevail, the Wilson case has resulted in the federal guilty plea by Joey Langston for bribing state Circuit Judge Bobby DeLaughter on behalf of Scruggs, a matter which will almost surely result in more indictments shortly. DeLaughter’s actions (as described in the second installment) are nothing less than shocking. DeLaughter continues to assert his innocence.
Reed Kyle Diehl of Coto de Caza,California was arrested last Tuesday after a complaint was filed in US District Court in Santa Ana charging him with wire fraud. The charge arises from an alleged offer to secure a $24 million line of credit for a developer who was planning to build a resort project in Mexico. The complaint alleges that the developer was required to deposit $2.5 million in a designated account for collateral, but that Diehl withdrew the money, used it to pay off others who had invested with him and never obtained a line of credit. Diehl is also being investigated in connection with a number of earlier schemes dating back several years.
The DOJ Press Release describes Diehl as a former Tennessee Titan but according to the KNBC Los Angeles story he was signed as an undrafted free agent in 2001 and released before the season started; he played football at University of California and is currently a high school football coach in Santa Ana. Could this be the first confirmed instance of Titans’ owner Bud Adams exercising good judgment?
Two Dallas-area men were sentenced to prison last week by US District Judge Sam A. Lindsay for their roles in a scheme involving submission of fraudulent claims to Medicare for power wheelchairs and accessories. Friday Udo Johnny, the owner of Metropolitan Home Medical Equipment in Grand Prairie, was sentenced to 37 months in prison, and Emmanuel “Bob” Edet of Mesquite was sentenced to 30 months in prison; both were ordered to pay restitution. Both men pleaded guilty last year to conspiracy to commit health care fraud and pay illegal remunerations. They admitted to conspiring to pay illegal kickbacks to Lloyd McGriff, M.D., a Dallas physician currently serving a 16 month federal prison sentence. McGriff executed 257 fraudulent Certificates of Medical Necessity (CMNs) for which Johnny and Edet paid $200 each. Over an 11 month period in 2002 and 2003, they submitted more than $1.7 million in claims to Medicare, and Medicare paid the two men $905,000 based on the fraudulent CMNs and claims. Dallas Morning News, DOJ.
Zach Scruggs has pleaded guilty to a one-count information for misprision of a felony, in exchange for dismissal of the original indictment. There is no requirement for cooperation. He admitted to improper ex parte contact, knowing about improper ex parte contact by others and doing nothing to prevent or report it. He denied knowing about the bribe to Judge Lackey.
The charge carries a maximum penalty of three years in prison but the government has recommended probation. However, US District Judge Neal Biggers pointed out, per customary practice, that the court does not have to accept that recommendation. This report comes from David Rossmiller’s contact in the courtroom. More to come.
UPDATE:
Sun Herald story by Anita Lee, Zach Scruggs Plea Agreement, Zach Scruggs Factual Basis, Zach Scruggs Plea Hearing Transcript.
The transcript confirms the earlier report above. There will be no further charges arising out of this case, but the agreement does not preclude any prosecution in any other case. However, the government has “no knowledge that he has any information on other cases at this time,” which indicates he is not currently a target in the investigation related to the Joey Langston plea; Dickie Scruggs is under investigation in that case.
Judge Biggers made it quite clear, per standard federal plea bargain procedure, that the court is not bound by the recommendation of probation contained in the plea agreement. He ordered a presentencing report and stated that sentencing would probably take place in six to eight weeks.
Melvyn Weiss has agreed to plead guilty to a single racketeering count, specifically that he engaged in a pattern of racketeering activity covering at least the period of 1979 to 2005. Weiss admits to multiple instances of kickbacks to plaintiffs and agrees to serve a sentence of 18 to 33 months in prison and to forfeit $10 million. He shortly will formally plead guilty before US District Judge John Walter in Los Angeles and prosecutors will ask for the 33-month maximum.
The firm, which will now be known as Milberg LLP, still faces criminal charges. The New York Times story here quotes from statements released by Weiss and the firm, and contains this observation from Stanford law professor Joseph Grundfest, a former SEC commissioner: “It’s a situation where it appears that there has been fraud in pursuit of fraud. And just like mom explained that two wrongs don’t make a right, it follows both that corporate executives shouldn’t lie and the lawyers suing them shouldn’t steal. What’s complicated about that?”
The US Court of Appeals for the District of Columbia Circuit on Thursday disbarred Scooter Libby from the practice of law in DC effective June 12, 2007, the date he filed an affidavit of voluntary compliance with the court’s rules on professional ethics for lawyers. The court wrote:
- When a member of the Bar is convicted of an offense involving moral turpitude, disbarment is mandatory. When convictions on more than one count are involved, disbarment is mandated if any one of them involves moral turpitude. This court has held that obstruction of justice (18 U.S.C. § 1503) and perjury (18 U.S.C. § 1623) are crimes of moral turpitude per se. Since respondent was convicted of each of these offenses, as the Board concluded, disbarment is mandatory under D.C. Code § 11-2503 (a) [citations omitted].
Libby had not contested the recommendation of the Board of Professional Responsibility. The disbarment will last at least five years and should affect his standing in other states where he is licensed. The Washington Post story is here.
In light of the revelations in Jeff Skilling’s recently unsealed brief regarding the Andrew Fastow notes (earlier here and here), attorneys for James A. Brown, Daniel Bayly and Robert Furst — the three former Merrill Lynch executives still possibly facing retrial in the Enron Nigerian Barge case — have now filed a motion asking US District Judge Ewing Werlein to order the government to give them the notes. The retrials are currently delayed while the defendants’ appeal of Werlein’s refusal to dismiss is pending before the Fifth Circuit (earlier). Kristen Hays’ Houston Chronicle story is here.
Zach Scruggs’ defense team filed three motions on Wednesday, which was the revised motions deadline. Zach Scruggs’ James Hearing Motion seeks to force the prosecution to prove its basis for allowing 404(b) evidence now that he is the sole defendant. Zach Scruggs’ Motion To Reconsider An Anonymous Jury is based primarily on his alleged lack of involvement in the judicial bribery referenced in Joey Langston’s plea. It asks alternatively for a change of venue or a revised supplemental jury questionnaire. Zach Scruggs’ Motion For Continuance asks for another 90-120 days in light of the changed circumstances brought about by the guilty pleas of Dickie Scruggs and Sid Backstrom.
Based on his prior statements, US District Judge Neal Biggers is not likely to countenance a delay in the scheduled March 31 trial date, whether or not he grants the James Hearing motion.
Two developments regarding corruption allegations against Judge Bobby DeLaughter in cases involving Dickie Scruggs:
First: In response to William Roberts Wilson’s recusal motion (earlier), DeLaughter and the two other circuit judges have recused themselves: Wilson v. Scruggs Recusal (h/t folo). But unlike Judges Kidd and Yerger, DeLaughter saw fit to editorialize and proclaim his innocence:
The undersigned judge of this Court has never, in this or any other case, issued a ruling in exchange or consideration of anything (money or otherwise) other than the applicable law, all allegations to the contrary being belied by the record.
The record? It is precisely because of what allegedly transpired off the record that he is under investigation.
Second: The Mississippi Commission on Judicial Performance on Wednesday filed a petition with the Mississippi Supreme Court to suspend DeLaughter based upon actions he took which were allegedly under the corrupt influence of Ed Peters on behalf of Dickie Scruggs in Wilson v. Scruggs, according to the guilty plea of Joey Langston; and also in the case of Kirk v. Pope, one of two other known cases which did not involve Scruggs but which did involve the intercession of Ed Peters. Commission v. DeLaughter. The petition contains specific details of the alleged violations. The Sun-Herald has an AP story here.
A three-judge panel of the 5th US Circuit Court of Appeals on Tuesday ruled that US District Judge Vanessa Gilmore was correct when she refused to dismiss most of the remaining charges against former Enron Broadband Services executives Joseph Hirko and Rex Shelby and all the remaining charges against Scott Yeager. The three men were tried in 2005 and acquitted on some charges while the jury deadlocked on others (Houston Chronicle trial verdict story here); Judge Gilmore declared a mistrial but would not dismiss the charges. In Tuesday’s ruling, the appeals court said that despite the acquittals it could not be concluded that the men could not be found guilty of some of the other charges against them. Hirko’s lawyer Per Ramfjord indicated that a motion for rehearing before the full appellate court was possible. The Mary Flood/Kristen Hays Houston Chronicle story is here.
A federal grand jury in Richmond, Virginia on Monday indicted Edward Okun of Miami on three counts in connection with a scheme which allegedly defrauded clients of $132 million. Okun was charged with one count of mail fraud, one count of bulk cash smuggling and one count of false statements and forfeiture. Okun operated 1031 Tax Group (1031TG), a qualified intermediary company which acted as a neutral party to hold transaction funds for property investors deferring taxes under IRS Section 1031. The indictment alleges that between 2005 and 2007, Okun misappropriated $132 million in client funds held in trust under agreements and converted it for his personal and business use. He was arrested in Miami and has waived extradition to Virginia. AP, DOJ (via PRNewswire).
In opening statements on Tuesday in the witness tampering trial of former National Century Financial Enterprises CEO and co-founder Lance Poulsen and his associate Karl Demmler (earlier), the defense sought to portray Poulson’s $500,000 offer to former Executive VP for compliance Sherry Gibson as a misunderstanding. According to defense attorney Peter Anderson, Poulsen only sought to “make her whole” because she had gone to prison and given up her assets in her plea deal. And according to Demmler’s attorney Darryl Parker, Demmler was the intermediary because he was a longtime friend of Gibson and was only urging her to use the money to get a new attorney. However, Gibson took the stand on Tuesday afternoon and testified that she construed the initial offer as a bribe, contacted the government and agreed to wear a wire at future meetings with Demmler. The jury heard tapes in which Demmler offered to set Gibson up with an offshore account for a 10% fee if she took Poulsen’s offer and told her ” “Money laundering is my business on private contracts.” And regarding the testimony she was to give in Poulsen’s now-delayed fraud trial, Demmler said “Don’t remember. You don’t have to lie. You’re not lying. He’s not asking you to lie” and referred to a scene in Godfather II where a witness forgets testimony. The government also has taped conversations between Poulsen and Demmler in which they allegedly used code words in case their phones were bugged. Poulson is expected to take the stand in his own defense. Gibson’s testimony in the recently completed fraud trial of five other National Century executives (earlier) also included testimony implicating Poulsen in the fraud. Columbus Business First here and here.
The US Court of Appeals for the Tenth Circuit in Denver on Monday reversed the convictions of former Qwest CEO Joe Nacchio and remanded the case for retrial before a different circuit court judge. Nacchio was convicted in April 2007 of 19 of 42 counts of insider trading after a jury trial before US District Judge Edward Nottingham in Denver. The charges arose from his sale of $101 million worth of Qwest stock in 2001 while allegedly knowing that Qwest’s outlook was deteriorating. He was sentenced to 72 months in prison in July but has remained free on bail pending appeal. Nacchio had appealed on grounds that the evidence was insufficient to convict him, that the jury instructions were improper and that Judge Nottingham improperly excluded exculpatory evidence: an expert witness and classified information. In overturning the convictions the majority opinion states:
- We agree that the improper exclusion of his expert witness merits a new trial, but we conclude that the evidence before the district court was sufficient for the government to try him again without violating the Double Jeopardy Clause.
Professor Daniel Fischel, an expert on corporate law and economics, was the excluded expert witness. Prosecutors had argued that the defense failed to establish the reliability of Fischel’s opinions. Nottingham excluded Fischel in part because he thought it would not be helpful to the jury. But the appeals court rejected that reasoning:
- This misunderstands the nature of economic expertise. An economic expert is permitted not only to tell the jury that an economic concept “is an issue” but to analyze the concept and offer informed opinions. In other words, expert testimony may “assist the trier of fact to understand the facts already in the record, even if all it does is put those facts in context. ….That is why expert economic testimony is routine when a materiality determination requires the jury to decide the effect of information on the market. ….Armchair economics is not the way to decide complex securities cases [citations omitted].
NYT/Reuters here.
US District Judge Neal Biggers on Monday entered an order based on Friday’s hearing, formally denying Zach Scruggs’ separate dismissal motion and granting 5 additional days from March 14 to amend current motions or file additional motions, but ruling that the extension “in no way affects any other deadlines previously set forth in this cause, including the change of plea deadline of March 17, 2008, or the trial date of March 31, 2008.” Zach Scruggs 3/17 Order. The big surprise of the day was former Mississippi AG Mike Moore’s Entry of Appearance on behalf of Zach Scruggs. Moore was a key player in Dickie Scruggs’ multi-billion dollar looting of the major tobacco companies. A Sun-Herald story here quotes Moore as saying Zach Scruggs “asked me to represent him should his case ever get to trial.” We should know by Wednesday if that plea deadline was set in stone or if this case will proceed to trial.
A jury was selected Monday in the witness tampering trial of former National Century Financial Enterprises CEO and co-founder Lance Poulsen, and opening arguments are to begin today in Columbus, Ohio before US District Judge Algenon Marbley. Poulsen had been indicted in 2006 on 47 counts including conspiracy, wire fraud, securities fraud and money laundering in connection with the same acts for which five former executives were convicted last week (earlier) and is scheduled for trial on August 4 in that case. But in this case, he and an associate, Karl Demmler were indicted on one count each of conspiracy to obstruct justice, witness tampering and witness tampering by influencing testimony. The indictment alleges that they attempted to bribe Sherry Gibson, National Century’s former Executive VP for compliance, with $500,000 to “develop amnesia” on the witness stand in the fraud case. Gibson pleaded guilty in 2003 to one count of conspiracy to commit securities fraud and agreed to cooperate with prosecutors; she was sentenced to 48 months in prison in June 2004. She was the government’s star witness in the case that concluded last week and is scheduled to testify in this case. Columbus Business First has the story here.
Jodi Andes in the Columbus Dispatch analyzes last week’s verdicts here.
Paul and Zibia Gunther, the father and daughter arrested last week in connection with a $70 million international stock fraud scheme involving fake shares in hijacked dormant companies (earlier), made their initial appearances Monday before US Magistrate Judge Thomas McCoun in Tampa. McCoun agreed to release Zibia Gunther on a $150,000 bond secured by property, but he denied release to Paul Gunter, who had offered a $500,000 property-secured bond. Calling Paul Gunter a flight risk, McCoun said he will require at least $1 million posted from his family and friends before he said he would consider his release, stating “I want people to come forward and say they have so much faith in him that they’ll put up their house.” Paul Gunter holds English citizenship. Further details of the government’s case emerged: a prosecutor alleged that financial transactions have been tracked to numerous accounts controlled by Paul Gunter in at least nine different countries. However, he is currently represented by a public defender. Attorneys for both defendants claim they are only escrow agents acting for others. Tampa Tribune, Tampa Bay Times.
Thanks to David Rossmiller, the Friday transcripts are now available:
Dickie Scruggs Plea Transcript
Sid Backstrom Plea Transcript
Zach Scruggs Motion Hearing Transcript
Zach Scruggs’ motion to dismiss was denied, and his attorney Todd Graves indicated that he would be conferring with prosecutors on other pending motions. And despite Friday’s pleas, today is the actual deadline for plea agreements. The Clarion-Ledger first reported, then withdrew a report that Zach Scruggs would surrender his law license in exchange for deferred prosecution (earlier). In light of the way the hearing ended, a plea deal could still be in the works. Alan Lange at Y’all Politics thinks so, and explains why here.
The Backstrom transcript indicates a dispute over language in the plea agreement that was resolved, but Backstrom clearly admitted entering into a conspiracy, apologized and accepted full responsibility.
In contrast, during Dickie Scruggs’ response to Judge Biggers’ questioning, his attorney John Keker had to intervene and practically prod him into answering in manner that would be accepted by the court. See pp.15-16 of the transcript. Scruggs offered no apology.
Perhaps more significant to Dickie Scruggs’ future was this statement from AUSA Thomas Dawson: “…I want to make it painfully clear that the investigation with respect to the Wilson matter that is currently under investigation – - that this plea agreement and this plea has no affect with respect to any charging decision or subsequent prosecution with respect to that case.”
Weekend articles of interest include Patsy Brumfield’s Daily Journal story which takes a look at the courtroom drama and the LA Times staff story which provides a very good overall view.
The Associated Press and other news sources will not hesitate to take action against those who reuse their photos without permission. A Photo District News story here points out that Ashley Alexandra Dupré — Eliot Spitzer’s “Kristen” — owns the MySpace photos which the same news organizations apparently thought they could reuse without permission.
Mark Steyn at NRO’s The Corner expects legal action: “…it’s pretty clear from her general philosophy that ‘Kristen’ doesn’t give away much for free….You go, girl! It’s not often you get a case where there’s someone in the room with a higher hourly rate than the lawyers.”
Two Houston policemen, officer Tracie Bell and first-year probationary officer Kirshondra Richardson, were indicted last week by a Harris County grand jury on felony charges of theft of more than $100,000. The indictment alleges that they billed the Red Cross over $160,000 for a two-week basketball camp for 310 Hurricane Katrina refugees but the camp only lasted two days and had only 10 attendees. If convicted they could face up to 20 years in state prison. Houston Chronicle here, FoxHouston here.
This would never have happened if Herman Short were still chief of police.
UPDATE: The revised C-L story here now says that Zach Scruggs’ status is not known. The Daily Journal story here and other sources state that Zach Scruggs is still scheduled to stand trial on March 31.
This seems to be confirmed by a related development: following the November 27 search of the Scruggs Law Firm offices, an FBI “taint team” turned over certain evidence to two AUSAs from the Western District of Tennessee. Today the two AUSAs filed a motion to allow disclosure of that evidence to prosecutors in the Northern District of Mississippi by no later than March 21 for use in this case. If granted, at this point the evidence would be used against Zach Scruggs and the motion header is worded US v. David Zachary Scruggs rather than US v. Scruggs et al. The evidence was turned over to Judge Biggers on yesterday. Did attorneys for Dickie Scruggs and Sid Backstrom know this? If so, it could have precipitated their pleas today. US v. Zach Scruggs Motion To Disclose Search Evidence
The Clarion-Ledger is reporting that the government will defer prosecution of Zach Scruggs in exchange for surrender of his law license, but there is no confirmation of that yet in any court documents.
Dickie Scruggs’ guilty plea to the single conspiracy count carries a maximum five year sentence; the actual sentence will be at the court’s discretion. The remaining five counts are dismissed. Dickie Scruggs’ plea does not include an agreement to cooperate, and the agreement specifically does not preclude the government from bringing charges in any other case, federal or state.
Sidney Backstrom’s guilty plea to the single conspiracy count includes the provision that his sentence will be no more than half of Dickie Scruggs’ sentence, and in any case no more than 30 months in prison. Backstrom does agree to cooperate fully in this case and “all other criminal offenses in any way.” So it appears that this saga is far from over.
(h/t Rossmiller)
An early report from this morning’s pretrial conference in US v. Scruggs by AP’s Holbrook Mohr indicates that Dickie Scruggs and Sidney Backstrom have each pleaded guilty to conspiracy counts in connection with the attempted bribe of Judge Henry Lackey. There is no word yet of a plea for Zach Scruggs; his second motion to dismiss is on today’s agenda.
After two days of deliberations following the five week trial of five former executives of National Century Financial Enterprises, a federal jury in Columbus, Ohio on Thursday convicted all five defendants on all charges, which included conspiracy, wire fraud, securities fraud and money laundering. The defendants were National Century co-founders Rebecca Parrett and Donald Ayers and former executives Randolph Speer, Roger Faulkenberry and James Dierker. The Columbus Business First story here details the specific counts against each defendant. Investors, including many institutions and government bodies, lost $1.9 billion in the 2002 collapse of the health care provider financing company. US District Judge Algenon Marbley allowed the defendants to remain free but subject to electronic monitoring pending sentencing, which is expected in 60 to 90 days.
Former CEO and co-founder Lance Poulsen is scheduled for trial on
August 4, 2008 on the same charges but he first faces a March 17 trial for witness tampering in the case. The witness is said to be Sherry Gibson, National Century’s former Executive VP for compliance, who was the star prosecution witness in this case (earlier).
The US Attorney’s Office in Tampa on Thursday announced the filing of a criminal complaint against Paul Robert Gunter of Odessa, Florida and his daughter, Zibiah Joy Gunter of Oldsmar, Florida. The complaint alleges that they “conspired to commit, and committed substantive acts of, mail fraud, wire fraud, securities fraud, and money laundering” by engaging (with unnamed others) in a securities fraud scheme. They were arrested on Thursday morning and were scheduled to make an initial appearance later in the day. The alleged scheme involved hijacking the identities of about 54 dormant publicly held companies, issuing fake stock in the companies to conspirators and selling the shares to “victim-investors” in the UK. An estimated 15,000 people, mostly elderly, invested in excess of $70 million; the Gunters allegedly converted the funds for their personal use. Reuters here, DOJ press release here.
Kristen Hays’ Houston Chronicle story here discusses recent filings in the appeal of former Enron CEO Jeff Skilling. At issue are the notes from the FBI interviews of former Enron CFO Andrew Fastow, which the defense contends will reveal exculpatory evidence. Skilling’s lead attorney Daniel Petrocelli describes the content of the notes as “a sledgehammer that destroys Fastow’s testimony.” The defense filings seek to use the notes in the appeal and make the contents public.
The article misleadingly states that Skilling’s attorneys were given summaries of Fastow’s interviews before the trial; a chron.com reader comment to the story notes: “Standard procedure has the prosecution giving the defense ’summaries’ know[n] as Form 302s, made by FBI agents from their raw notes. The Task Force DID NOT do this. Instead, they summarized the FBI forms into a ‘composite draft’, and they destroyed all previous drafts of their summary. BIG difference.”
The US Court of Appeals for the Fifth Circuit has scheduled arguments in the appeal for April 2 (earlier coverage here).
Two new filings Wednesday in the US v. Scruggs bribery case seek reversal of prior rulings: Sidney Backstrom’s Renewed Motion for Severance, previously denied by US District Judge Neal Biggers on February 26 (here) and all three defendants’ Motion to Reconsider the Anonymous Jury Order, which was granted to the prosecution by Judge Biggers on March 6 (here). The Backstrom motion argues that the reason for the anonymous jury and the 404(b) evidence to be introduced against Dickie and Zach Scruggs are connected the US v. Wilson case and will prejudice Backstrom’s right to a fair trial by association. The joint motion argues that the decision to allow an anonymous jury is based on “mere allegations or inferences” — an argument already rejected by Biggers. h/t folo.
The US Attorney’s Office in Alexandria, Virginia announced yesterday the March 6 indictments of Linda Woolf, of Sandy, Utah, and David Gengler, of Draper, Utah, on charges of wire fraud and conspiracy to commit wire and mail fraud. The SEC has also filed civil fraud charges against them. Woolf and Gengler star in the “Teach Me To Trade” infomercials and investor workshops which promote a get-rich-quick system for picking stocks. They represent themselves as highly successful stock trading experts, but the indictment alleges that they lied or omitted material information about their profits and that they actually are contract commission employees of Whitney Information Network, which owns the brand name and runs the seminars. The indictment also alleges that the actual purpose of the infomercials and free informational workshops is not to offer investment advice but to sell expensive advance training seminars. Business Week/AP story here.
With the March 17 plea deadline approaching, attorneys for Dickie Scruggs, Zach Scruggs and Sidney Backstrom on Tuesday filed a second motion to compel discovery. The motion seeks documents and further information referenced in the February 20-21 hearings but not released to the defense, and also seeks extensive material related to the similar bad acts evidence (the Wilson v. Scruggs bribery allegations) which the government plans to introduce under federal rule 404(b) . Scruggs Second Motion For Discovery. Daily Journal story here.
Defense attorneys for defendants Donald Ayers and James Dierker wrapped up the defense’s closing statements on Tuesday morning in the National Century fraud trial; Ayers’ attorney Brian Dickerson stressed the prosecution’s failure to call two cooperating witnesses — former company CFO John Snoble and compliance director Brian Stucke, who have pleaded guilty and were expected to provide key testimony. Following the prosecution rebuttal, Judge Marbley was scheduled to give jury instructions on Tuesday afternoon. Columbus Dispatch story here.
What others are saying about Eliot Spitzer’s attempt to clean up prostitution, one hooker at a time:
Scott Horton at Harper’s raises questions about prosecutorial motivation.
Walter Olson of Overlawyered presents a reader’s information about the “structuring” statute here, and in a NRO article here looks at the statute in the context of increased powers given to white collar prosecutors: “…the structuring statute was part of the ever more ferocious treatment of business and economic offenses in American law that might be termed, after its best-known practitioner, Spitzerization.”
At Houston’s Clear Thinkers, Tom Kirkendall bemoans the absence of media coverage of Spitzer’s abuses of power as a prosecutor, as well as the lack of coverage in the Jeff Skilling appeal.
Today’s AP story mentions that Spitzer is a Democrat exactly zero times. Have they done likewise with Republicans?
The Agitator presents Great Moments In Sex Scandal Press Conferences (from a running gag on BBC’s Little Britain series).
Zach Scruggs rebuttal memorandum to government response to his separate motion to dismiss. It’s hard to see how this could succeed; it steps up an attack the government has already termed “gratuitously inflammatory” and splits hairs over matters of intent that would almost surely be left to a jury. At the same time it ignores the broader context of the transcripts–that Zach Scruggs was discussing an order that had been written by the firm for Judge Lackey, and that Zach Scruggs was discussing the order with Timothy Balducci, who was not the firm’s attorney in the case. Perhaps Zach Scruggs’ current intent is to discover any additional information, from taped conversations, that was not presented to the grand jury.
The deadline for pleas in this case is March 17, with the trial scheduled to begin March 31. Judge Biggers has scheduled a pre-trial conference for March 14 and will rule on any outstanding motions. It may be an eventful week.
The defense rested Monday and closing arguments began in the healthcare finance fraud trial of five former executives of National Century Financial Enterprises. Co-founders Rebecca Parrett and Donald Ayers and former executives Randolph Speer, Roger Faulkenberry and James Dierker face multiple charges of conspiracy, wire fraud, securities fraud and money laundering in the 2002 collapse of the company, once the country’s largest source of health care provider financing. AUSA Wes Porter placed the blame on the defendants, saying “Every company takes its course because of the actions of people.” Porter accused the company of loaning providers in poor financial shape more than the value of their accounts receivable and lying to investors and auditors about the value of of the future receivables. Attorneys for Faulkenberry, Speer and Parrett each argued that the government had not met its burden of proof that their clients intended to commit fraud or engaged in any conspiracy. Closing arguments continue today with attorneys for Ayers and Dierker and prosecution rebuttal. Columbus Business First story here.
Patricia Jacoby of Raleigh, North Carolina on Wednesday pleaded guilty in US District Court to a single count of wire fraud in connection with a pyramid scheme that cost investors an estimated $3 million. Jacoby owned a Raleigh shop called POSH! Fine Arts and Antiques; she allegedly lured investors with the promise of a 22% return in 30 days; the funds were said to finance the purchase of estate lots of antiques to be sold to waiting buyers. The scheme collapsed when investors wanted their money back. A sentencing date has not been announced. According to news reports here and here, Jacoby has been convicted twice before on similar charges, was still on probation from a 2006 conviction, and used some of the money from this scheme to pay restitution from the 2006 case.
Marble dealer John Byors of Williston, Vermont pleaded guilty on Tuesday in US District Court in Burlington to 16 counts including bank fraud, mail fraud, travel fraud, wire fraud and money laundering in connection with a scheme that cost investors an estimated $8 million. The plea was described as a surprise and came the day before his trial was scheduled to begin. A revised 42 count indictment alleged that Byors solicited about $10 million from 78 investors between 2000 and 2005 to finance the harvesting of a rare red marble, promising a high rate of return, but that he diverted most of the money for personal use and only repaid 16 investors. Byors was originally indicted in 2006 and had backed out of an earlier plea agreement. He has been incarcerated for two years. Sentencing has been scheduled for late September. Burlington Free Press story here.
Prosecutors announced last Monday that Beverly Ross and Donella Locke of Indianapolis had been indicted on January 30 by a federal grand jury on charges of wire fraud and conspiracy in connection with an alleged mortgage fraud scheme involving $23.5 million in loans on 36 high value homes in the greater Indianapolis area. Both women were taken into custody pending a hearing. The indictment alleges that Ross and Locke conspired in connection with mortgage brokers, title companies and appraisers to sell overvalued properties to straw buyers they had recruited to lend their names for credit purposes. Ross was also indicted separately on six counts of bankruptcy fraud. The Indianapolis Star has the story here.
US District Judge Neal Biggers on Thursday granted the government’s request for an anonymous jury in US v. Scruggs. He ruled that three elements existed which could justify granting the motion, and in particular whether there has been a past attempt by the defendant to interfere with the judicial process:
In this case, there is evidence before the court in sworn testimony in open court, uncontradicted at the time, of past attempts on the part of the defendants herein to interfere with the judicial process. Indeed, that is the charge involved in this case, and, in addition, the court has heard sworn testimony that an attempt at interference with the judicial process also has taken place in another court by some of the defendants herein. The court is not judging whether this evidence is true; however, there is sworn testimony, unrebutted at this point, sufficient to find at this time, based on more than “mere allegations and inferences,” that this element is applicable here for the purpose of ruling on this motion.
US v Scruggs Anonymous Jury Granted
In a related development, the government responded to Zach Scruggs’ separate dismissal motion (earlier), calling it gratuitously inflammatory and that it appearing “to be designed to influence the jury pool.” Response to Zach Scruggs Motion to Dismiss
Wilson v. Scruggs is the state asbestos fees case in which Joey Langston has pleaded guilty to a federal count of bribing Hinds Circuit Judge Bobby DeLaughter in 2006 to rule in favor of Dickie Scruggs despite his special master’s recommendation that $15 million be awarded to William Roberts Wilson. It had previously been reported that the case had been settled and that DeLaughter had recused himself in January from any cases involving Scruggs.
However, a motion for recusal made on Tuesday by attorneys for Wilson asserts that the case “has never had any final judgment or order filed closing same” and further, that DeLaughter has “failed to recuse himself in this matter, a failure which was more likely than not an oversight on his part.” The motion asks that DeLaughter and all other judges in the district recuse themselves and that the chief justice of the Mississippi Supreme Court appoint a judge to hear any future matters in the case. In support of the motion, two transcripts were attached in support of the motion: Langston’s guilty plea and Timothy Balducci’s testimony in the February 20 US v. Scruggs hearing. Wilson Recusal Motion. Clarion-Ledger story here.
Department of Uh-oh: Jon Bryant, a computer programmer testifying for the defense as an expert witness in the healthcare finance fraud trial of five former executives of National Century Financial Enterprises, was revealed by prosecutors to have been an FBI informant in the same case back in 2002. Bryant testified that crashes in nine of National Century’s computer hard drives would have made it impossible for anyone to draw conclusions about the data. But on cross examination, AUSA Doug Squires asked Bryant if he ever told the FBI there was fraud at the company, if he had ever told the FBI about improper funding, and if he had ever taken documents from the company showing wrongdoing. Bryant said he could not recall but said it was “possible”. And after leaving court, when asked if he had told defense attorneys he had given company documents to the FBI, he said “No. It kinda slipped my mind.” Columbus Dispatch here.
Lou Pearlman, the promoter responsible for foisting N’Sync and the Backstreet Boys on an unsuspecting public, on Thursday pleaded guilty to two counts of conspiracy, one count of money laundering and one count of making a false claim in a bankruptcy in connection with long-running fraud schemes which caused losses to 250 investors estimated at $200 million and losses to 10 financial institutions estimated at $100 million. The plea was entered before US District Judge G. Kendall Sharp in Orlando. Pearlman could face up to 25 years in prison but has agreed to cooperate with authorities investigating other unnamed parties in exchange for the possibility of a reduction in sentence. Pearlman is currently in custody and appeared in court wearing shackles. Full details of the schemes have not been revealed but in court Pearlman acknowledged a Ponzi scheme involving the sale of “employee investment savings accounts,” a bank fraud involving faked financial statements, and a plot to siphon frozen assets from a bankruptcy case. Sentencing has been scheduled for May 21, 2008. Orlando Sentinel here, AP here.
The sad ordeal of former Dynegy executive Jamie Olis is no longer news, but we learn via White Collar Crime Prof Blog that US District Judge Sim Lake on Tuesday denied three pending motions by or on behalf of Olis: Olis’ motion for release on bond pending appeal, Olis’ motion for discovery in connection with his §2255 motion to set aside the conviction, and Professor Robert Weisberg’s motion for leave to file an amicus brief in support of Olis’ motion to set aside the conviction. However, Lake did order the government to respond to Olis’ §2255 motion on or before April 4, 2008, and he set a May 5 deadline for Olis’ reply. Olis Motions Ruling
Jim Clark, former chief of staff for former Alaska Governor Frank Murkowski, pleaded guilty on Tuesday to a single count of conspiracy to commit fraud. The plea was entered before US District Judge John Sedwick in Anchorage. Clark admitted conspiring with former officials of VECO Corporation, the now-defunct oilfield services company that was once the state’s largest, to secretly channel $68,550 from VECO into Murkowski’s 2006 reelection campaign, which he lost. In exchange, according to his plea agreement, he agreed to work on VECO’s behalf to secure favorable tax legislation. The money was an illegal corporate donation and was not reported. Clark has asserted that Murkowski knew nothing about the arrangement. He faces a prison sentence of up to 5 years, but sentencing has been stayed pending his ongoing cooperation in the continuing investigation. Two former state lawmakers have been convicted to date in the widening scandal. A third has been indicted and two top VECO executives and one former lobbyist have already pleaded guilty. The VECO executives, former CEO Bill Allen and VP Rick Smith, are also cooperating and have implicated US Sen. Ted Stevens, his son (former Alaska state Senate President Ben Stevens) and a current state senator; none of them has yet been charged and all have denied wrongdoing. US Rep. Don Young is also under investigation. Reuters here, Anchorage Daily News here.
The prosecution rested on Monday as the healthcare finance fraud trial of five former executives of National Century Financial Enterprises entered its fifth week (earlier here and here). Former National Century CFO John Snoble and compliance director Brian Stucke, both cooperating witnesses who have pleaded guilty, were expected to testify but were not called. The twelfth and final prosecution witness was Terrence Glomski, former asset manager for Lincoln Capital, which was acquired by Lehman Brothers in late 2002 after the collapse of National Century. Glomski testified that his pension fund clients were only able to recover $2.9 million of the $49.8 million they had invested in National Century’s AAA rated bonds. US District Judge Algenon Marbley on Tuesday denied a defense motion for acquittal, and the defense called its first witness. Robert DeLuca, a healthcare accounting consultant, testified that the company’s broad definition of receivables meant that National Century’s governing documents allowed the advance of the unsecured loans to health care providers which ultimately brought down the company. Under cross examination he admitted that he had no expertise in securities law. Bizjournal here and here.
US Rep. Rick Renzi (R-Ariz.) on Tuesday made his initial appearance in US District Court in Tucson and pleaded not guilty all charges; Renzi was indicted on February 21 on 35 counts including conspiracy, wire fraud, extortion, money laundering, and insurance fraud. The indictment covers two separate alleged frauds; in one, Renzi and James Sandlin, a former business partner, are accused of using Renzi’s office to extort investors trying to obtain mineral rights; in the other, Renzi and Andrew Beardall are accused of embezzling funds from his Renzi’s wife’s insurance agency and using those funds to finance his congressional campaign for the 2002 election. Renzi had previously announced he would not seek reelection and has removed himself from three congressional committes, but he announced after his Tuesday appearance that he would not resign. US Magistrate Judge Bernardo Velasco set a trial date of April 29. Arizona Daily Star story here, AP/WSJ ($) here.
The US Supreme Court on Monday rejected without comment the appeals of Adelphia Communications founder and former CEO John Rigas and his son, former Adelphia CFO John Rigas. Both were convicted of securities fraud, bank fraud and conspiracy in 2004. The charges arose out of Adelphia’s 2002 collapse into bankruptcy after the company revealed $2.2 billion in previously unreported liabilities. John Rigas, now 83, was sentenced to 15 years in prison, while Timothy Rigas received a 20 year sentence. They appealed, claiming that accounting terms had not been properly explained to the jury and that they had followed generally accepted accounting principles; but the US Circuit Court of Appeals for the Second Circuit upheld their convictions last year and they began serving their sentences last August. AP/Washington Post story here.
Attorneys for Zach Scruggs on Monday filed a motion to dismiss the indictment against him “due to the government’s misconduct in knowingly and/or recklessly presenting false, misleading, and material testimony before the grand jury.” Although the filing deadline for pre-trial motions has passed, the filing arose from grand jury testimony delivered to the defense at the motions hearings. Zach Scruggs claims that the grand jury testimony shows no evidence that he participated in “the alleged unlawful conspiracy” and that the testimonies of Timothy Balducci and FBI agent William Delaney were false and misleading. While the motion is not likely to succeed, it appears to signal a change in defense strategy, with Zach distancing himself from anything allegedly done by his father and Sidney Backstrom. Press coverage has frequently mentioned Dickie Scruggs’ lead attorney John Keker, but it is worth noting that Zach Scruggs’ lead attorney is Todd Graves, one of the eight fired US attorneys. Daily Journal/AP story here; Zach Scruggs Motion To Dismiss.
Conrad Black reported to prison on Monday (earlier), but he defends himself in a well-reasoned opinion page feature in the New York Sun, explaining his actions and excoriating the prosecution for “insufficient respect for the Fifth, Sixth, and Eighth Amendment guarantees of due process, of the grand jury as an assurance against capricious prosecution, of no seizure of assets without just compensation, of speedy justice, access to counsel, and reasonable bail.” Read the full article here.
Former Reagan administration official and outspoken Bush administration critic Paul Craig Roberts pulls no punches in his new Counterpunch article about the Siegelman/Scrushy prosecution, blasting the DOJ in Alabama as a political tool of a corrupt administration. Expanding on Scott Horton’s earlier coverage, Roberts accuses prosecutors of withholding exculpatory evidence and knowingly allowing false testimony, and takes a critical look at the actions of political operatives and US District Judge Mark Fuller. Read the full story here.
The US Attorney’s office in Tampa on Friday announced that David Alan Smith of Wesley Chapel, Florida has pleaded guilty to three counts of wire fraud, three counts of mail fraud and two counts of aggravated identity theft. Smith was the facilities manager for the Tampa laboratory of Quest Diagnostics, Inc. Beginning in 2001, he created fake shell companies which he controlled, submitted fake invoices to Quest seeking reimbursement for expenses, and obtained approval for the payments by forging the names of two supervisors. He obtained almost $1.2 million in payments to his shell companies and over $100,000 in additional unauthorized expense payments. Smith could face a maximum of 124 years in prison; no sentencing date has been announced. Bizjournal here, DOJ press release (.pdf) here.
David Villongco of San Mateo, California was sentenced to 33 months in prison on Friday by US District Judge Richard W. Roberts for defrauding the US Export-Import Bank of $20 million. Villongco, former co-owner and manager of PBJ Venture International Corporation, pleaded guilty in March 2007 to one count of conspiracy and one count of mail fraud. He admitted that he and a co-conspirator borrowed $20 million from the bank from 2001 to 2004 under fraudulent pretenses. The funds were to be used to purchase goods for export to the Philippines, but he and co-conspirators in the US and the Philippines misappropriated about $16 million. Six others have pleaded guilty in the scheme and four more have been indicted. Bizjournal here, San Mateo County Times here.
In a plea agreement announced on Friday by US Attorney Michael Sullivan in Boston, McCourt Construction Company pleaded guilty to conspiracy to defraud the US government “with respect to claims on a federal highway project.” The company’s project manager Ryan McCourt, son of the owner, pleaded guilty to one count of conspiracy to submit false statements regarding a federal highway project. McCourt Construction was one of the main contractors on the project; the charges arose from overbilling on the I-93 Tip O’Neill Tunnel project. McCourt admitted participating in over 1500 instances of overbilling in which subcontractors charged journeyman labor rates for work actually done by apprentices. This scheme also increased McCourt’s profits because it was paid 10% of the billings as overhead and an additional 10% as allowable profit margin. The company has agreed to pay a $500,000 fine; Ryan McCourt could face up to 5 years in prison but prosecutors will recommend a sentence in the low end of the sentencing range. A DOJ press release here announces the filing of the information; an AP story on the plea agreement is here.
US District Judge Roger Vinson on Friday afternoon dismissed with prejudice the US v. Scruggs Alabama case. In this case, Dickie Scruggs was being prosecuted for criminal contempt of court for violating the injunction of US District Judge William Acker in the civil case Renfroe v. Rigsby to return the files taken by the “whistleblower” Rigsby sisters to State Farm contractor E. A. Renfroe. Scruggs gave the files to Mississippi AG Jim Hood even though Hood already had copies of the files.
It is quite clear that Judge Vinson did not believe the ludicrous explanations of Scruggs and Mississippi AG Hood to account for their actions, writing that “there is a cloud of impropriety surrounding what Scruggs did and the nature of his eleventh hour arrangement with Hood.” But, he wrote, “the question is not whether Scruggs acted ethically; the question is whether he can be held criminally responsible in a contempt proceeding.” He ruled that the court has no personal jurisdiction over Scruggs in this case, noting that he was not a party or attorney-of-record in Renfroe v. Rigsby; and that his actions could not be construed as aiding and abetting the Rigsbys because they were not in violation of the injunction, having given the documents to Scruggs five months before the injunction: “It is legally and logically impossible for Scruggs to have aided and abetted the contempt of parties who committed no contempt.” He further ruled that even if the court had jurisdiction, Scruggs did not violate the clear “law enforcement exception” language of the injunction despite the suspicious timing of Hood’s request for the documents and other suspect actions by Scruggs and Hood: “Again, as then-Judge (now Justice) Stephen Breyer has observed, courts must read injunctions ‘to mean rather precisely what they say’.”
A three-judge panel of the Seventh US Circuit Court of Appeals on Thursday denied Conrad Black’s request to remain free on bond during his appeal of his convictions. Black, former CEO and chairman of Hollinger Inc., was convicted last July on three counts of mail fraud and one count of obstruction of justice; he and three other defendants were accused of defrauding Hollinger and its shareholders of $60 million. He was sentenced in December to 78 months in prison. Thursday’s ruling means that barring further appeal, Black must report to prison by March 3, as previously ordered by US District Judge Amy St. Eve. Reuters has the story here.
John Torkelsen of Princeton, New Jersey, a former expert witness in numerous class action securities cases for Milberg Weiss and other firms, has agreed to plead guilty to a one count criminal information charging him with perjury, according to a plea agreement filed on Thursday in US District Court in Philadelphia. Torkelsen offered expert witness testimony on plaintiff class damages and the value of settlements. According to the DOJ press release and the criminal information, the firms who hired Torkelsen, including one identified as “the New York Law Firm”, represented to various federal courts that he was an independent expert, which should have precluded them from paying him on a contingency basis; however, the firms allegedly entered into secret arrangements to pay him contingency fees. According to DOJ, the law firms submitted reimbursement requests to courts for contingent fees that Torkelsen had already been paid, and when he had to write off expenses for cases they lost, he submitted fraudulent bills on other cases for work he did not perform, which were then submitted to the courts by the firms. The one perjury count referenced in the guilty plea involved a 1999 case in San Jose, California, in which Torkelsen allegedly attested to a “non-contingent engagement by plaintiff’s counsel” when he was actually paid, according to the criminal information, by “the New York Law firm” on a contingent basis. Lawfuel has the DOJ press release here. No sentencing date has been announced. The DOJ press release was posted on the site of the U.S. Attorney’s Office for the Central District of California, which is prosecuting the Milberg Weiss case. Milberg Weiss’ principal office was in New York during the time periods covered in the information. In the press release, the U.S. Attorney for the Central District of California thanked the U.S. Attorney for the Eastern District of Pennsylvania for his assistance. The plea also disposed of tax-related issues in the Eastern District of Pennsylvania.
Torkelsen is currently serving a 70 month prison sentence for stealing SBA funds in an unrelated case. His ex-wife Pamela was also indicted in that case and became a cooperating witness, not only against her ex-husband but against Milberg Weiss. A 2006 Law.com story here provides some interesting background.
A story here by Russell Hubbard in the Birmingham Daily News describes the ordeal of Iranian-born US citizen Alex Latifi and his Huntsville, Alabama defense contracting firm, Axion Corporation. After four years of investigations and raids, Latifi and his firm were indicted in 2007 by the US Attorney for the Northern District of Alabama on multiple counts including violating the Arms Export Control Act, despite what appeared to be convincing evidence that his actions did not require federal approval. After seven days of trial last October, US District Judge Inge Johnson dismissed all counts. But the business which once employed 60 is in ruins. Now Latifi has filed a Hyde Amendment claim for compensation; a hearing is scheduled for April 15 and his attorney plans to put USA Alice Martin on the stand.
The government’s notice of Latifi’s aquittal, which Judge Johnson ordered it to post, is here and Martin’s original indictment press release has disappeared from the website. It can still be viewed here.
US District Judge Stephen Wilson in Los Angeles on Monday sentenced two men to prison in connection with a hedge fund fraud scheme that caused investor losses of $6 million. Keith Gilabert of Valencia, California, who operated a company called Capital Management Group, was sentenced to 60 months in prison; he had pleaded guilty in June 2006 to conspiracy to commit mail fraud, wire fraud and securities fraud. He collected about $6 million from 2000 to 2005 from 40 clients who invested in a hedge fund called the GLT Venture Fund, with the promise of high rates of return; but Gilabert admitted losing most of the money and misappropriating the rest. Justin Paperny of Studio City, a former account VP at UBS Financial Services, was sentenced to 18 months in prison; he also had pleaded guilty to the same charges and admitted conspiring with Gilabert to mislead hedge fund investors by telling them the fund was fully backed by UBS. Lawfuel has the DOJ Press Release here.
It was not Gilabert’s first brush with Judge Wilson. He and his mother-in-law had been indicted for obstruction of justice for allegedly telling a mortgage broker to lie to FBI agents investigating the sale of two plots of land in Valencia. That case went to trial this past December, but Wilson acquitted them after calling the broker’s testimony “an abomination … maybe the worst I’ve ever seen.” (story here).
The U.S. Court of Appeals for the Fifth Circuit has scheduled arguments for April 2 in New Orleans in former Enron CEO Jeff Skilling’s appeal of his convictions. Skilling was convicted in May 2006 on 19 of 28 counts including conspiracy, securities fraud and insider trading; he is currently serving a 24 year prison sentence. Skilling’s appeal contends that the government’s “honest services fraud” theory used to convict him is fatally flawed; the Fifth Court has already vacated convictions in the Enron Nigerian Barge case which were based on the same prosecution strategy. Kristen Hays’ Houston Chronicle story is here.
US District Judge Neal Biggers on Tuesday denied three more major defense motions in US v.Scruggs et al. Biggers refused to suppress wiretap evidence, to prohibit introduction of similar bad acts evidence under federal rule 404(b), and to sever the trials of Zach Scruggs and Sidney Backstrom from the trial of Dickie Scruggs. Last week he denied defense motions for dismissal and for change of venue (earlier here and here). The Daily Journal story is here; Rossmiller has links to all the orders here.
Still pending is the prosecution’s Friday motion requesting an anonymous jury, or alternatively a sequestered district-wide jury. The defense response late Monday opposes an anonymous jury but does not take a position on a sequestered jury.
In other Scruggs-related news:
- The AP has picked up the story (here) on the FBI Balducci memo bombshell; while in the Yeah, Right department, AG Hood tells WLBT that his decision not to prosecute State Farm was not influenced by outside forces.
- In an interview with Anita Lee, former Sen. Trent Lott tells the Sun Herald that he is not a target of any judicial bribery investigation, only a possible witness.
- In the Jones v. Scruggs civil case, the Katrina legal fee dispute that gave rise to the bribery case, Mississippi state Circuit Judge R. Kenneth Coleman on Tuesday postponed further action until the criminal case is completed. He made two other significant rulings: that the court has authority to impose sanctions on the members of the former Scruggs Katrina Group (now the Katrina Litigation Group, sans Scruggs), and that Scruggs’ actions would affect all the member firms (Legal Newsline here).
- The role of former Hinds County DA Ed Peters in a trade secrets lawsuit will be investigated. The case, Eaton v. Frisby (earlier), does not involve Dickie Scruggs, but like the Scruggs-related US v. Langston proceeding, it involves alleged improprieties by Peters and Hinds Circuit Judge Bobby DeLaughter (Clarion-Ledger).
The government on Monday released more transcripts in connection with the US v.Scruggs bribery case, and thanks to NMC at folo, we can take a look at the FBI’s November 2, 2007 interview with Timothy Balducci, right after he began cooperating. The most surprising new information:
Balducci further explained, prior to this March 2007 meeting [with Scruggs], the Scruggs Law Firm (SLF) was trying to settle some Katrina Insurance cases with the State Farm Insurance Company (SFIC). SLF and SFIC were near a settlement, however, Dickie Scruggs (DS) learned that the Mississippi State Attorney Generals office had threatened to indict SFIC due to some impasses between the Attorney General’s office and SFIC. SFIC was not going to settle the civil cases with SLF, if the company was going to be indicted by the Attorney Generals office. DS asked Steve Patterson (SP) to speak with Attorney General Jim Hood since SP and Hood had a long standing relationship. DS offered to pay Patterson Balducci $500,000 if they could get Hood to relent on indicting SFIC. Balducci accompanied SP to a meeting with Hood and Hood later agreed not to indict SFIC. SLF eventually settled with SFIC and that settlement yielded approximately $26 millions in attorneys fees….
So instead of the view that Hood threatened State Farm with criminal prosecution to benefit Scruggs’ civil cases, this scenario has Hood nearly screwing up Scruggs’ settlement with State Farm and has Scruggs (via Patterson) pressuring Hood to call off any criminal prosecution. If true, it certainly makes Hood look less competent than ever, if that’s possible.
A federal trial jury in Hartford on Monday convicted five former insurance executives on all counts including conspiracy, securities fraud, mail fraud and making false statements to the SEC. The defendants were four former executives of Berkshire Hathaway’s General Re and one former executive from American International Group (AIG): former Gen Re CEO Ronald Ferguson, former CFO Elizabeth Monrad, former senior VP and assistant general counsel Robert Graham, former senior VP head of US reinsurance operations Christopher Garand, and AIG’s former VP of reinsurance Christian Milton. The five had been charged in connection with two reinsurance transactions in 2000 and 2001; Gen Re appeared to assume $500 million in reinsurance risk, which allowed AIG to increase its loss reserves by $500 million. The government contended that the transactions were fraudulent because Gen Re did not actually assume the risk; the transactions misled investors about AIG’s financial condition, which artificially boosted its stock price. Sentencing has been scheduled for May 15, 2008 before US District Judge Christopher Droney. Bloomberg here, Reuters here.
Bexar County, Texas DA Susan Reed has sent a letter to USA Johnny Sutton (Western District of Texas) with a copy to Texas AG Greg Abbott, offering to allow an independent investigation of her office’s role in the purchase and use of stolen tickets from Southwest Airlines. The tickets were stolen and resold by Althea and James Jackson, who pleaded guilty on February 12 to federal wire fraud charges (earlier). Reed’s letter repeats her previous public assertion that she and other buyers were not aware the tickets were stolen. The San Antonio Express-News has the story here.
Prosecutors filed motions last week in the Northern District of Mississippi asking the court to delay the sentencings of Joey Langston and Timothy Balducci until the full extent of their cooperation can be determined. Both have pleaded guilty to bribery charges in two separate cases involving Dickie Scruggs. Balducci is scheduled to testify against Scruggs and associates in their bribery trial scheduled to begin on March 31. US District Judge Michael T. Mills on Friday granted the Langston motion; there was no word as of late Friday on the Balducci motion. Patsy Brumfield’s Daily Journal story is here.
The 60 Minutes feature on the prosecution and conviction of former Alabama Governor Don Siegelman can be found here. While it undoubtedly brought Siegelman’s sad situation to a much wider audience, as a piece of investigative journalism it was a disappointment. It was fine to have former Arizona AG Grant Woods (a Republican) opine that the prosecution was politically motivated, and to have a former Republican operative describe how she was allegedly told by Karl Rove to find evidence of wrongdoing by Siegelman. But scant attention was paid to the heart of the matter: the absence of evidence of a quid pro quo. AP and even the allegedly biased local coverage at the time of the trial made repeated and detailed mention of the defense contention that neither Siegelman nor former HealthSouth CEO Richard Scrushy received any personal benefit from HealthSouth’s contribution to Siegelman’s campaign for a state lottery to fund education. The 60 Minutes story only mentioned this in passing. Evidence that the government knew there was no quid pro quo and prosecuted anyway would have been more convincing.
From the editorial page of the Wall Street Journal: Mississippi AG Jim Hood’s outsourcing of legal work to for-profit tort lawyers brought him nearly $800,000 in campaign contributions in 2007 alone.
- This kind of quid pro quo is legal in Mississippi and most other
states. However, if this kind of sweetheart arrangement existed between
a public official and business interests, you can bet Mr. Hood would be
screaming about corruption. Yet Mr. Hood and his trial bar partners are
fighting even Mississippi’s modest attempt to require more transparency
in their contracts.
Read more here: Lawsuit Inc. (h/t PointofLaw.com).
Scott Horton at Harper’s has previously alleged DOJ misconduct in the prosecution of former Alabama Governor Don Siegelman; he has charged that Karl Rove was personally involved in this and other politically motivated investigations by US Attorneys in Alabama. But when Dickie Scruggs openly defied a federal judge’s order in Renfroe v. Rigsby (a matter still very much pending), why did other judges recuse themselves and why did USA Alice Martin of the Northern District of Alabama decline to pursue the matter? Horton thinks he may have the answer: Trent Lott’s influence. It’s speculative at this point, but certainly interesting speculation. Read his Thursday article here, which also has more on the other Alabama investigations; note that 60 Minutes has a Siegelman story scheduled for tomorrow night.
David Bermingham, Giles Darby and Gary Mulgrew, three British investment bankers known as the NatWest 3, were each sentenced to 37 months in prison on Friday by US District Judge Ewing Werlein in Houston. In accordance with their plea agreements, they will also have to pay $7.3 million restitution to Royal Bank of Scotland, parent of their former employer Greenwich NatWest. The plea agreements also allow the men to be eligible for transfer to
the UK in several months, and under the UK system they will be eligible
for parole after serving half of their sentences.
The three men were charged with seven counts of wire fraud in a 2002 indictment in connection with a scheme devised by former Enron CFO Andrew Fastow and his right-hand man Michael Kopper, Enron’s former global finance manager. In a complex series of transactions, Enron paid $20 million for Greenwich NatWest’s interest in a Fastow-controlled partnership, but Greenwich NatWest only received $1 million, while Fastow and Kopper siphoned off the difference and paid $7.3 million to Bermingham, Darby and Mulgrew. However, although the three men agreed to repay the money, they actually only pleaded guilty to one count of wire fraud and that was not the count involving the $7.3 million wire transfer. Tom Kirkendall at Houston’s Clear Thinkers had an excellent analysis of the plea deal here. Kristen Hays has the Houston Chronicle’s story on the sentencing here.
In the third week of the healthcare finance fraud trial of five former executives of National Century Financial Enterprises (earlier), the prosecution’s star witness testified on Thursday that the deception by management began years before the company collapsed in 2002, resulting in a $1.9 billion loss to investors. Sherry Gibson, National Century’s former Executive VP for compliance, testified that the complex scheme to falsify records and lie to investors and auditors dated back to 1995 and involved all the firm’s principals and senior executives. Gibson pleaded guilty in 2003 to one count of conspiracy to commit securities fraud and agreed to cooperate with prosecutors; she was sentenced to 48 months in prison in June 2004. The trial continues before US District Judge Algenon Marbley in Columbus, Ohio. Bizjournals story here.
In the continuing pre-trial motions hearings in US v. Scruggs et al, the bribery case against Dickie Scruggs, Zach Scruggs and Sidney Backstrom, US
District Judge Neal Biggers on Thursday denied the defense motion for change of venue and also denied the motion to dismiss counts 2, 3 and 4 of the indictment. Further testimony was heard on the motions to sever the trials of Zach Scruggs and Backstrom from the trial of Dickie Scruggs but Judge Biggers has yet to rule on them; also pending are the motion to suppress wiretap evidence and a decision on whether to allow evidence of similar acts by Dickie Scruggs in the case of Wilson v. Scruggs, in which he allegedly paid a bribe to induce Hinds Circuit Judge Bobby DeLaughter to issue a favorable ruling in an asbestos fee dispute case. Joey Langston has pleaded guilty in connection with the DeLaughter allegations and is cooperating with federal investigators, but Scruggs has not been charged in that case. Two surprising developments: first, both sides intend to call former Sen. Trent Lott to testify if the court allows the similar acts evidence from the DeLaughter investigation; second, prosecutors filed a motion requesting an anonymous jury or alternatively a sequestered district-wide jury. Clarion-Ledger, Daily Journal, AP/ Sun-Herald.
The Wall Street Journal has reported (here) that Lott’s role is being investigated, but there is no official word. However, the Daily Journal story cites AUSA Tom Dawson as being unaware of any investigation of Lott but confirming that the DOJ is investigating the DeLaughter matter.
In the first day of the pre-trial motions hearings in the federal bribery trial of Dickie Scruggs, Zach Scruggs and Sidney Backstrom, US District Judge Neal Biggers on Wednesday denied defense motions to dismiss the indictments, ruling that the defendants played an active role in the case. The highlight of the hearing was testimony by cooperating witness Timothy Balducci, who has pleaded guilty. Balducci not only testified about his interaction with the defendants in connection with the attempted bribery of state Circuit Judge Henry Lackey, he also testified about his knowledge of Dickie Scruggs’ alleged similar acts in the Ed Peters/Bobby DeLaughter bribery case in which former Scruggs associate Joey Langston has pleaded guilty. In that exchange with Dickie Scruggs’ defense attorney John Keker, Balducci said he saw draft copies in Scruggs’ office of the order Judge DeLaughter later issued, and that Scruggs offered to use the influence of his brother-in-law, former US Sen. Trent Lott, to obtain consideration of a federal judgeship for DeLaughter.
The hearing continues today with consideration of the motions to sever the trials of Zach Scruggs and Sidney Backstrom and the change of venue motion; Judge Biggers asked for briefs from both sides before ruling on the motion to suppress wiretap evidence. The trial is scheduled to begin on March 31. Daily Journal here, Clarion-Ledger here.
In a hearing on Wednesday before US District Judge Naomi Reice Buchwald in
Manhattan, former Refco inc. CFO Robert Trosten pleaded guilty to charges of conspiracy, securities fraud, bank fraud, wire fraud and money laundering in connection with the October 2005 collapse of the company which caused investor and partner losses estimated at $2.4 billion. Trosten’s guilty plea follows the February 15, 2008 guilty plea of former Refco CEO Phillip Bennett (earlier); both had been scheduled for trial on March 17, 2008 along with the company’s former president Tone Grant. Trosten’s plea agreement calls for cooperation with prosecutors as well as asset forfeiture; he will apparently testify against Grant and against former outside counsel Joseph Collins, who has been charged with fraud and conspiracy in a separate but related case. Judge Buchwald scheduled Trosten’s sentencing for February 20, 2009. Bloomberg here, Reuters here.
Given his track record, it is unsurprising that Mississippi AG Jim Hood would try to spin State Farm’s victory into a defeat. First he sent a stooge going by the name “bellesouth” to troll blogs that had been critical of him, trying to claim that Hood had prevailed. Then on Monday in a Clarion-Ledger op-ed (here) Hood stated, “In fact, allegations lodged against me by this insurer were shown to be false when a federal judge recently threw out a lawsuit it had filed against my office;” and on Tuesday his media spokeswoman Jan Schaefer claimed in an emailed press release that “There is no ’settlement’” and repeated Hood’s outrageous claim that State Farm’s allegations were false. This despite the fact that US District Judge David Bramlette’s order clearly refers to a settlement, and equally important, that he dismissed the case after specifically ruling that the previous non-prosecution agreement between State Farm and Hood “is a standalone agreement, unambiguous and enforceable between the Mississippi Attorney General on behalf of the State of Mississippi and State Farm…” (Judge Bramlette’s Order) — which is exactly the ruling that State Farm sought and Hood opposed.
Late Tuesday, an attorney for State Farm — Sheila L. Birnbaum, a partner at Skadden, Arps, Slate, Meagher & Flom — sent an email to colleagues in response to Schaefer’s email, writing “This is so over the top. Can we ask that he be held in contempt of court for misrepresenting a settlement agreement and order of the court.” However, Ms. Birnbaum “accidentally” sent copies of the email to Schaefer and more than a dozen reporters who had received the original press release. Judge Bramlette declined immediate comment. Forbes/AP story here.
Hood also addressed the Clarion-Ledger editorial board (video, text published on Monday) and offered excuses for not prosecuting his cronies who are now under federal indictment or have pleaded guilty.
The federal government on Tuesday responded to defense pre-trial motions submitted on February 11 (here) in the bribery trial of Dickie Scruggs, Zach Scruggs and Sidney Backstrom. In support of its opposition to defense motions, prosecutors released three transcripts of conversations between the defendants and Timothy Balducci, who has pleaded guilty and had been wired by the FBI. Y’all Politics has links to the replies and transcripts here. US District Judge Neal Biggers will hold a hearing on the motions today; trial is scheduled for March 31. The Sun-Herald’s story is here.
Brent Wilkes, owner and founder of defense contractor ADCS Inc., was sentenced on Tuesday to 12 years in prison by US District Judge Larry A. Burns in San Diego. Wilkes was convicted by jury trial in November, 2007 on 13 counts including conspiracy, bribery, money laundering and wire fraud in connection with the Duke Cunningham bribery scandal. The sentence was far less than the 25 years sought by prosecutors and the 60 year sentence recommended by the federal probation office, but Judge Burns specifically rejected the government’s assertion that Wilkes was the mastermind of the bribery scheme. Wilkes maintained his innocence and refused to admit any wrongdoing at the hearing; his attorneys had sought a sentence no longer than the 8 year, 4 month sentence that Cunningham is currently serving. In a related case, Judge Burns approved an agreement to drop conspiracy, wire fraud and money laundering charges against Wilkes in the corruption case of former CIA official Dusty Foggo, and to move the prosecution of Foggo on the same counts to US District Court in Alexandria, Virginia. San Diego Union-Tribune here, AP here.
Isidro Garza, Jr., the former manager of the Kickapoo Traditional Tribe of Texas, was sentenced last week to 235 months in prison by US District Judge Walter Smith in Waco for his role in the embezzlement of over $2 million from tribal funds, including over $1.7 million from tribal community health services and more than $200,000 from the tribal casino. Also sentenced were his son, former state Rep. Timoteo Garza, who received a 78 month prison sentence; his wife Martha Garza, sentenced to 24 months in prison; and former tribal casino manager Lee Martin, sentenced to 60 moths in prison. All four are non-Indians. In October 2007 they were convicted after a jury trial on multiple counts of substantive theft from an Indian gaming establishment and other charges including conspiracy and tax evasion. AP here, San Antonio Express-News here.
Althea Jackson and her husband James Jackson soon will no longer be free to move about the country. The Jacksons pleaded guilty to wire fraud last Tuesday in US District Court in San Antonio in connection with the theft and resale of more than 5,600 ticket vouchers from Southwest Airlines. Althea Jackson, formerly an administrative aide at Southwest Airlines’ Dallas headquarters, admitted taking the “Non Revenue Must Ride” ticket vouchers over a three year period. The vouchers are normally reserved for inconvenienced passengers, but James Jackson resold them for far less than market value, mainly in the San Antonio area. The loss to Southwest was estimated by prosecutors to be at least $1.8 million.
The unusual aspect of this case is that James Jackson was a bailiff for Bexar County Court-at-Law Judge Monica Guerrero in San Antonio, and many of the stolen ticket vouchers wound up in the hands of several Bexar County public officials including Judge Guerrero and District Attorney Susan Reed and their staffs, as well as some local attorneys.
Sentencing is scheduled for May 8, 2008. The Jacksons are expected to serve 24 to 30 months in prison under the plea agreement. The San Antonio Express-News has the story here and further details of county employees’ involvement here.
Former Refco Inc. Chairman and CEO Phillip Bennett pled guilty on Friday, before US District Judge Naomi Reice Buchwald in Manhattan, to all 20 counts on which he had been indicted, including conspiracy, wire fraud, bank fraud, money laundering and making false SEC filings. The charges carry a possible maximum of 315 years in prison. Refco, at one time the largest futures broker on the Chicago Mercantile Exchange, collapsed into bankruptcy in October 2005, just two months after its IPO. Auditors discovered $430 million in losses from the mid 1990s onward; Bennett allegedly concealed the losses from his auditors, investors and Thomas H. Lee Partners, which had purchased a majority interest in Refco in August 2004; the losses were assumed by a company Bennett controlled, in an elaborate transfer scheme. Investors purportedly lost $2.4 billion in the collapse.
Bennett’s guilty plea follows the guilty plea by Santo Maggio, the former CEO of Refco’s offshore unit; Maggio pled guilty to fraud and conspiracy on December 19, 2007 and agreed to cooperate with prosecutors. Judge Buchwald set Bennett’s sentencing for May 20,2008. Bennett had been scheduled to go to trial on March 17, 2008 along with company’s former president Tone Grant and former CFO Robert Trosten; both have pleaded not guilty and maintain their innocence. Bloomberg here, AP here.
A US District Court jury in Atlanta on Monday convicted four defendants on charges of conspiracy to commit mortgage fraud and wire fraud, arising from a scheme whereby they obtained $6 million in fraudulent mortgage loans from SunTrust Mortgage over a ten-week period in 2006. Convicted were Keith Garner, his daughter Latesha Garner, Gregg Savage and Shalonda Harris. A fifth defendant, Susan Khodadad, had previously pleaded guilty to one conspiracy count and testified against her co-defendants. Latesha Garner was a loan processor with SunTrust Mortgage and was responsible for verifying borrower employment and asset information and approving closing documentation. According to evidence presented at trial, Keith Garner recruited his daughter and paid her to handle fraudulent loan applications submitted on behalf of straw borrowers he recruited with Savage and Harris to buy houses in high end Atlanta area subdivisions. Savage was the seller of some of the properties and Harris was a realtor who located straw buyers. Khodadad was a closing paralegal working with several Atlanta realtors and worked to include payoffs out of the loan proceeds to the co-conspirators from the spread between the market value and the inflated appraisal value. Each defendant faces up to 20 years on the conspiracy count and up to 20 years on each wire fraud count. A sentencing date has not been set. Atlanta Business Chronicle here, DOJ here.
A US District court jury in Tampa on Monday convicted former Bartow, Florida auto dealer John Giovanetti on 11 counts of wire fraud, 11 counts of bank fraud and one count of conspiracy in connection with $2.5 million in car loan proceeds obtained fraudulently from SunTrust Bank. Giovanetti formerly owned Big Oaks Pontiac Buick GMC in Bartow. Evidence presented at trial showed that on at least 11 different occasions, he had employees fax loan funding requests to SunTrust Bank for cars no longer in his dealership’s possession, “resulting in the unlawful receipt by Big Oaks of over $2.5 million.” Giovanetti faces up to 30 years on each wire fraud and bank fraud count and up to 5 years on the conspiracy count. Sentencing is scheduled for May 12, 2008 before U.S. District Judge James Whittemore. Tampa Bay Business Journal here, DOJ here.
Former Fairbanks, Alaska Mayor Jim Hayes was convicted on Monday by a federal trial jury on 16 counts including conspiracy, theft, fraud, misapplication of federal funds, money laundering and tax fraud.; he was acquitted on four counts and the jury was hung on seven more counts. Hayes had been charged with embezzling over $450,000 in funds from the LOVE Social Services tutoring and mentoring center, a nonprofit whose executive director was his wife Murilda “Chris“ Hayes. The funds were used for personal items and to finish construction of the church where he is pastor. The nonprofit agency exists only because it was founded and funded with five earmark grants totaling about $2.9 million directed to it by prince of pork US Senator Ted Stevens. Jim Hayes’ sentencing has been scheduled for May 2 by US District Court Judge Ralph Beistline. Chris Hayes was also indicted; she pleaded guilty in December to illegally diverting federal funds and money laundering and awaits sentencing. AP story here; the Alaska Report story here has more about the relationship between Stevens and the Hayes family.
US District Judge Vanessa Gilmore on January 31, 2007 dismissed the five-count conviction of former Enron Broadband CFO Kevin Howard (Houston Chronicle story here) after a ruling by the US Circuit Court of Appeals for the Fifth Circuit, in a separate Enron case, that the government’s “honest services fraud” theory was improper. Prosecutors had conceded that four of the counts of conviction should be vacated but appealed the dismissal of the fifth. Now in a decision filed on Tuesday, the Fifth Circuit has rejected the DOJ appeal (Howard Decision). Prosecutors have not indicated if they will seek to retry Howard (h/t Houston’s Clear Thinkers).
Brent Crosson of Salem, Oregon, a former accountant with the Oregon Department of Education, has been charged by federal prosecutors with diverting $925,000 in federal education funds from the state to the accounts of an online guns and ammunition dealership he had started, and then to his personal accounts. The missing funds were federal grants for charter schools, anti-drug programs and health programs. The alleged transfers took place between June 2006 and June 2007; $750,000 has been recovered. The US Attorney charged him by filing an information rather than seeking an indictment, an indication that a plea agreement will follow. AP here, Oregonian here.
US District Judge Neal Biggers on Tuesday set a deadline of February 19 for prosecutors to respond to defense pre-trial motions (earlier) in the bribery trial of Dickie Scruggs, Zach Scruggs and Sidney Backstrom. He set the motions hearing for February 20 (Daily Journal). The trial is scheduled to begin March 31.
Tax accountant Kalil Khalil of Dearborn Heights, Michigan was sentenced to 60 months in prison on Thursday by US District Judge David Lawson in Detroit. Khalil had pleaded guilty in May 2007 to one count of wire fraud for his part in a mortgage fraud scheme he operated with co-defendant Tariq Hamad which caused lenders to suffer $21 million in losses from 2001 to 2003. He admitted preparing fraudulent loan applications and loan documents with fake borrowers, fake employment histories and forged or inflated appraisals, and not using loan proceeds for their intended purposes. Hamad was sentenced in September 2007 to nine years in prison; Khalil’s sentence was reduced for cooperation. The Detroit Free Press story is here.
Attorneys for Sidney Backstrom and Zach Scruggs on Monday filed motions to sever their bribery trials from that of co-defendant Dickie Scruggs (Zach’s father). The motions were based in part on claims that they had no part in alleged similar prior acts by Dickie Scruggs (earlier here and here). Y’all Politics has all the Monday deadline motions here. A joint trial is currently scheduled to begin on March 31 before US District Judge Neal Biggers in Oxford. Biggers had previously set aside two weeks after Monday’s deadline for any necessary hearings on the filed motions.
A Forbes/AFX story here about a Friday hearing in the Alabama US v. Scruggs contempt of court proceeding contains this intriguing sentence: “Special prosecutors said the contempt case in Alabama could be resolved in any possible plea deal in the bribery and conspiracy case in Mississippi, but there has been no word of an agreement.” This is the first public indication that talks may be underway.
In other Scruggs-related news:
- Roger Parloff at Fortune looks at the State Farm v. Hood hearing last Wednesday and compares Mississippi AG Jim Hood with Roberto (no más) Duran.
- NMC at folo has a nice summary of all the Scruggs cases.
- Today is the deadline for pre-trial motions in US v. Scruggs Mississippi bribery trial (Daily Journal).
- The Mississippi Commission on Judicial Performance has ordered a full investigation of Hinds County Circuit Judge Bobby DeLaughter’s actions in Wilson v. Scruggs (Clarion-Ledger).
Two brothers from the Vineland, New Jersey area were sentenced to prison on Friday by US District Judge Freda Wolfson in Trenton for submitting $5.5 million in false claims to Medicaid for medical services never rendered at their two adult day care centers. Ernest Galletta, vice president of Horizon National Healthcare LLC, was sentenced to 55 months in prison. His brother George Galletta, the owner of Horizon, was sentenced to six months in prison and six months home confinement; he received a lesser sentence because his brother had hidden the fraud from him for more than two years. They had each pleaded guilty on November 2, 2007 to single count informations of conspiracy to commit healthcare fraud. AP here, DOJ Press Release (.pdf) here.
A federal jury in Houston on Thursday convicted three former natural gas traders from Houston-based El Paso Corporation on one count each of conspiracy and multiple counts of false reporting and wire fraud. The charges arose from the reporting of non-existent natural gas trades sent to industry publications Inside FERC and Natural Gas Intelligence from 2000 to 2002 for the alleged purpose of influencing natural gas prices in El Paso’s favor. James Brooks, former head of gas trading at El Paso and managing director of a wholly owned subsidiary, was convicted on 45 total counts; gas trader Wesley C. Walton was convicted on 23 counts; and gas trader James Patrick Phillips was convicted on 21 counts. US District Judge Melinda Harmon has scheduled sentencing for May 23, 2008; each count carries a possible five year sentence. Houston Chronicle here; AP here.
Here is the full transcript of the State Farm v. Hood hearing which began Wednesday and concluded with the Thursday morning settlement and dismissal announcement.
UPDATE/COMMENT: Even considering AG Hood’s evasiveness, his collusion with Dickie Scruggs and associates is written all over this transcript. Also, note the questions and answers on pages 157-159 of the transcript (pages 40 and 41 of the .pdf) concerning a particular dinner meeting alleged to have taken place in Jackson between Hood, Scruggs, Timothy Balducci and Steve Patterson. While Hood denied anything improper happened, State Farm must have had some very specific inside information to even pose the question.
A settlement has been reached in State Farm v. Hood which puts and end to Mississippi AG Jim Hood’s attempt to criminally prosecute State Farm to extort a civil settlement in Katrina cases for the benefit of his tag-team partner Dickie Scruggs. In Natchez today, US District Judge David Bramlette ruled that the January 23, 2007 agreement between State Farm and Hood is “a standalone agreement, unambiguous and enforceable”; that under a settlement agreement to remain under seal, the current case is dismissed with prejudice; and that the court will retain jurisdiction to enforce the settlement (Judge Bramlette’s Order). The referenced January 2007 agreement ended Hood’s original criminal investigation of State Farm in exchange for a civil settlement which benefited Scruggs and his partners as well as Hood’s office.
From David Rossmiller’s report on yesterday’s appearance by Hood, the AG seems to have taken a beating on the stand. He faced the prospect of testimony today by his associate Courtney Schloemer, who has already publicly admitted collusion between the AG’s office and Dickie Scruggs, plus the possibility that Scruggs’ deposition would become public. However he spins it, it’s no wonder he settled.
Best observation of the day, from a commenter at folo: “If you do DNA from the fleas on Scruggs and Hood it would be 100% match.”
Negotiations following the first day of testimony in the State Farm v. Hood hearing before US District Judge David Bramlette in Natchez may have resulted in a settlement. AP and the Sun Herald report Mississippi AG Jim Hood as saying the dispute has been settled and a resolution will be announced Thursday when the parties return to court. State Farm spokesman called Hood’s announcement premature. An earlier Forbes/AFX News story here described Wednesday’s proceedings.
Stay tuned.
ChemNutra Inc., the American importer of melamine-tainted wheat gluten from China that made its way into many dog and cat foods last year, its owners Sally Qing Miller and Stephen S. Miller on Wednesday were indicted on 13 counts of introduction of adulterated food into interstate commerce, 13 counts of introduction of misbranded food into interstate commerce and one count of conspiracy to commit wire fraud. The Millers are alleged to have known of the contamination and concealed it from their customers. In a related case, the Chinese producer and the Chinese export brokerage company and their top executives were indicted on 13 counts of introduction of adulterated food into interstate commerce and 13 counts of introduction of misbranded food into interstate commerce. The charges were announced by the US Attorney’s Office in Kansas City, Missouri, where ChemNutra and the Millers took delivery of the product. AP here, DOJ Press Release here.
Larry Stallings of Watauga, Texas was sentenced to 160 months in prison in US District Court in Concord, New Hampshire on Monday. On June 28, 2007, a jury convicted Stallings on two counts of wire fraud and one count of conspiracy in connection with an advance fee fraud; Stallings and other defendants represented themselves as brokers for subprime mortgages and required a 10% advance fee; prosecutors said they collected over $2 million in advance payments, most of which was spent on living expenses. Two other convicted defendants are awaiting sentencing, including Stallings’ son Christopher Stallings, whose sentencing hearing is scheduled for February 21, 2008. AP here, DOJ Press Release here.
In Manhattan on Monday, a federal jury convicted former Credit Suisse banker Hafiz Muhammad Zubair Naseem on one count of conspiracy and 28 counts of insider trading for tipping off a colleague in Pakistan who traded on inside information of upcoming mergers, resulting in a gain of $7.5 million. The colleague, Ajaz Rahim, was the chief investment banker at Faysal Bank in Karachi; Rahim is fighting extradition from Pakistan. Naseem was deemed a flight risk and taken into immediate custody pending sentencing. US District Judge Robert Patterson scheduled sentencing for April 7; Naseem faces up to five years in prison on the conspiracy count and up to 20 years in prison on each insider trading count, but prosecutors indicated that sentencing guidelines called for 12 to 15 years total. NYT here, Yahoo/AP here.
Former Wal-Mart COO Tom Coughlin was sentenced on Friday to 27 months home confinement, 60 months probation and 1500 hours of community service by US District Judge Robert Dawson in Fort Smith, Arkansas. The addition of the community service hours was the only change from the sentence originally handed down by Judge Dawson in 2006. Coughlin had pleaded guilty in January 2006 to wire fraud and tax evasion in connection with the theft of gift cards and equipment from Wal-Mart, resulting in a loss of about $500,000. Prosecutors objected to the absence of prison time and appealed the sentence to the Eighth US Circuit Court of Appeals. Last year the Eighth Court agreed and sent the case back for resentencing, but Judge Dawson again declined to send Coughlin to prison. Prosecutors have not yet decided whether to appeal the sentence again. The International Herald Tribune/AP story is here.
Sometimes, spamming scammers are brought to justice: Two Nigerian nationals and a Senegalese national, each with a variety of aliases, pleaded guilty to charges of conspiracy, mail fraud and multiple charges of wire fraud last Wednesday before US Magistrate Judge Roland Reyes Jr. in Brooklyn. Each wire and mail fraud count carries a maximum 20 year sentence; the conspiracy charges each carry a 5 year maximum sentence. The case was originally investigated by Dutch authorities; the three were arrested in Amsterdam in 2006 and extradited. A fourth defendant fled to Nigeria and is being held pending extradition.
The charges arose from an advance fee fraud scheme (419 scam) operated by the defendants: the all-too-familiar spam emails in which the writer claims to control millions of dollars overseas and the recipient is offered a commission for his help in gaining control of the funds; one of the scenarios in this case involved a throat cancer sufferer who wished to distribute $55 million to charity. The suckers victims in these schemes lost approximately $1.2 million in wire transfer payments to the defendants for advance fees. The DOJ Press release is here.
In a calculated move that has backfired, Dickie Scruggs failed to appear for his scheduled Monday morning deposition in State Farm v. Hood. As a result, shortly after noon on Monday US District Judge Michael Mills ordered the deposition of Scruggs to begin immediately and to continue until its natural completion, with a deadline extended to 5:00 PM Tuesday. Judge Mills blamed the delays on Scruggs and stated, “Any future non-compliance with this court’s orders relating to Scruggs’s deposition will be dealt with as contempt” (Judge Mills’ 2/4 Order).
Other State Farm v. Hood developments:
- Alan Lange looks at the Scruggs-to-Hood money trail (Y’all Politics)
- NMC analyzes a new pleading by State Farm (folo)
The trial of five former executives of National Century Financial Enterprises is scheduled to begin today in Columbus, Ohio before US District Judge Algenon Marbley. Co-founders Rebecca Parrett and Donald Ayers and former executives Randolph Speer, Roger Faulkenberry and James Dierker face multiple charges of conspiracy, wire fraud, securities fraud and money laundering. The privately held National Century was once the largest source of health care provider financing in the US. It collapsed six years ago and investors, including institutions and government bodies, lost $1.9 billion in what prosecutors allege was a massive and complex fraud scheme. Four former employees who have pleaded guilty are expected to testify. Former CEO and co-founder Lance Poulsen is scheduled for trial on August 4, 2008 but he first faces a March 7 trial for witness tampering. The Columbus Dispatch story is here; AP here.
The deposition of Dickie Scruggs in State Farm v. Hood will begin Monday at 8:00 AM; State Farm files a transcript of Friday’s hearing (Y’all Politics). The hearing on State Farm’s TRO against Mississippi AG Jim Hood will be held February 6 before US District Judge David Bramlette in the Southern District of Mississippi, where the case is filed.
Kerri Rigsby’s deposition in McIntosh v. State Farm is covered by WLBT in Jackson’s investigative team (video and text).
Not even with a ten foot pole: USA Dunn Lampton (Southern District of Mississippi) on Thursday informed US Magistrate Judge Robert Walker that the government will not intervene at present in the Ex rel. Rigsby “whistleblower” lawsuit filed by Scruggs (AP/CNNMoney, Rossmiller).
In the US v. Scruggs case in the Northern District of Alabama, Scruggs is fighting a contempt charge for defying a December 2006 court order by US District Judge William Acker in Renfroe v. Rigsby to return the files taken by the Rigsby sisters. On Friday prosecutors responded to Scruggs’ “motion to quash disguised as a motion to strike” a request for subpoenas (2/1 US Response) , while Scruggs’ attorneys requested an evidentiary hearing on an alleged “defect in instituting the prosecution” (Legal Newsline).
Judge Bobby DeLaughter will appear before a federal grand jury in Jackson this week (Clarion-Ledger).
Actor Wesley Snipes on Friday was convicted on three misdemeanor counts of failure to file federal income tax returns for 1999-2001 but was acquitted on the two felony counts he faced– one count of conspiracy to defraud and one count of making a fraudulent claim of payment — and three misdemeanor failure to file counts for 2002-2004. His co-defendants Douglas Rosile and Eddie Ray Kahn faced the same felony counts as Snipes; both were found guilty. US District Judge William Terrell Hodges ordered a pre-sentencing investigation and lowered Snipes’ bail from $1 million to $250,000. Snipes could receive up to one year in prison for each of the three misdemeanor counts and he faces a $17 million back tax bill; Rosile and Kahn each face up to 16 years in prison. The Ocala Star-Banner story is here.
In the latest State Farm v. Hood action, on Wednesday afternoon State Farm filed an emergency motion in the Northern District of Mississippi to compel Dickie Scruggs to appear for a deposition which was scheduled for Friday at 9:00 AM. On Thursday morning Scruggs filed an emergency motion to quash. Late Thursday US District Judge Michael Mills consolidated the motions, postponed the deposition pending a hearing, and set the hearing for 2:00 PM Friday. Judge Mills’ order is here (h/t Y’all Politics).
Jurors in the federal tax fraud trial of actor Wesley Snipes and two co-defendants (earlier) completed a second full day of deliberations on Thursday without reaching a verdict. Jurors asked US District Judge William Terrell Hodges to clarify the meaning of the word conspiracy; in response, Hodges referred them again to the jury instructions. Also on Thursday, the insurance company responsible for Snipes’ $1 million bond moved to be released from its obligation if Snipes is convicted, claiming that Snipes does not recognize the court’s jurisdiction and is likely to flee. Judge Hodges denied the motion on procedural grounds. Rick Cundiff’s Ocala Star-Banner story is here.
Daniel Marino, former CFO of now-defunct hedge fund Bayou Group LLC, was sentenced on Tuesday to 20 years in prison by US District Judge Colleen McMahon in Manhattan. Marino and Bayou Group founder Samuel Israel III had pleaded guilty to conspiracy, wire fraud and investment advisor fraud in September 2005, about a month after the firm collapsed; prosecutors said investors were defrauded of more than $400 million. Marino was ordered to prison immediately; Israel is still awaiting sentencing. Financial Times has the story here.
US District Judge Neal Biggers on Wednesday denied Dickie Scruggs’ motion to reconsider allowing him to add attorney Kenneth Coghlan to his legal team (earlier). Judge Biggers’ order, linked here (in .pdf) by the Daily Journal, also clarified which ”previous bad acts” the federal prosecutors will move to admit in US v. Scruggs:
“…[Joey] Langston pleaded guilty to another charge of judicial bribery and agreed to testify in the present case against defendant Richard Scruggs about Langston’s knowledge of alleged prior similar bad acts by Scruggs as provided for by Rule 404(b) of the Federal Rules of Evidence.”
Although US Magistrate Judge Michael T. Parker’s order of January 24 clearly granted State Farm’s motion to take a deposition from Dickie Scruggs in State Farm v. Hood (earlier), a bench memorandum submitted on Wednesday by State Farm indicates that Hood is running interference for Scruggs and is attempting to sabotage the deposition. John O’Brien’s Legal Newsline story is here.
Charles Nolon Bush, a former Port Orchard, Washington resident who fled to France and then Poland after his investment business collapsed in 2002, was ordered detained on Monday in US District Court in Tacoma; he was indicted by a federal grand jury in Seattle in August 2006 on 32 counts including securities fraud, wire fraud, mail fraud and money laundering. He is alleged to have fraudulently taken $30 million in investor funds in a Ponzi scheme. Bush was arrested in Warsaw in August 2007; he fought extradition but was returned to the US earlier this month. The DOJ press release is here.
In the aftermath of public revelation that former Hinds County DA Ed Peters was advising a plaintiff behind the scenes in a case before Judge Bobby DeLaughter and that a special master had been removed by DeLaughter after Peters became involved (here), the replacement special master in that case (Eaton v. Frisby et al) has resigned. Jackson attorney Larry Latham, who had replaced Jack Dunbar, on Monday told Circuit Judge Swan Yerger that Peters had spoken with him about the appointment and that it was necessary for him to resign to avoid any appearance of impropriety. Peters and DeLaughter have not been charged. Patsy Brumfield’s Daily Journal story is here.
UPDATE: Jerry Mitchell’s Clarion-Ledger story here has more details: that Latham says he was unaware that Dunbar was serving as special master, that Peters’ call to him came four days before DeLaughter removed Dunbar, and that Peters asked him not to bring up his name. Mitchell also reports:
“In a motion filed Tuesday to protect potential evidence, Frisby’s attorneys said it’s obvious Peters and DeLaughter communicated privately because Peters knew about the plan to replace Dunbar – something they said Dunbar himself didn’t know.”
US Office of Special Counsel head Scott Bloch last week sent a letter to Attorney General Michael Mukasey complaining that the DOJ is impeding his office’s investigation into the firings of eight US Attorneys. The independent agency headed by Bloch has the responsibility of enforcing protection of federal civil service employees from politicization. Bloch claims that he has repeatedly been refused access to documents and other evidence and that DOJ officials want him to delay his investigation until their own internal investigation is finished — which Bloch said could push his time frame to the end of the administration “when there is little hope of any corrective measures or discipline possible.” Richard Schmitt and Tom Hamburger’s LA Times story is here; AP here.
In court documents filed late Monday in US District Court in Los Angeles, prosecutors recommended that former Milberg Weiss senior partner William Lerach serve two years in prison. Lerach pleaded guilty on October 29, 2007 to one count of conspiracy to obstruct justice in connection with the firm’s hidden payments to repeat plaintiffs in class action lawsuits. However, the the pre-sentencing report filed by the probation office recommended a sentence of 15 months. Lerach’s guilty plea called for a prison term of one to two years. Sentencing is scheduled for February 11, 2008 before US District Judge John Walter. On Tuesday, Judge Walter sentenced former Milberg client Seymour Lazar to six months home confinement. Lazar, an 80-year-old retired attorney who was the recipient of $2.6 million in secret payments from the firm, had pleaded guilty in October to obstruction of justice, subscribing to a false tax return and making a false declaration to the court. The Houston Chronicle has the Bloomberg News story here.
Prosecutors in US v. Scruggs et al on Monday filed notice that they “will seek to introduce similar acts evidence pursuant to Rule 404(b), Fed. R. Evid., at the trial of the above-captioned case”. Patsy Brumfield’s preliminary story in the Daily Journal is here. The question, of course, is which similar acts; it could be the Langston case now unfolding, or others yet unknown.
Meanwhile, Scruggs seems intent on creating a possible appeal issue. On January 17, US District Judge Neal Biggers denied in no uncertain terms Scruggs’ motion to add attorney Kenneth Coghlan to his legal team. Reason: Coghlan had briefly represented Scruggs’ co-defendant Steve Patterson early in the case; Patterson has now pleaded guilty and is cooperating with prosecutors. But on Friday January 25, Scruggs’ lead attorney John Keker filed a motion to reconsider which announces Scruggs’ intent to consult Coghlan on non-evidentiary issues if the motion is denied. Alyssa Schnugg’s Oxford Eagle story is here.
After the prosecution rested on Friday in the federal tax fraud trial of actor Wesley Snipes and two co-defendants (earlier), Snipes’ lead attorney Robert Bernhoft promised a parade of celebrity witnesses and hinted that Snipes would take the stand in his own defense. But on Monday the defense rested without calling a single witness, asserting that the government had failed to meet its burden of proof. Bernhoft moved for a directed verdict of not guilty, which US District Judge William Terrell Hodges denied. Closing arguments are scheduled for Tuesday morning. AP/Yahoo here, Ocala Star-Banner here.
In his guilty plea, Joey Langston admitted bribing a “close personal friend” of state Circuit Judge Bobby DeLaughter in order to influence the judge to resolve a case in favor of Dickie Scruggs; the friend has been widely identified as former Hinds County District Attorney Ed Peters (earlier). Undoubtedly as a result of the publicity, defense attorneys for Jeffrey Frisby in another case being heard by Delaughter (Eaton Corp. v. Jeffrey D. Frisby et al) have filed motions asking for an impartial review of DeLaughter’s decisions in that case after learning from “accidental e-mails” that Ed Peters has been advising Eaton behind the scenes even though he is not the attorney of record. The Frisby motions also claim that DeLaughter removed a special master from the case after Peters became involved because his rulings had been unfavorable to Eaton. Bobby Harrison’s Daily Journal story is here.
Jerry Mitchell’s Clarion-Ledger story today indicates that this case and others are now part of an expanded FBI investigation.
Laura I. Flores of Arlington, Virginia, a former office manager for three House Democrats, pleaded guilty on Friday to a single count of wire fraud in US District Court in Alexandria. Flores admitted receiving approximately $200,000 from false expense vouchers she submitted during 2005 and 2006. The vouchers were paid from funds allocated to the three House members to be used for operational expenses; Flores had the funds diverted to her personal bank account. Sentencing is scheduled for May 2, 2008; the DOJ press release is here. A Washington Post story here identifies the three Representatives as Jane Harman, Neil Abercrombie and Jim Costa.
- Schering-Plough President Carrie Smith Cox’s large stock sale prior to the public release of the Vytorin clinical trial results has now come to the attention of the Congressional committee already investigating the Vytorin ad campaign. (Junkfood Science; earlier)
- Tom Kirkendall discusses the Enron Task Force’s continued refusal to turn over potentially exculpatory evidence, especially regarding Andrew Fastow. (Houston’s Clear Thinkers)
- Is the DOJ’s prosecution of Geoffrey Fieger a political vendetta? (Scott Horton in Harper’s)
In Hattiesburg on Thursday, US Magistrate Judge Michael T. Parker ordered Mississippi Attorney General Jim Hood to appear and testify at a reconvened hearing to be held in State Farm’s lawsuit against him. Parker also granted State Farm’s motion to take a deposition from Dickie Scruggs. US District Judge David Bramlette has yet to set a date for the hearing. Anita Lee has the (Biloxi/Gulfport) Sun-Herald story here.
Hood allowed Scruggs and his associates to use the threat of criminal prosecution to extort a civil settlement from State Farm in Hurricane Katrina class action litigation. As part of the settlement Hood agreed not to pursue further criminal investigation; when he announced last September that he was reopening his investigation, State Farm filed suit and obtained a restraining order. Hood backed out of testifying at a prior hearing and agreed to stop, only to announce resumption of his quest earlier this week. With this order we are now one step closer to discovering the full extent of the Hood/Scruggs “cooperation.” More background: In a post from Tuesday, Alan Lange of Y’all Politics takes a look at patterns.
Arthur Vanmoor: Mensa member, inventor and patent holder; notorious “Big Pimpin’ Pappy” of the escort service business in Broward County, Florida until he was convicted on state racketeering and prostitution charges (2004 story here). Now Vanmoor has been convicted by jury trial on 19 federal counts including mail fraud, wire fraud, Food Drug & Cosmetic Act violations and conspiracy; the March 2005 indictments arose from his operation of websites offering fake cures for cancer, migraine, flu and other diseases or conditions. Vanmoor’s websites falsely claimed to be selling FDA approved drugs and contained fake articles written by fake doctors; evidence at the trial showed that Vanmoor continued to operate the websites in violation of a December 2005 restraining order. Sentencing has not been scheduled; the DOJ Press Release is here.
In Houston on Wednesday US District Judge Ewing Werlein delayed the Enron-related conspiracy and wire fraud retrial of former Merrill Lynch executives Daniel Bayly and Robert S. Furst. The trial was scheduled to start next week but Werlein granted the delay because Bayly, Furst and James A. Brown (who is scheduled for a separate retrial) have filed an appeal with the Fifth US Circuit Court of Appeals in New Orleans asking the court to overturn Werlein’s earlier ruling not to dismiss all charges. The three were convicted in 2004 in the Enron Nigerian Barge case but the Fifth Court reversed the convictions in 2006, rejecting the government’s “honest services fraud” theory. The Yahoo/AP story is here.
Former Illinois Governor George Ryan, Sr. on Wednesday petitioned the US Supreme Court to reverse the Seventh Circuit’s affirmance of his fraud and racketeering convictions. The 37-page petition for certiorari focused primarily on juror misconduct and other jury issues including the replacement of two jurors 8 days into deliberations. The AP story is here. Ryan was convicted in April 2006 on 18 counts for steering state business to associates in exchange for bribes, obstructing anti-corruption efforts to in order to protect his fundraising and misusing state resources for political gain. He is currently serving a 78 month prison sentence. In August 2007 a sharply divided panel of the Seventh US Circuit Court of Appeals rejected his appeal.
According to court records made public on Monday, the pre-sentencing report filed by federal probation officials in the case of Brent Wilkes recommends that Wilkes be sentenced to 60 years in prison. Wilkes, the owner and founder of defense contractor ADCS Inc, was convicted by jury trial in November by on 13 counts including conspiracy, bribery, money laundering and wire fraud in connection with the Duke Cunningham bribery scandal. Cunningham is serving a 100 month sentence. Prosecutors have not yet commented on the recommendation; Wilkes’ attorney Mark Geragos claimed that probation officials were attributing all the firm’s federal contract work to criminal behavior and called the recommendation “essentially a life sentence” for Wilkes, who is 53. Sentencing is now scheduled for February 19 before US District Judge Larry Burns in San Diego. The San Diego Union-Tribune story is here.
The First US Circuit Court of Appeals on Friday overturned the convictions of Robert A. Urciuoli, former president and CEO of Roger Williams Medical Center in Providence, Rhode Island, and former hospital vice president Frances Driscoll. The two were convicted of honest services mail fraud in October 2006 in connection with allegedly hiring (now former) state Sen. John Celona to improperly influence legislation. The court found that US District Judge Ernest Torres erred in his jury instructions by allowing the jury to consider conduct which might not constitute a federal crime. Celona, who pleaded guilty to three counts of mail fraud and received a 30 month federal prison sentence last year, had testified for the prosecution; the hospital avoided prosecution by agreeing to oversight.
On Tuesday in Providence, USA Robert Clark Corrente announced that his office will retry Urciuoli and Driscoll “as soon as the court can accommodate us.” The Providence Business News stories are here and here.
Attorney Robert Arledge of Vicksburg, Mississippi on Thursday was sentenced to 78 months in prison and ordered to pay $5.8 million in restitution by US District Judge David Bramlette in Jackson. Arledge was convicted by jury trial in October on 7 counts including conspiracy, wire fraud and mail fraud in a scheme to defraud Wyeth Pharmaceutical by knowingly allowing clients to submit false Fen-Phen claims for $250,000 each to a settlement fund. More than 20 claimants were charged in the scheme; most have been sentenced. WAPT has the AP story here.
Former Brocade Communications Systems CEO Gregory Reyes was sentenced on Wednesday to 21 months in prison and fined $15 million by US District Judge Charles Breyer in San Francisco. Reyes was convicted in August 2007 after an 8-week jury trial on ten counts including conspiracy, securities fraud, lying to accountants and falsifying books and records in connection with the backdating of options grants to Brocade employees. Reyes will be allowed to remain free on appeal; the San Francisco Chronicle has the story here.
A federal grand jury in Oklahoma’s Eastern District on Friday indicted Oklahoma State Auditor and Inspector Jeff McMahan and his wife Lori McMahan on nine counts including conspiracy, honest services mail fraud and Travel Act violations to promote state bribery. McMahan, a Democrat, is accused of accepting bribes and gratuities in exchange for favorable treatment of an unindicted co-conspirator and his business interests. That person is said to be Kiowa businessman Steve Phipps, who has been cooperating with prosecutors. The Oklahoman has the story here.
Former Goldman Sachs trader David Pajcin, one of the principals in a wide-ranging $6.7 million insider trading and securities fraud scheme, was sentenced on Friday to time served by US District Judge Victor Marrero in Manhattan. Pacjin had been in prison since early 2006. He had cooperated with prosecutors and his testimony led to subsequent guilty pleas from the other participants. Yahoo News has the NY Times story here. Eugene Plotkin, a former Goldman Sachs research associate, was sentenced to 57 months in prison earlier this month (Yahoo/Reuters story here). Defendants Stanislaw Shpigelman and Jason Smith are serving prison sentences of 37 and 33 months respectively and two more defendants are awaiting sentencing.
US Rep. William Jefferson (D-La.) on Thursday testified under oath for the first time since being indicted on corruption charges in 2005. The testimony came at a hearing before US District Judge T.S. Ellis III in Alexandria. Jefferson’s attorneys are seeking to suppress his statements to FBI agents during the August 2005 search of his Washington home, as well as all documents seized during the search. Jefferson claimed that his treatment by FBI agents was so hostile that he assumed he was going to be arrested and his lawyers argued that he should have been read his Miranda rights, but under cross examination he admitted that he spoke to the agents voluntarily.
Ellis did not rule on the motions immediately; Jefferson’s trial is scheduled to begin on February 25. He faces 16 counts including bribery, racketeering, money laundering and obstruction of justice. The AP story is here.
A Sunday New York Times story here examines the Scruggs cases to date and provides some background on political operative and Scruggs associate P. L. Blake.
A Wednesday story and video at News 3 Memphis provides a quick overview of the developing situation. Scruggsiana: Greatest Hits posted yesterday at folo goes into more detail. David Rossmiller at Insurance Coverage Blog was following Scruggs’ antics in the State Farm/Katrina litigation well before the indictments and has continued to report events even as the indictments and guilty pleas move beyond insurance cases. Still, what’s happened to date may just be the beginning.
Former Homestore Inc. CEO Stuart Wolff’s fraud conviction was overturned on Monday by the Ninth US Circuit Court of Appeals in San Francisco. A three-judge panel of the court agreed with Wolff’s contention that US District Judge Percy Anderson should have recused himself because his ownership of AOL stock gave him a “financial interest in the subject matter in controversy;” AOL was a party to the alleged offenses.
Wolff was convicted on 18 felony counts involving an alleged scheme to inflate the company’s revenue by $67 million in a series of sham three-way transactions. He was sentenced in October 2006 to 15 years in prison, fines and restitution. The appellate court returned the case to US District Court for ressignment to a different judge and possible retrial. The San Francisco Chronicle has the story here. Homestore has since changed its name to Move Inc.
On Tuesday in US District Court in Oxford, Mississippi, former State Auditor Steve Patterson pleaded guilty to attempting to bribe state Circuit Court Judge Henry Lackey in an attempt to obtain a ruling favorable to the Scruggs Law Firm in a dispute over Hurricane Katrina litigation fees. Famed attorney Dickie Scruggs, his son Zach, Patterson and attorneys Tim Balducci and Sid Backstrom were indicted on November 28, 2007. Balducci has already pleaded guilty; trial for the remaining defendants is set for March 31, 2008. The AP has a story here and Alyssa Schnugg has more here in the Oxford Eagle.
In a separate federal case that is just beginning to unfold, it was revealed Monday that Scruggs’ former attorney Joey Langston has pleaded guilty to offering a bribe to state Circuit Judge Bobby Delaughter on behalf of Scruggs; Delaughter subsequently issued a ruling favorable to Scruggs in an asbestos litigation fee dispute. Scruggs has not yet been indicted in this case; along with Delaughter, former Hinds County (Jackson) District Attorney Ed Peters has been implicated. Delaughter allegedly sought nomination to a federal judgeship by then-US Senator Trent Lott, who is Scruggs’ brother-in-law. Lott has denied involvement and has denied that his sudden resignation has anything to do with these recent legal developments. Oxford Eagle here, Northeast Mississippi Journal here, and a two-part look at Langston’s importance by Walter Olson at Overlawyered here and here.
The name of P. L. Blake has come up in connection with both cases. Blake is a mysterious political operative who has received $50 million in tobacco settlement money from Scruggs, for purposes yet to be revealed.
Merck/Schering-Plough’s Vytorin is a combination of Merck’s Zocor and Schering’s Zetia. Zocor’s patent has expired and Zetia has never been proven effective in improving clinical outcomes. The pharmaceutical joint venture company has been under fire for repeatedly refusing to release the results of clinical trials which examined the effectiveness of Vytorin over Zocor alone. The trials ended in early 2006 . After announced delays in November 2006 and April 2007, the company issued a press release in November 2007 (here) in which it attempted to change the endpoints of the study. After a storm of protest, the company released the results Monday (here): Vytorin is no more effective than Zocor alone. A Bloomberg story here has further details, including calls by two Congressmen for further investigation of the ad campaign for Vytorin. Sandy Szwarc at Junkfood Science has analyzed the developing story here and previously here.
Now it has been reported (Brandweek NRx via Junkfood Science) that Schering President Carrie Smith Cox sold 900,000 shares of company stock worth $28 million last spring, after the clinical trials ended but long before the results were released.
Whatever comes next, we can only hope for the demise of the obnoxious and misleading Vytorin commercials.
Jury selection began Monday in Ocala, Florida in the tax fraud trial of actor Wesley Snipes and two co-defendants, known tax protesters Eddie Ray Kahn and Douglas P. Rosile. Snipes is charged with one count of conspiracy to defraud in connection with an attempt to collect $11.7 million in refunds for 1996 and 1997 and one count of making a fraudulent claim of payment for allegedly offering $13 million in fake checks in payment of taxes for those years. In addition, he faces six counts of failure to file tax returns for 1999 through 2004. The AP story is here.