Operation Rotten Tomato Case Ends in Guilty Plea

In a fascinating case arising out of the Eastern District of California that I’ve watched for the past couple of years, the government has vigorously pursued the former owner of a California based food company. The head of SK Foods, Scott Salyer, entered a surprising guilty plea Thursday to one count of racketeering and one count of price fixing. Trial was supposed to have started April 17. Under the plea, Salyer is expected to receive a sentence of 4 to 7 years in prison.


Salyer, the grandson of a famous San Joaquin Valley farming family, had a penchant for piloting private jets for personal and business use and lives in a $6.3 million Pebble Beach mansion.

When I first heard of this case, I was skeptical that the government was pursuing some guy over the quality of tomatoes.


Turns out – it was a rather significant prosecution. A total of 10 defendants have previously entered guilty pleas, including former buyers from Kraft Foods, Frito-Lay and others, along with several former employees of SK Foods. Salyer plead guilty to 1) manipulating prices on millions of pounds of processed tomatoes, 2) ordering subordinates to routinely falsify data concerning the mold content and production date of tomato paste, and 3) encouraging a food broker for SK Foods to pay bribes and kickbacks.


Salyer had remained jailed without bond for 7 months before being released to home confinement 18 months ago. The case has been marked by some fascinating legal battles, including whether the government could listen to tapes between Salyer and a female lawyer. The magistrate judge recently ruled that those calls were fair game because they were personal, not professional.


By the way – I love tomatoes.

Edwards Retains Attorneys Who Represented Former Mistress Rielle Hunter

Image source: www.washingtonpost.com/national/us-judge-eyes-bid-by-john-edwards-to-add-defense-lawyers-who-represented-his-mistress/2012/03/15/gIQA59iiDS_story.html

As reported in the Washington Post, former U.S. Senator and presidential candidate John Edwards announced yesterday in court that he would hire the same attorneys who represented his mistress, Rielle Hunter, in a lawsuit over a sex tape featuring Edwards and Hunter, to defend him against Federal charges. Edwards is charged in the U.S. District Court for the Middle District of North Carolina with violating campaign finance laws by using $1 million from two wealthy donors, including 101 year-old Rachel "Bunny" Mellon, to conceal his affair with Hunter and her pregnancy during his presidential campaign in 2008. The attorneys, Alan Duncan and Allison Van Laningham, will replace Edwards' current defense team. The attorneys represented Hunter in her civil lawsuit against former Edwards aide Andrew Young. The suit was settled last month with an agreement that all copies of the sex tape would be destroyed.

Edwards has pled not guilty. His trial is set to commence on April 12. Hunter is expected to be called as a witness by the prosecution, after having been granted immunity and testifying before the grand jury in 2009. Hunter has signed a waiver, waiving any conflict in the attorneys' representation of herself and Edwards. Any cross-examination of Hunter will be handled by other counsel for Edwards. The Judge noted that Edwards' retention of the attorneys would minimize the possibility that his relationship with Hunter would be discussed in front of the jury.

Edwards has had many attorneys come and go from his defense team, including former White House Counsel Gregory Craig.

Whitey Bulger's Girlfriend to Plead Guilty

Whitey Bulger’s longtime girlfriend, Catherine Greig, is set to enter a guilty plea today in federal court in Boston to multiple counts relating to her 16 years on the run with the notorious Boston gangster. The Bulger case has fascinated us for almost 2 decades after his flight to avoid prosecution just before his indictment in January 1995. Strangely, the Superseding Indictment to which Greig is pleading guilty does not mention that Bulger’s former FBI handler, John Connolly, was the one who tipped Bulger to his imminent arrest. Connolly was ultimately tried and convicted of that offense in 2002 and sentenced to serve 10 years in federal prison. Before he was released from federal custody, Connolly was convicted in the State of Florida of second degree murder and sentenced to 40 years in prison.  

For decades, Bulger was suspected of leading the South Boston Winter Hill gang. The FBI ultimately conceded in federal court that at the same time that Bulger was under investigation, he was one of the Boston FBI's most productive confidential informants, delivering evidence to lock up top members of the Italian mafia.


Greig, who fled Boston with Bulger in 1995, will plead guilty to conspiracy to harbor a fugitive, conspiracy to commit identity theft, and identity fraud. She also agrees as part of her plea to forfeit any profits she receives from the story of her life with Whitey. The facts outlining Greig’s life on the run with Bulger are outlined in court documents. According to the New York Times family members of victims of Bulger’s crimes met with the U.S. Attorney’s Office in Boston on Monday and were told that Greig could receive a sentence of as few as 2-3 years in prison.


Greig and Bulger were arrested last June in Santa Monica where they were living under assumed names. More than $800,000 in cash and a stash of weapons were recovered from their apartment. Bulger is expected to go on trial in November for having committed more than a dozen murders. Greig is not cooperating with the government in that prosecution.

Allen Stanford Guilty on 13 of 14 Counts

As previously reported here, there has been a dearth of media coverage of the Allen Stanford trial in Houston. Following almost 3 days of deliberation Stanford was found guilty on 13 of 14 counts in the indictment. Stanford, 61, was convicted on one count of conspiracy to commit wire and mail fraud, four counts of wire fraud, five counts of mail fraud, one count of conspiracy to obstruct a U.S. Securities and Exchange Commission (SEC) investigation, one count of obstruction of an SEC investigation and one count of conspiracy to commit money laundering. He was found not guilty on one count of wire fraud.

The verdict followed a 6 week trial in U.S. District Court before Judge Hittner. Stanford did not testify at trial. On Monday the jury had informed the judge they were having trouble reaching a verdict.

The government accused Stanford of running a Ponzi scheme defrauding investors of more than $7 billion in fraudulent certificates of deposit at the Stanford International Bank in Antigua. As detailed in this article in the New York Times, it took three years to get the case before a jury because Stanford was severely beaten by another inmate while awaiting trial in 2010. He then became addicted to prescription drugs and underwent almost a year of therapy before finally being declared fit to stand trial.

Stanford will in all likelihood face a sentence of life in prison.

Savannah Attorney Arrested on Counterfeiting Charges

Savannah attorney, Arthur Gibson, 63, was arrested last week on counterfeiting charges after an investigation that lasted several months. During the course of the investigation, as detailed in this complaint and affidavit, Gibson purchased $10,000 of counterfeit currency for $2,000.

As detailed in the affidavit, Gibson came to the attention of the U.S. Secret Service following his participation in a card game where he gave the dealer counterfeit hundred dollar bills and counterfeit twenties.


Gibson was released on a $50,000 bond. According to the Savannah Morning News, Gibson is an active member of the State Bar of Georgia and has been since 1976.

Whither The Allen Stanford Trial

So, there’s been a dearth of news on the Allen Stanford trial in Houston this month and last, even though this has been a trial equally noteworthy of the Enron trial, which captured so much media attention throughout the nation. I think 2 things have contributed to the lack of media coverage. First, and somewhat bizarrely, the Houston Chronicle has a copyrighted blog that is covering the trial. And, just so I won’t get sued, I’ve not reviewed that blog for purposes of this post. Just saying, it seems somewhat incongruous to the First Amendment for a news organization to copyright the information contained on their blog. Second, the district court judge has entered a gag order prohibiting the parties from publicly commenting regarding the case.

At any rate, Fox News reports that the presentation of evidence concluded without Stanford taking the stand. Stanford, originally indicted in 2009, has been detained since his arrest. He is charged with in 14 counts of mail and wire fraud with running a scheme to defraud through his bank on Antigua, a former British colony in the Caribbean.


Closing arguments are scheduled for today. We’ll follow up later this week through non-copyrighted media.  

The New York Times Weighs in on Open File Discovery and Brady

Not sure what prompted it, but the New York Times yesterday had an Opinion piece calling for the Department of Justice to “set a national example” by engaging in open file discovery.

Noting that the Senator Stevens case prompted a Department wide review of policies related to the disclosure of Brady evidence (evidence favorable to the accused for the purpose of impeachment, guilt/innocence, or mitigation of sentence), the Times concludes that the Department’s policies did not go far enough.


In that respect, we have the local case of Hung Ly and the mysterious Dr. Arthur Jordan playing out before us now. The government has now abandoned Dr. Jordan as a witness, whose acts are chronicled here and here, since the trial judge ruled that Dr. Jordan’s misdeeds can be exposed to the jury. By the way, sometimes it takes courage for a prosecutor to do the right thing and kudos to the local AUSA, long time prosecutor Joseph D. Newman, who had the good sense to provide the investigative file related to Dr. Jordan to the defense. 


Esteemed Miami lawyer, Roy Black, whose work outed Dr. Jordan, isn’t surprised that the government is now running from him as a witness. (The work Roy did in battling the government vis-à-vis Dr. Jordan was done under seal because the government didn't want to expose their witness to the light of the courtroom). Says Roy -"the government will never call [Dr.] Jordan as a witness again, anywhere.” Let's see what the Department will do now to correct the injustice of Dr. Jordan's earlier, sanitized testimony?


As the New York Times notes, “In both the federal and state court systems, it is essential that rules about disclosing evidence be followed in ways that promote justice. An open-files policy would come closer to meeting this important standard.” That goal can not legitimately be opposed by the Department of Justice.

Dr. Arthur Jordan - The Latest

As I mentioned in a post earlier this month, Dr. Arthur Jordan, who is a professional witness of sorts in the government’s pharmaceutical fraud cases, is scheduled to testify this coming week in our sleepy little hamlet. Here’s the latest:

Following the Eleventh Circuit decision last month in United States v. Ignasiak, _ F.3d _, 2012 WL 149314 (11th Cir. 2012), the government disclosed in a local pharmaceutical fraud case, United States v. Hung Ly, 4:07-286-WTM (the documents are on PACER) all of the documents about Dr. Jordan’s misadventures with guns, a U.S. Marshal’s badge and statements on federal forms, that Judge Martin exposed in an opinion a month ago. Judge Martin plainly wrote that Dr. Jordan “engaged in criminal conduct . . . on nine separate occasions, used a counterfeit badge and his United States Marshal credentials to pose as an on-duty U.S. Marshal in order to carry firearms on commercial airplanes while on personal travel.” Id., at *15. The opinion continued that Dr. Jordan’s conduct resulted in “multiple violations of 18 U.S.C. §§ 912 and 1001 and 49 U.S.C. § 46505 . . .” Id.

Trial in the Ly case is scheduled to start tomorrow. The government after disclosing the documents about Dr. Jordan, then moved to prohibit the defense from using Dr. Jordan’s past criminal conduct to impeach his testimony at trial. Shortly thereafter, the government and defense counsel reached a stipulation regarding impeachment of Dr. Jordan, but U.S. District Court Judge William T. Moore, Jr., would have none of it. Judge Moore entered an Order noting that a “government’s witness’s use of a counterfeit badge on nine separate occasions, which could have been charged as nine separate felonies, is highly relevant impeachment evidence – it was described in precisely this fashion by the Eleventh Circuit . . . [and] represents some of the ripest fruit borne by the tree of impeachment and this Court will not prevent it from being offered to the jury.”


Following the entry of that Order on February 15, the government has attempted to jettison Dr. Jordan as a witness and replace him with another expert. The defense has opposed that attempt. I’ll be stunned if the government puts Dr. Jordan on the stand, but will update tomorrow.

The Penn State Federal Grand Jury Subpoena

For whatever reason there was a glitch in my post yesterday and I’ve received a number of comments that folks have not been able to access the federal grand jury subpoena issued to Penn State University about the sordid Sandusky investigation. So, here’s the direct link on the Penn State website:



Not only is the content of the subpoena revealing (and not too surprising), but interestingly, the subpoena was received by Penn State on Thursday, February 2, but not publicly announced by Penn State until Friday, February 24.

The Penn State Scandal - The Feds Arrive

Three weeks after receiving a Federal Grand Jury subpoena, and as part of its new campaign for openness, Penn State officials posted on the school website Friday, a brief blurb acknowledging receipt of the subpoena, a copy of the subpoena and the cover letter accompanying the subpoena. The subpoena from the U.S. Attorney’s Office for the Middle District of Pennsylvania is directed to the V.P and General Counsel of Penn State and commands an appearance before the Grand Jury on Wednesday, February 29 in Harrisburg. According to the release posted by Penn State, the compliance date has been extended. The subpoena covers the time frame of 1998 to the present and seeks records pertaining 8 separate categories of documents, including: out of court settlements relating to Jerry Sandusky, allegations of misconduct by Sandusky, reporting requirements of university officials, documents relating to allegations against or actions involving Sandusky, The Second Mile and the computer hard drives of Gary Schultz, Tim Curley, Graham Spanier and Sandusky.

The cover letter directs Penn State to preserve all emails and source documents sought by the subpoena.

Schultz and Curley are currently awaiting trial on perjury charges related to their testimony before the State grand jury. As everyone knows, Sandusky is awaiting trial on 52 charges of child sexual abuse.

This subpoena marks a well defined shift from the active investigation of child sexual abuse by Sandusky, into the possible cover up of those allegations by high ranking members of the Penn State administration. The subpoena also means what many at Penn State had feared and that is – this investigation will not be over for a long time.

George Will - Is the Siegelman Case Bribery or Politics as Usual

George Will had a surprising article in the Washington Post over the weekend on the Don Siegelman cert petition that was filed at the beginning of the month. Siegelman, the former governor of Alabama was convicted of bribery in 2006, along with Richard Scrushy, former Chief Executive of Health South. Will posited that the Supreme Court should find that the quid pro quo for a bribery conviction must require explicit proof, not a mere inference. Otherwise, Will argues, the line blurs between the exercise of a constitutional right and the commission of a crime.

Scrushy's cert petition is due to be filed shortly. Because of the split of authority among the circuits on this issue, I believe this one is headed for resolution by the Supreme Court. 

From the Rough to the Fairway - Life After 2 Federal Criminal Trials

As I watched the waves break over the 18th fairway at Pebble Beach this weekend, I noticed a familiar name playing in the last group yesterday with Charlie Wi: Frank Quattrone. Could that really be, I wondered, the Frank Quattrone who was indicted in 2003 and tried twice before he was convicted in 2004? That conviction, however, was reversed on appeal in 2006. The government then extended the fig leaf and Quattrone entered into a deferred prosecution agreement (the government’s version of super secret probation) with all charges dismissed in 2007.


Is there really life on the links after 2 federal criminal trials?


Turns out Mr. Quattrone is, in fact, something of an accomplished golfer and has long played at Pebble Beach (I once had a client who turned to the solitude of the golf course while under indictment, as did Mr. Quattrone).


The Quattrone case was for me a tale of the dangers of the world when the government has its eye on you – his alleged crime – forwarding an email okaying the routine destruction of emails after his employer had received an SEC letter of investigation.


At his first two trials, a government sympathetic judge, almost insured a conviction against Quattrone with his erroneous jury instructions. That judge was removed from the case by the Second Circuit Court of Appeals when his conviction was reversed. After the appeal, the government, acting appropriately, entered into a deferred prosecution  agreement with Quattrone and dismissed the case.


So, now Frank Quattrone is back at work as an investment banker and is at the top of his golf game, playing in the final group at the Pebble Beach Pro-Am! Not bad.


Hello again blog readers. After a year hiatus, I’m rejoining the blogosphere. My thanks to my law partner, Anthony Lake, for keeping things running in my absence.


The U.S. Attorney’s Office in Los Angeles announced Friday (no coincidence that the announcement came Friday in an effort by the government to avoid unfavorable press), that is was closing the investigation of Lance Armstrong, 7 time winner of the Tour de France. In the world of criminal defense practice, we often appeal to the “appropriate exercise of prosecutorial discretion” of the U.S. Attorney’s Office in asking that the government not prosecute our client. Thankfully, the U.S. Attorney’s Office in Los Angeles had the good sense to shut down the investigation of Armstrong and why they ginned up an investigation of him in the first place is beyond me and no doubt represents an astonishing waste of government resources in an investigation that had absolutely no federal interest.


Armstong’s attorney, John Keker, of San Francisco, filed a contempt motion under seal last year asking that the judge determine who was leaking information to the press regarding the investigation and hold the responsible party in contempt. I’ve not been able to find that motion online, although several media outlets quote from the motion itself. If you have a copy, send it to me and I will post it.


At any rate, after a 2 year investigation, it is good to see that the feds got this one right.

Government Won't Take Another Swing at Barry Bonds

 The United States Attorney's Office for the Northern District of California filed a dismissal last week of its remaining charges against former San Francisco Giants slugger and outfielder, Barry Bonds, as reported by the Associated Press. Bonds was convicted in April on one count of obstruction of justice. However, a mistrial was declared on the three counts of perjury against Bonds.

The dismissal has spared Bonds a second trial. However, the trial judge has upheld his obstruction conviction. Bonds'  recommended sentencing range is 15 to 21 months' imprisonment, but the court may impose a lesser sentence at sentencing. 

Conrad Black Re-Sentenced to an Additional 13 Months' Imprisonment


Photo credit: http://dealbreaker.com

On Friday, U.S. District Judge Amy St. Eve of the Northern District of Illinois re-sentenced Lord Conrad Black, former CEO of newspaper giant Hollinger International, Inc., to serve the remainder of his sentence, as reported in Canada's Globe and Mail. Black has served 29 months of his original 78 month sentence, imposed following his conviction on three of 12 counts in July of 2007. He has been on release from prison for nearly a year while his appeals of his convictions have been pending.

According to the article, Black has sued Richard Breeden, a special investigator for Hollinger and former Chairman of the U.S. Securities and Exchange Commission, and others for libeling him in a special report prepared for Hollinger. The Supreme Court of Canada is considering whether the dispute should be heard in Canada or the United States. 

Perjury and Obstruction Trial Against Former San Francisco Giant Barry Bonds Commences in San Francisco; Trial to Begin With Hearing on Bonds' Former Weight Trainer--Possible Contempt


The trial of former San Francisco Giants outfielder Barry Bonds on four counts of perjury and one count of obstruction of justice commenced yesterday in the U.S. District Court for the Northern District of California according to the San Francisco Chronicle. The charges against Bonds arise from his statements to a grand jury in 2003 in relating to an investigation into the Bay Area Laboratory Co-Operative (BALCO) in Burlingame, California, and steriods. Bonds told the grand jury that he never knowingly used banned drugs. The transcript of his December 4, 2003, testimony may be read in full here. Jury selection took place yesterday.

The jurors' names will be kept secret until the conclusion of the trial (however, the jury includes at least one Oakland Athletics fan). Opening statements are expected to take place today, followed by a hearing concerning Bonds' former weight trainer, Greg Anderson. Anderson pled guilty in the BALCO case and has served a year in prison for refusing to cooperate in the investigation of Bonds. The prosecution has subpoenaed him as a witness at trial, however Anderson has stated his intention not to testify against Bonds. The Court has stated that it will rule Anderson in contempt if he refuses to testify and hold him in prison for the duration of the trial.

Bonds, who played as a left fielder for the Pittsburgh Pirates from 1986 to 1993, and for the Giants from 1993 to 2007, holds Major League Baseball records for home runs in a single season, is an all-time leader in walks and intentional walks, and is also the recipient of 14 All-Star awards, 8 Golden Glove awards and 7 Most Valuable Player awards.

FBI Investigating "Pay for Play Plan" Allegations Surrounding Auburn Quarterback Cam Newton and Father

It is college football season, and appropriately the most notable news in an otherwise slow Federal criminal news day appears to be that the Federal Bureau of Investigation has interviewed John Bond, a former quarterback for the Mississippi State Bulldogs, regarding Auburn quarterback Cam Newton, according to the Atlanta Journal and Constitution.

Bond told Mississippi State officials in January that a former teammate had asked him for $180,000 in order to secure Newton's commitment to the Bulldogs. The teammate was subsequently revealed to be Kenny Rogers, another former player for the Bulldogs and owner of a company called Elite Football Preparation, which holds camps in Alabama, Chicago and Mississippi, and matches football prospects with colleges. Rogers, in turn, has publicly stated that he met with Newton's father, Cecil Newton, as well as assistant coaches for MSU, on November 27, 2009, in Starkville, Mississippi, and that Newton demanded between $100,000 and $180,000 in order to ensure that his son signed with the Bulldogs.

Newton originally signed a letter of intent with the University of Florida, where he spent the 2007-2008 season as a back-up quarterback to Heisman Trophy winner Tim Tebow. He subsequently transferred to Blinn College in Texas, where he led the Blinn Buccaneers to the NJCAA National Championship before signing with Auburn. According to ESPN, Cecil Newton told Rogers at the meeting that his son's transfer to Auburn was not going to be "free." Rogers was referred to Mississippi State booster and former Bulldogs offensive lineman Bill Bell. Bell confirmed to ESPN that Rogers did contact him to ask for money in exchange for Newton signing with Mississippi State. Rogers has stated that he doesn't know if Cam Newton knew about his father's demand for money. However, ESPN reported that recruiting sources for Mississippi State had disclosed that they had had telephone conversations with Cam Newton, as well as his father, that Newton's college choice would be based on a pay-for-play plan.

The allegations are further not limited to Newton's dealings with Mississippi State. One recruiter has reported that Cam Newton telephoned him after committing to Auburn and informed him that he had chosen Auburn over Mississippi State because "the money was too much."

Mississippi State compliance officials reported the allegations to Southeastern Conference compliance officials in January. The NCAA and the FBI are both conducting investigations into these allegations. The news has cast a shadow over Auburn's so-far undefeated season, and Newton himself, the current leading contender for the Heisman Trophy. Newton's reputation was already previously marred by charges of burglary, larceny and obstruction relating to an alleged stolen laptop while he was at the University of Florida.

The Federal investigation could result in criminal proceedings for conspiracy, fraud, bribery and other offenses. In a case which college football fans will have some familiarity with, U.S. v. Young, NO. 03-20400 BV, (W.D.Tenn. 2004), Tennessee businessman and University of Alabama booster Logan Young was indicted for structuring, in violation of 31 U.S.C. § 5324; Travel Act violations under 18 U.S.C. § 1952; and conspiracy, in violation of 18 U.S.C. § 371, for paying $150,000 to Lynn Lang, coach of Trezvant High School in Memphis, to ensure that high school defensive player Albert Means signed a letter of intent with Alabama. Young, Lang and Trezvant Assistant Coach Milton Kirk were subsequently convicted. Alabama was placed on probation for five years by the NCAA as a result of the conduct, and given a two year bowl ban. The University of Kentucky was given a one year bowl ban for a $6,000 payment by a booster to Lang in order to have Means visit the school. Similar misconduct was alleged against the University of Georgia, the University of Arkansas and the University of Memphis, however those schools were not sanctioned. An old Sports Illustrated article has more on the Means scandal.

Sarah Palin E-mail Hacking Case Goes to Jury

Knoxvillenews.com has been intensively covering here, here, here and elsewhere the trial of David C. Kernell, son of Tennessee State Representative Mike Kernell of Memphis and former University of Tennessee student, who was charged in the U.S. District Court for the Eastern District of Tennessee with hacking into the electronic mail account of former Governor of Alaska and Vice Presidential candidate Sarah Palin in 2008. The jury received the case today, and is still deliberating. The trial began last week.

Kernell, 22, is charged with guessing the answers to various security questions to gain access to Palin's Yahoo! e-mail account shortly after she was chosen to be Arizona Senator John McCain's running mate during the 2008 U.S. presidential campaign. Screenshots, pictures and a new password for the e-mail account were then posted on the website 4Chan. Ten other individuals in the U.S. and abroad proceeded to access the account more than 70 times.

Kernell, who was a 20 year-old economics major at the time, was charged with identity theft and other offenses. Palin herself testified on Friday, and her daughter, Bristol Palin, testified last week. Kernell did not testify.

Assistant U.S. Attorney Greg Weddle argued to the jury yesterday that Kernell intended to do something malicious from the beginning. Authorities seizing Kernell's computer found a New York Times article questioning whether Palin was using private e-mail accounts for government business. Assistant U.S. Attorney Mark Krotoski quoted Kernell's message on the 4Chan discussion board: "'I'm not going to ruin someone's life' but I'll give you the key, the pass(word)." Weddle cited Kernell's statement to persons who posted the information for him on the website 4Chan "make me proud."

Kernell's attorneys defended that Kernell did not believe that such a high-profile public figure could use such a poorly protected e-mail account. They argued to the jury that Kernell only used information available in newspaper articles and from the official state of Alaska website, and that what Kernell did was stupid and closer to a prank than a crime.

Mark Cuban Continues to Pursue SEC for Bad Faith in Insider Trading Investigation

Today's Wall Street Journal Law Blog reveals that Dallas Mavericks owner, Landmark Theaters owner and Chairman of HDNet Mark Cuban has gone on the offensive against the Securities and Exchange Commission. The SEC made widely publicized charges against Mr. Cuban for insider trading in selling shares of Mamma.com, an internet search technology company now known as Copernic, in 2008. Mr. Cuban disputed the charges, and a federal court dismissed the charges last year.

Not satisfied, Mr. Cuban demanded evidence regarding whether the SEC had acted in in bad faith in bringing the charges, and the SEC provided documents to his counsel. Now Mr. Cuban is attempting to force the SEC to turn over still more documents. If the court holds that the SEC acted in bad faith, it could impose sanctions and force the Commission to pay Mr. Cuban's legal fees.

Christopher Aguilar, former general counsel for a broker-dealer who did work for Mamma.com, has submitted an affidavit stating that Julie Riewe, an SEC attorney, informed him in August 2007 that she would prefer if employees of the broker-dealer did not speak to Mr. Cuban's attorneys, although Mr. Aguilar "could do what he wanted." Mr. Aguilar stated that he believed that the statement was an attempt to not make a witness available to the subject or target of an SEC investigation. Mr. Aguilar eventually allowed Mr. Cuban's counsel to speak with the employee.

Rothstein Enters Guilty Plea

Of course we knew it was coming, but disbarred Fort Lauderdale attorney Scott Rothstein, architect of a $1.2 billion Ponzi scheme selling phony interests in settlements in employment and civil cases, pled guilty today in the U.S. District Court for the Southern District of Florida to charges of racketeering, fraud and money laundering,

as reported by the Miami Herald

and various other sources. Rothstein was also charged with taking monies from client trust accounts and making unlawful campaign contributions to politicians. Former attorneys and employees of Rothstein's former law firm, Rothstein Rosenfeldt Adler, are currently being investigated for illegal campaign contributions.

Following his surrender to authorities last fall, Rothstein assisted authorities in locating assets. His sentencing hearing has been set for May 6.


Sir Robert Allen Stanford's Congressional Ties and Prison Blues

So whatever happened to indicted billionaire Sir Robert Allen Stanford? Well, not much, as reported by the Houston Chronicle. Stanford, who is charged with allegedly defrauding investors of more than $7 billion, is still incarcerated, despite his extensive efforts to secure release prior to his trial since his arrest in June of last year. Stanford has submitted a report from a physician to U.S. District Judge David Hittner of the U.S. District Court for the Southern District of Texas, in which the physician opines that Stanford is close to “a complete nervous breakdown.” Two psychiatrists have diagnosed Stanford with severe depression as a result of his confinement.

Stanford's counsel complained to the court that Stanford needed to have frequent communication with his defense team in order to review the more than 7 million documents in the case and answer questions by his counsel. Unmoved, Judge Hittner denied Stanford's latest motion for release in an order issued two days before Christmas, and Stanford has appealed the denial.

Stanford's trial is still a year away, scheduled to begin in January 2011. He has denied the government's charges, as well as civil fraud charges brought by the U.S. Securities and Exchange Commission.

Also reported in the Chronicle, similar to confessed attorney/Ponzi schemer, Scott Rothstein, Stanford allegedly had many ties to politicians. The Department of Justice is investigating approximately $2.3 million dollars in alleged contributions from Stanford and his staff to politicians over the past decade, as well as $5 million paid to lobbyists.  Donations by Stanford and his staff included $40,000 to the Senate Republican Campaign Committee, $100,000 to the inaugural committee of George W. Bush and $500,000 to the Democratic Senatorial Campaign Committee. He furthermore set up his own lobbying firm in Washington, D.C. Stanford is alleged to have successfully lobbied to defeat legislation in Congress relating to financial secrecy and offshore banking which would have allegedly revealed his activities.

Stanford allegedly treated politicians to trips to the Carribean, hosting dinners with lobster and caviar. Illustrative of Stanford's high level government contacts was the fact that, mere hours after Stanford was arrested last year, Representative Pete Sessions of Texas, Chairman of the National Republican Congressional Committee, sent Stanford an e-mail stating that he "loved" Stanford and believed in him, and offering his advice or to listen to Stanford. Stanford and his staff contributed $44,375 to Sessions. Stanford entertained numerous Congressional delegations to the Carribean nation of Antigua, where Stanford was based, at a total cost of $311,307. Stanford also hosted a wedding dinner for New York Representative John Sweeney at a five-star restaurant owned by Stanford in Antigua, and held a cocktail fundraiser for Ohio Representative Bob Ney in Miami. Ney was later sentenced to 30 months imprisonment for accepting money and gifts from convicted lobbyist Jack Abramoff.

Stanford opened a trust office in Miami in 2001, which allegedly enabled his bank to sell millions in certificates of deposit. This event allegedly prompted him to become involved in politics in order to prevent legislation which would have forced Stanford to reveal the source of the flow of monies to the office.

19 politicians have returned a total of $87,800 in contributions from Stanford to the court-appointed receiver. Other politicians have stated that they have donated money contributed by Stanford to charity, including $45,000 by Senator Bill Nelson of Florida, and $11,800 by Representative Charlie Rangel.


Savannah Personal Injury Lawyer Pleads Guilty to Obstruction

Savannah personal injury attorney, Benjamin Eichholz, entered a plea in federal court yesterday to obstructing a Department of Labor (DOL) investigation by repeatedly transmitting false and misleading documents to the Department of Labor and by making false and misleading statements to investigators. Eichholz, 58 years old, faced a 77 count indictment that charged him with mail fraud, money laundering and obstructing the DOL investigation and trial was to begin in 3 weeks. Eichholz was prominent locally for his TV advertisements that hawked a phone number of "win win 1." Eichholz faces a maximum penalty of five years in prison and a $250,000 fine.

In July 2006 Eichholz was barred for two years from practicing in federal court by the United States Bankruptcy Court for actions that were characterized in the disciplinary order of the Court as “sloppy at best and misleading at worst.” The order barring Eichholz from appearing in Bankruptcy Court was later adopted by the District Court judges.


Eichholz had also faced a class action lawsuit that accused him of overcharging his clients in settlements from civil cases. That case was settled in 2006, but formed the basis of the government’s similar transaction notice in the criminal case, compounding the difficulty of defending the case. It will be interesting to see if the uncharged conduct figures into Eichholz’ sentencing calculation.

Rothstein Investigation Widens to Include Attorneys, Police Chief; Pols Return Donations

The fallout from Fort Lauderdale attorney Scott Rothstein's alleged fraudulent scheme to bilk investors out of hundreds of millions continues to fall.

Florida Governor Charlie Crist has told the media that he will return campaign contributions received from Rothstein and employees of his law firm, a total of $76,250. The announcement by Crist follows a pledge by Florida Republican Senate President Jeff Atwater to return donations by Rothstein. On the same day, Florida Chief Financial Officer Alex Sink, a Democrat, announced that she would return at least $7,025 in contributions from Rothstein and members of his firm. Crist is running for U.S. Senate, Sink is running for Governor and Atwater is running for Chief Financial Officer. Rothstein is alleged to have made contributions to numerous politicians using ill-gotten gains, and to have illegally reimbursed members of his firm for making contributions. Rothstein and his wife, Kimberly, also held fundraisers for Senator McCain and Governor Crist in one of their waterfront homes.

The campaign contributions have also created potential criminal exposure for lawyers at Rothstein's firm Rothstein Rosenfeldt Adler. Approximately 30 lawyers in the firm, along with 15 employees, spouses and relatives, made approximately $2.2 million in Federal and State campaign contributions, with the largest recipient being the 2008 Presidential campaign of Arizona Senator John McCain. One attorney, Steven Lippman, and his wife contributed approximately $247,000 to Governor Crist,  Senator McCain and other politicians over a span of four years. Federal investigators are looking into the contributions. Several partners in the firm have retained counsel in response to the investigation. Experts have stated that the attorneys should have been aware that they were violating campaign finance laws when Rothstein required the attorneys to make campaign donations as a condition to receiving bonuses.

The fallout has extended further to Fort Lauderdale Police Chief Frank Adderly. Two Fort Lauderdale City Commissioners have asked the Florida Department of Law Enforcement to investigate Adderly regarding his relationship with Rothstein. Rothstein is alleged to have flown Adderly to New York in December 2008 for a football game, and Adderly personally intervened in an automobile collision involving a friend of Rothstein.

Fisher Auction will auction property of Rothstein's law firm on January 23, at the direction of the firm's trustee, including fountain pens used by Rothstein and the massage chair in the firm's lounge. Rothstein's attorney has opposed the auctioning of photographs of Rothstein withvarious politicians.

Hedge Fund Managers, Attorneys, Others Fall in Rajaratnam/Galleon Insider Trading Investigation

Raj Rajaratnam and Danielle Chiesi were indicted in indictment alleging 17 counts of securities and wire fraud on Tuesday in the U.S. District Court for the Southern District of New York, U.S. v. Raj Rajaratnam et al, Case No. 09-2306, as reported by the New York Daily News here, here and here, and the New York Times here, here and here. Rajaratnam is a former Bear Stearns hedge fund manager and is the founder of Galleon Management LP, which managed some $3.7 billion in funds. Rajaratnam, a U.S. citizen born in Sri Lanka, was arrested on October 16 at his Manhattan home. U.S. Magistrate Judge Douglas Eaton set Rajaratnam's bail at $100 million which Rajaratnam posted. The indictment alleges a multi-million dollar insider trading scheme that spanned from coast to coast, in which Rajaratnam and Chiesi shared tips on companies like Google, Advanced Micro Devices, Hilton Hotels and others, and reaped more than $20 million in illicit profits by trading on the confidential information. Rajaratnam and Chiesi have both pled not guilty and are fighting the charges. The government claims to have numerous recorded telephone conversations from cooperating witnesses in support of the charges.

Rajaratnam's attorneys also requested a second time that his bail amount be reduced to $20 million. His lawyers disputed the government's reliance on Roomy Khan, an Intel Corp employee and former trader who was convicted of wire fraud in California in 2002 for passing confidential information to Galleon and Rajaratnam when she was an employee of Intel, and who is cooperating with the government. Half a dozen persons, including Ms. Khan, are cooperating in the case.

The U.S. Securities and Exchange Commission has also filed civil charges against Rajaratnam. Following Rajaratnam's arrest, investors withdrew more than $4 billion from various Galleon hedge funds, and the firm ceased operations.

The investigation has implicated 21 individuals, including 14 hedge fund managers, lawyers and other investors who were arrested in November. Robert Moffat, a senior official at I.B.M., Rajiv Goel, an executive of Intel; and Anil Kumar, an executive at the consulting firm McKinsey & Company, were arrested at the same time as Rajaratnam, but have not yet been indicted. The Court has granted the prosecution an extension of 30 more days to indict these individuals. The prosecution has described the case as the largest insider trading case in history.

Attorney Brien Santarlas, of the New York law firm of Ropes & Gray, pled guilty to conspiracy to commit securities fraud and wire fraud this week. Santarlas admitted that, from June 2007 to May 2008, he and another attorney, Arthur Cutillo, also with Ropes & Gray, used confidential information regarding acquisitions by 3Com, Inc., and Axcan Pharma, Inc. Bain Capital Partners LLC, a Ropes & Gray client, had announced it planned to acquire 3Com on September 27, 2007, in a deal which would have also involved China's Huawei Technologies Co Ltd. A U.S. government security panel rejected the deal, however. 3Com is now in the process of being purchased by Hewlett-Packard Co. Another Ropes & Gray client, TPG Capital LP, announced on November 29, 2007 that it was acquiring Axcan Pharma.Prosecutors charged Santarlas, Cutillo, Jason Goldfarb and Zvi Goffer with causing trades of 3Com and Axcan stock before the public announcements, making approximately $20 million in profits.Santarlas also faces civil charges by the SEC. His sentencing is tentatively scheduled for June 1. Cutillo was indicted in November.

Rajaratnam has also been linked to Steven Cohen, manager of SAC Capital Advisors, a hedge fund, major art collector, and with a $6 billion net worth, the 36th richest person in America. Cohen's ex-wife, Patricia Cohen, filed a lawsuit in Federal court on Wednesday alleging that Cohen had hid money during their divorce 20 years ago and asserting civil RICO claims. The former Mrs. Cohen alleges that Cohen had made millions from insider trading in the 1980s and had hid the money with the help of one of his real estate partners. Specifically, she claims that Cohen received an insider tip prior to General Electric's purchase of RCA in 1985. She is seeking $300 million from Cohen. SAC issued a statement criticizing the former Mrs. Cohen and her attorney, calling the allegations in the lawsuit "ludicrous" and "without merit."

Federal prosecutors on Wednesday asked for 30 more days to indict four defendants tied to the Galleon Group insider trading scheme, one day after two of the main players were formally indicted on conspiracy and fraud charges.

Paul Minor's Conviction Affirmed

Back to blogging after taking a several month hiatus in the run up to the successful defense of a criminal defense lawyer in Columbus, Georgia.

As predicted in this post in April, the Fifth Circuit affirmed the convictions of Paul Minor, a former Mississippi plaintiff’s lawyer, and two Mississippi state court judges, Wes Teel and John Whitfield, except for the “devil statute” charges, 18 U.S.C. § 666 (actually, federal program bribery).  The opinion is here.


The tortured history of the case began with an indictment in 2003 centering around campaign loans that Minor made to judges Teel and Whitfield ostensibly in return for favorable treatment in Minor’s cases before their courts. The first trial in 2005 ended in the acquittal of one judge, Oliver Diaz, not guilty verdicts on several counts as to Minor, one not guilty verdict as to Teel, and the jury was unable to reach a verdict on the remaining counts, including honest services mail fraud, program bribery and RICO.


A second trial began in 2007 and the defendants were convicted of honest services mail fraud, federal program bribery and Minor was convicted of RICO.


In reversing the federal program bribery convictions, the Court found that although the Mississippi State Court Judges were agents of the Mississippi Administrative Office of the Courts, “[a]s a fundamental matter, Whitfield and Teel’s role in presiding over Marks and Peoples Bank involved the judicial business of the Mississippi courts,” but had no connection with their roles as presiding judges in the cases before them. See pages, 20-22.


Now, an interesting issue as this case moves forward, will be whether Minor and his co-defendants properly preserved any error related to the constitutionality of the honest services counts. (As an aside, the RICO predicates were the 666 charges (now out) and the honest services charges (still viable)). As I see it, the only issue Minor raised regarding the honest services charges relates to whether the district court was required to charge the jury that it needed to find a quid pro quo. See pages, 22-23.


Therefore, Minor may not be able to take advantage of the fact that I see the Supreme Court holding within the near future that 1346 honest services mail and wire fraud law is unconstitutionally vague.

Fort Lauderdale Attorney Scott Rothstein Pleads Not Guilty to Information Alleging $1.2 Billion Dollar Ponzi Scheme


In response to allegations uncomfortably similar to those against former New York celebrity lawyer and arch Ponzi-schemer Marc Dreier, Fort Lauderdale attorney Scott Rothstein, head of Rothstein, Rosenfeldt and Adler, P.A., appeared in response to a criminal information in the U.S. District Court for the Southern District of Florida on Tuesday. The information charges Rothstein with one count of Racketeering Conspiracy, in violation of 18 U.S.C. § 1962(d); one count of Money Laundering Conspiracy, in violation of 18 U.S.C. § 1956(h); one count of Mail and Wire Fraud Conspiracy, in violation of 18 U.S.C. § 1349; and two counts of Wire Fraud, in violation of 18 U.S.C. § 1343, as well as criminal forfeiture, U.S. v. Rothstein, 0:09-cr-60331-JIC.

According to the criminal information, available here, from about 2005 through November 2009, Rothstein, and other “known and unknown” unnamed co-conspirators, allegedly unlawfully obtained approximately $1.2 billion from investors through a Ponzi scheme (outdoing even Dreier’s scheme). The Government alleges that Rothstein used false statements, documents and computer records to induce investors to loan money to alleged borrowers based upon fraudulent and fictitious promissory notes and bridge loans. Rothstein allegedly falsely informed investors that his law firm, Rothstein, Rosenfeldt and Adler, P.A.’s, clients requested short-term financing for undisclosed business deals and that the clients were willing to pay high rates of return for loans negotiated by Rothstein.

Rothstein also allegedly told investors that they could purchase at a discount confidential settlement agreements in sexual harassment and whistleblower cases in amounts ranging from hundreds of thousands of dollars to millions of dollars. Rothstein allegedly falsely represented that the settlement agreements would be repaid to the investors at face value over time. Rothstein allegedly represented to investors that the settlements were highly confidential in order to protect the reputations of the companies and executives involved; that the plaintiffs preferred to settle the claims rather than purse them in a public forum; that Rothstein, Rosenfeldt and Adler, P.A., would disburse the investors’ funds to the plaintiffs; that the firm would make payments to the investors pursuant to the payment schedules in the alleged settlement agreements; that the funds were maintained in designated trust accounts for the investors in accordance with the rules and regulations of the Florida Bar and were verified by independent sources, as well as numerous other alleged false statements regarding the settlement agreements, investment funds and the firm.

To effect the fraud, Rothstein allegedly established numerous trust accounts in Rothstein, Rosenfeldt and Adler, P.A.’s name; falsified statements from financial institutions and manufactured online banking information allegedly showing investors’ monies; created false and fictitious settlement agreements and other documents. Among the alleged false and fictitious documents was a court order in a case, purportedly signed by a Federal District Judge, which falsely alleged that Rothstein, Rosenfeldt and Adler, P.A.’s clients had prevailed in a lawsuit and were owed $23 million, when in fact the firm had settled the case without the clients’ knowledge and had obligated them to pay $500,000 to the defendant.

The information also alleges that Rothstein allegedly falsely told clients that, in order to recover funds, they had to post bonds to be held in Rothstein, Rosenfeldt and Adler, P.A.’s trust account. Over several years, clients wired approximately $57 million to a trust account controlled by Rothstein. Rothstein allegedly created another false Federal court order to conceal the scheme, providing that the funds were to be returned to the clients by a later date.

Rothstein used the funds acquired through the alleged scheme to fund the operations of Rothstein, Rosenfeldt and Adler, P.A., and to expand the firm. The firm grew to employ approximately 70 attorneys. Rothstein is alleged to have laundered the funds from the scheme through corporations, contributions and large bonuses and gifts to employees. The information alleges that Rothstein used the funds to make contributions to Federal, State and local political candidates in a manner designed to conceal the source of the funds and to circumvent Federal and State limits on campaign contributions; for charitable donations; to purchase controlling interests in restaurants in South Florida; and to hire members of local law enforcement to provide security for Rothstein, Rosenfeldt and Adler, P.A., and for Rothstein personally.

The enormous wealth amassed by Rothstein through the alleged scheme is apparent in the Governement’s forfeiture allegations, which seek forfeiture not only of a sum of $1.2 billion, but also of 24 properties in Fort Lauderdale, Lauderdale by the Sea, Boca Raton, Hollywood and Plantation, Florida; New York City and Narragansett, Rhode Island, including Rothstein’s 10% ownership in the Miami Beach mansion of late fashion mogul Gianni Versace, “Casa Casuarina.” Forfeiture is also sought of numerous business interests, bank accounts and jewelry, as well as 24 vessels and vehicles purchased by Rothstein, including a 55 foot yacht.

The Government also lists millions in political and charitable contributions by Rothstein which it seeks forfeiture of, including contributions to the Republican Party of Florida; Florida Governor Charlie Crist; Democratic Chief Financial Officer Alex Sink, who is running for governor; and two hospitals.

As reported in the Miami Herald here, and here, Rothstein started Rothstein, Rosenfeldt and Adler, P.A., in 2002 as an obscure attorney practicing employment law. Over the next six years, his net worth grew from about $160,000 to tens of millions. Rothstein used flashy wealth and connections in the Broward County social and business communities to lure wealthy persons to invest in his schemes. He befriended the rich and famous, including NFL Hall of Famer Dan Marino

George G. Levin, a wealthy Fort Lauderdale resident and hedge fund manager, gave $656 million to Rothstein to invest in settlements purportedly worth $1.1 billion. Levin helped Rothstein market investments in employment and sexual harassment lawsuits to investors, although he is not alleged to have been complicit in Rothstein’s crimes. Another of Rothstein’s clients, car-dealership mogul Ed Morse, claims that Rothstein defrauded him of $57 million, arising from the settlement of a contract dispute with an interior decorator.

Rothstein would allegedly give large bonuses to employees of Rothstein, Rosenfeldt and Adler, P.A. on the condition that they make campaign contributions to political candidates who Rothstein would specify. The Government has stated that the recipients of the political contributions have returned the contributions. The Florida Democratic Party has returned $200,000 and the Florida Republican Party has given back $150,000. After Crist won the Governor’s race in 2006, he appointed Rothstein to a panel which nominates Broward County judicial candidates. The Florida Democratic Party has called for an investigation of Crist. Rothstein also allegedly paid gratuities to local law enforcement officers to avoid scrutiny.

Rothstein’s scheme began to unravel over Halloween weekend, when investors began calling the firm for overdue payments and discovered the fraud. Rothstein fled to Morocco in October, taking $400,000 to $500,000 in cash with him and wiring $16 million to Casablanca. Rothstein reportedly sent e-mails to members of his firm that he was contemplating suicide, but he returned to the U.S. on a private jet in early November. He met with Federal authorities and provided details regarding his Ponzi scheme. FBI and IRS agents raided Rothstein, Rosenfeldt and Adler, P.A.’s law offices, and seized Rothstein’s real and personal property. Rothstein agreed to waive indictment, an indication that he is cooperating with the Government, although Rothstein’s counsel has denied that he has any deal with the Government.

The Government’s information does not name Rothstein’s alleged co-conspirators, however news reports suggest members of Rothstein's inner circle at the law firm, and officers at Toronto Dominion Bank, where the investor trust accounts were held.

Rothstein’s alleged Ponzi scheme has been called the largest in the history of South Florida by Federal officials. The Florida Bar has disbarred Rothstein for stealing from the firm’s trust account. Rothstein, Levin and TD Bank are also being sued by a group of investors for more than $100 million.

Rothstein appeared in court on Tuesday in casual attire with a confident demeanor and pled not guilty to the information. U.S. Magistrate Judge Robin Rosenbaum ordered Rothstein jailed pending trial based on Rothstein’s flight to Morocco. Rothstein is represented by attorney Marc Nurik, oddly of Rothstein, Rosenfeldt and Adler, P.A. He faces up to 100 imprisonment if convicted.


Prosecution of Bear Stearns Hedge Fund Managers Cioffi and Tannin Runs into Setbacks; Prosecution Seeks to Present Evidence of Uncharged Offenses

The trial of Bear Stearns hedge fund managers Ralph Cioffi and Matthew Tannin continues in the Eastern District of New York. The Court has heard five days of testimony from government witnesses and admitted voluminous documents, mostly e-mail messages, as reported by Dan Slater of the New York Times.

However, the case does not appear to be going as the government had envisioned, with its own witnesses failing to support the allegations in the government's indictment. Even presiding U.S. District Judge Frederic Block has appeared irritated with the prosecution, at one point commenting on the prosecution's introduction of so many documents.

Observers have noted that the government's alleged case against Cioffi and Tannin is built upon e-mails whose meaning often changes when placed in their surrounding context. For instance, the prosecution has introduced an alleged incriminating e-mail--and one which it has highly touted--an April 22, 2007, e-mail from Tannin to Cioffi in which Tannin allegedly stated that “the whole subprime market is toast.” However, as reported by the Times, Tannin also stated in the same e-mail:

Every so often I worry a bit that because you have been so spectacularly successful so far in almost every way, you might be taking this opportunity to second guess yourself. Well, just in case you are, don’t. At the end of the day, I think we will both be able to look at all that happened and all that we have done and learn from what has gone well as well as from what hasn’t … What a shame it would be for us to not take all we have learned and apply it going forward.

Tannin continued:

We have lived a full and exciting life in the midst of an increasing [net asset value] and I see no reason why the fullness and positive excitement we experience should be any different if the trajectory of NAV changes. On every level I did not think a mature person or any person who is at peace with themselves would allow NAV to be the determining factor in anything except their W2 calculation, and Turbo Tax seems to do that effortlessly.

Former Bear Stearns private client representative/broker George Buxton also testified for the government. Buxton had stated in a pre-trial interview with the government, in regard to the allegation that Cioffi had withdrawn $2 million of his own money from the hedge fund, that it was like “the captain beating the women and children off the boat.” However, while testifying on cross-examination last week, Buxton stated that he had been unaware that Cioffi had reinvested the withdrawn funds in another Bear Stearns fund and admitted that if he had been aware of this fact, he would not have made the "boat" comment. Furthermore, when prosecutor Ilene Jaroslaw asked Buxton whether portfolio managers who intentionally give investors false and misleading information were guilty of a crime, Judge Block sustained an objection by the defense and gave the prosecution a stern warning.

Finally, additional evidence that the prosecution may be having a more difficult road than expected comes in the form of a letter request by the prosecution to Judge Block to introduce evidence of alleged uncharged acts by Cioffi and Tannin, filed on Sunday. The letter takes issue with Cioffi's and Tannin's counsels' arguments in opening statements to the jury to the effect that it was implausible that Cioffi and Tannin suddenly "went criminal" after the hedge funds had experienced months of positive growth and one flat month. In response, the prosecution seeks to introduce alleged evidence that Cioffi and Tannin allegedly defrauded Busey Bank several months earlier, in December 2006. The government contends that Cioffi allegedly executed a pledge agreement with Tannin's signature in which Cioffi and Tannin allegedly falsely represented to the Bank that the Bear Stearns Asset Management (“BSAM”) had consented to Cioffi’s pledge of his entire investment in the Enhanced Fund, when in fact BSAM had allegedly not consented. The government seeks to present the testimony of Greg Quental, former Bear Stearns Global Head of
Hedge Funds and one of the highest ranking Bear Stearns executives apart from CEO Rich Marin, to show that BSAM allegedly did not consent, but that Cioffi and Tannin allegedly pledged Cioffi's investment anyway to obtain a $4.25 million line of credit.

Trial of Bear Stearns Hedge Fund Managers Cioffi and Tannin Gets Underway

The trial of Bear Stearns hedge fund managers Ralph Cioffi and Matthew Tannin got underway last week. As reported by attorney Jacob Zamansky in Forbes and the New York Daily News, the parties gave opening statements on Thursday. Assistant U.S. Attorney Patrick Sinclair argued that Bear Stearns financial officer Matthew Tannin allegedly told investors on 11 occasions that he was putting more of his own money into Bear Stearns’ troubled High-Grade Structured Credit Strategies Fund and High-Grade Structured Credit Enhanced Leveraged Fund. Tannin allegedly told investors that it would be “silly” to redeem their investments. Sinclair also told the jury that Cioffi failed to disclose to investors that he had transferred $2 million of his own money to another Bear Stearns fund. The prosecution cited alleged incriminating e-mails between Cioffi and Tannin in which the defendants allegedly acknowledged that the subprime mortgage market was “toast” and that they should “close the fund.” Sinclair argued that Cioffi’s and Tannin’s actions were allegedly to save their bonuses and reputations. He spoke to the jury for about 45 minutes.

In contrast, Cioffi’s attorney, Dane Butswinkas, delivered a two hour opening statement using charts and exhibits to show the complexity of Bear Stearns’ management structure, hedge funds and the operation of the collateralized debt obligation (CDO) market. Butswinkas argued that the defendants were the victims of market forces beyond their control and that the defendants did their best to predict the future performance of the market and the funds. Tannin’s counsel, Susan Brune, also spent approximately two hours explaining to the jury about hedge funds, CDOs and market risk. Brune attributed the failure of the funds on a “run on the bank” and argued that the funds’ investors were well aware of the risks. Brune characterized the prosecution’s theory as “I lost my money, therefore there has to be a fraud.” The defense argued that the e-mails were taken out of context, and that worrying about markets is not a crime.

Nearly 300 investors kept their investments in the hedge funds, which lost $1.4 billion in July of 2007. The two hedge funds had experienced positive growth until the preceding quarter, however an internal Bear Stearns report showed that securitized subprime mortgages were losing value fast.

Bear Stearns Hedge Fund Managers' Trial Begins Today

The trial of former Bear Stearns hedge fund managers Ralph Cioffi and Matthew Tannin begins today in Brooklyn, as reported by Bloomberg. A jury will be selected today. 

Cioffi and Tannin are charged with allegedly causing losses of $1.4 billion to investors by misleading investors regarding the health of two Bear Stearns hedge funds, the Bear Stearns High-Grade Structured Credit Strategies Enhanced Leverage Master Fund Ltd. ("Enhanced Fund"). and the Bear Stearns High- Grade Structured Credit Strategies Master Fund Ltd. ("Master Fund"). Cioffi was a hedge fund manager and Tannin was an attorney who served as chief operating officer. They are charged with alleged conspiracy, securities fraud and wire fraud. Cioffi is also charged with alleged insider trading.

Cioffi's and Tannin's attorneys have argued that the collapse of Bear Stearns was actually the result of the failure of two other Bear Stearns hedge funds a year prior to the failure of the Enhanced Fund and the Master Fund.

U.S. Attorney Benton Campbell, a former member of the Justice Department’s Enron Corp. Task Force, and Assistant U.S. Attorney James McGovern, are leading the prosecution of Cioffi and Tannin. The prosecution alleges that Cioffi and Tannin were promoting the funds to investors while knowing that the health of the funds was in serious risk. The government has listed 38 witnesses and 532 exhibits which it intends to present at trial, however, the centerpiece of the government's evidence is expected to be Cioffi's and Tannin's own words in e-mails.Cioffi allegedly sent one e-mail on March 15, 2007, with the subject-line "Fear," stating that he was fearful of what the markets were going to do. In another e-mail, Tannin allegedly stated that if AAA bonds were downgraded, there would be no way for the funds to make money. Google released additional private e-mails to the government last week. Prosecutors allege that e-mails show Cioffi and Tannin allegedly boasting of how they were luring investors to invest more money in the funds at the same time they knew that the funds were in trouble. Witnesses for the government are expected to include Bear Stearns employees and investors in the hedge funds.

Cioffi is defended by attorney Brendan Sullivan, who won reversal of the charges against Alaska Senator Ted Stevens, as well as Margaret Keeley and Dane Butswinkas, all of Williams & Connolly LLP. Tannin is being represented by Susan Brune and Nina Beattie of Brune & Richard LLP. Commentators have observed that the e-mails by Cioffi and Tannin can be read in "many" ways.

A year following the failure of the funds, Bear Stearns itself failed and was purchased by JP Morgan Chase & Co. The failure of Bear Stearns was accompanied by failures of Lehman Brothers Holdings, Inc., and AIG. Losses from U.S. banks and mortgage companies in the financial collapse total at least $396 billion.


Bear Stearns Hedge Fund Managers Gear Up for Trial; Google Releases Manager's Private E-mails

As reported by Chris Herring over at the Wall Street Journal Law Blog, the trial of former Bear Stearns hedge fund managers Matthew Tannin and Ralph Cioffi is scheduled to commence next Monday. And now the government has obtained Tannin's e-mails from his private Google account. Tannin had closed the Google account on the advice of his counsel. Prosecutors suspected that Tannin was hiding something. Google released the e-mails a few days ago. U.S. District Judge Frederic Block for the U.S. District Court for the Eastern District of New York has ruled that since the e-mails have been released, the government cannot explore whether Tannin was trying to hide anything from investors in his personal e-mails, stating that it would confuse the jury and citing the fact that the government already intends to present 38 witnesses and over 500 exhibits in its case against the defendants.

E-mails between Tannin and Cioffi allegedly expressing concern over the health of the hedge funds have already been released to the public. The newly-produced e-mails are expected to reflect similar alleged concerns by the defendants.

As reported by CNN, Cioffi and Tannin are the only two persons to face criminal charges resulting from the worst financial crisis in U.S. history since the Great Depression. The defendants are alleged to have misled investors in two of Bear Stearns' hedge funds to believe that the condition of the funds was better than it in fact was. The hedge funds collapsed in the Spring of 2008, resulting in over $1 billion in losses to investors.

Legal observers have characterized Cioffi's and Tannin's prosecution as a "test case" and have cited the government's need to make an example to discourage similar conduct in the financial sector. Although Cioffi and Tannin may have offered the government what it believed to be its most clear cut case, commentators have noted it may be difficult to prove that Cioffi and Tannin possessed an alleged intent to defraud investors rather than merely being misguided or stupid, given the fact that very few foresaw the subprime mortgage crisis and the collapse of the market.

Civil Suit Alleges Fraud by Bear Stearns Execs

Bear Stearns' woes from the financial crisis continue to grow. We have noted the prosecution of former Bear Stearns hedge fund managers Ralph Cioffi and Matthew Tannin for alleged fraud. Now, as reported by Law.com, Bruce Sherman, CEO and Chief Investment Officer for Private Capital Management, L.P., which held approximately 5.9% of Bear Stearns' shares, has filed suit in the U.S. District Court for the Southern District of New York against Bear Stearns, former CEO James Cayne, co-president Warren Spector and accounting firm Deloitte & Touche LLP, the complaint for which can be viewed here.

The complaint alleges that Mr. Cayne and Mr. Spector allegedly repeatedly and directly assured Mr. Sherman that Bear Stearns' valuations and "book value "of its assets were accurate when they allegedly knew that the valuations and book value were materially inflated. Plaintiff alleges that, in July 2007, Mr. Cayne and Mr. Spector allegedly assured Mr. Sherman that the substantial overvaluation of mortgages and mortgage-backed securities owned by two failed hedge funds managed by Bear Stearns (the ones managed by Mr. Cioffi and Mr. Tannin ) did not reflect overvaluation of other Bear Stearns assets, which the Defendants allegedly knew to be false. The complaint alleges that Mr. Cayne and Mr. Spector repeatedly assured Mr. Sherman that Bear Stearns' risk-management policies protected his investments, which they allegedly knew to be false. The suit also alleges that Bear Stearns allegedly materially and falsely misrepresented the value of its assets in its financial statements, and that Deloitte & Touche allegedly certified the false  financial statements.

The complaint alleges claims for violations of Sections 10(b), 18 and 20 of the Securities and Exchange Act of 1394, as well as common law fraud. Mr. Sherman is represented by Boies Schiller & Flexner.

Sir Robert Allen Stanford Roundup

The Blog is getting caught up today on the news surrounding former wealthy financier, alleged Ponzi schemer and cricket fanatic Sir Robert Allen Stanford. First, last Wednesday, the Associated Press reported that Stanford allegedly lobbied the U.S. to permit Cuba to participate in an international cricket tournament. One of Stanford's companies, Stanford Financial Group, paid the Ben Barnes Group of Austin, Texas, $500,000 to lobby the U.S. Treasury Department to permit Cuba to particpate in the Stanford-20 Carribean Cricket Tournament in Antigua, citing Cuba's participation in the World Baseball Classic as precedent. In 2006, the U.S. government granted a special license for Cuba to participate in the tournament, after the Cuban government promised to donate any and all winnings from the tournament to the victims of Hurricane Katrina in the U.S. However, in 2007, the U.S. reversed itself and blocked Cuba's participation.

Then on Thursday, Bloomberg reported that Houston attorney Kent Schaffer, of the firm Bires & Schaffer, will represent Stanford working with the federal public defender's office for the Southern District of Texas. Stanford, once a billionaire, was left without means to pay for his defense after the government seized and froze his assets and the District Court refused access to the assets. Stanford nevertheless appears to be getting competent and skilled counsel--Mr. Schaffer's profile lists numerous high-profile clients including large corporations, a U.S. Congressman, late actress Farrah Fawcett, late MLB player Ken Caminiti, NFL player Dante Hall and other professional athletes, rap artists, authors and writers and a defendant in the Enron trial.

Finally, on Friday, Stanford Financial Group's former Global Security Director, Thomas Rafanello, pled not guilty in the U.S. District Court for the Southern District of Florida to charges that he shredded documents, as reported by Bloomberg. The government's indictment alleges that Rafanello and Bruce Perraud shredded documents in response to an investigation by the Securities and Exchange Commission, and in violation of a court order. Rafanello is a former head of the U.S. Drug Enforcement Administration's Miami office.


Indictment in the Bear Stearns Prosecution Traces Origins of the Financial Crisis

The indictment against Bearn Stearns executives Ralph Cioffi and Matthew Tannin is available here. Cioffi and Tannin are charged in the only major prosecution to date arising out of the collapse of numerous Wall Street firms beginning in 2007.

As related in the indictment, the Bear Stearns High Grade Structured Credit Strategies Fund Ltd. ("High Grade Fund") and the Bear Stearns High Grade Credit Strategies Enhanced Master Fund Ltd. ("Enhanced Fund") were hedge funds registered as a Cayman Island corporation. The High Grade Fund and the Enhanced Fund were brokered by Bear Stearns Securities Corporation (BSSC). Cioffi was the founder and Senior Portfolio Manager of the funds. Tannin was a Portfolio Manager who reported to Cioffi.

The indictment alleges that the High Grade Fund opened in 2003 and was invested in low-risk, high grade debt securities and collateralized debt obligations (CDOs). The fund purchased income earning assets through repurchase agreements. The indictment alleges that Cioffi and Tannin allegedly told investors that they could expect annual returns of 10 to 12 percent and that the fund was only slightly riskier than a money market fund.

By 2006, the performance of the High Grade Fund began to decline due to investors' threats to withdraw their investments. In response to this decline, Cioffi and Tannin allegedly created the Enhanced Fund, which was also invested in CDOs, but had greater leverage than the High Grade Fund and could allegedly provide greater returns than the High Grade Fund with only slightly more risk. Cioffi and Tannin had their own monies invested in the funds. In July, 2006, Cioffi and Tannin allegedly told investors that they were moving their funds from the High Grade Fund to the Enhanced Fund. Many investors allegedly moved their investments to the Enhanced Fund.

The Government acknowledges that the funds had positive monthly returns until January 2007. It alleges that in about March 2007, The indictment also alleges that Cioffi and Tannin owed duties to BSAM, the funds and the funds' investors. Cioffi and Tannin, despite allegedly knowing that the funds had serious problems, allegedly began to make misrepresentations to investors in hopes that the funds' incomes would recover. Cioffi and Tannin allegedly misrepresented material facts in communicationswith investors and lenders including the funds' financial prospects, liquidity and exposure to the subprime mortgage market, as well as Cioffi's and Tannin's personal investments in the funds. Cioffi allegedly had a meeting with the funds' portfolio management team in March of  2007 after which he instructed those attending the meeting not to discusse the funds' difficulties with others. The indictment cites communications between Cioffi, Tannin and others on the portfolio management team, in which they allegedly expressed concern over the condition of the funds.

Despite the condition of the funds, Cioffi and Tannin allegedly continued to make misrepresentations regarding the condition of the funds in hopes of enticing more investors and improving the financial condition of the funds. Furthermore, the indictment alleges that, beginning in March 2007, Cioffi allegedly began to transfer the more than $6 milion which he had invested in the funds to other Bear Stearns hedge funds without disclosing this fact to the funds investors.

 On April 17, 2007, the management team produced a CDO report which stated that the CDOs held by the funds were worth significantly less than had previously been determined. The indictment alleges that Cioffi and Tannin communicated regarding hiding the funds' troubles from other fund employees and allegedly made false statements regarding the financial condition of the funds during a conference call with investors on April 25, 2007. In the meantime, major investors in the funds were redeeming tens of millions from the funds. In June, 2007, investors in the funds were told that the funds had lost 100% of their value, or approximately $1.4 billion.

Cioffi and Tannin are charged in the Eastern District of New York with one count of conspiracy to commit securities fraud and wire fraud, three counts of securities fraud, and four counts of wire fraud, as well as a criminal forfeiture count against their real and personal property. Cioffi's and Tannin's trial is scheduled to begin on September 28.

Receiver in Stanford Case to Defend $27 Million in Legal Fees

The sums which investors were allegedly defrauded of in the matter of Sir Robert Allen Stanford aren't the only jaw-dropping amounts involved in the case. As reported by the Associated Press, a hearing is being held today in the U.S. District Court for the Southern District of Texas concerning the $27 million in legal fees claimed by the receiver appointed by the Court to manage Stanford's companies. The receiver, attorney Ralph Janvey of Krage & Janvey, L.L.L.P. in Dallas, Texas, is claiming the legal fees for hundreds of attorneys and consultants his firm had to hire in an effort to trace the alleged billions of dollars Stanford and his network of companies allegedly defrauded investors of. Mr. Janvey, a former Assistant Director of Securities for the United States Comptoller of the Currency, has served as a court-appointed equity receiver for the Securities and Exchange Commission on previous occasions.



SEC Eyes Sir Robert Allen Stanford's Upaid Gambling Debt


As we check back with Sir Robert Allen Standford, the most noteworthy development is perhaps that the Bellagio, a Las Vegas casino and luxury resort, filed suit against Stanford last week in a Clark County Nevada district court for an alleged $258,480 in unpaid gambling debts.The lawsuit alleges that Stanford signed for 14 markers between January 15 and 22 of this year.

Oddly enough, Stanford is allegedly a self-professed Southern Baptist who reportedly infused the boardroom culture in his companies with religion, surrounded himself with individuals he met through church and used church contacts to find customers. Furthermore, Stanford's adoptive home, Antigua and Barbuda, is one of the leading host nations for the multi-billion dollar international online gambling  industry. Stanford, however, reportedly refused to deal with persons involved in gambling in his business dealings. While Stanford's companies based in Antigua have ceased operations, its online gambling sector has continued to thrive.

The Securities and Exchange Commission, which has frozen Stanford's assets, is investigating the Bellagio markers.


Bear Stearns Execs Head for Trial on Wire and Securities Fraud Charges

As is well known, Bear Stearns, one of the largest investment banks in the world, was sold to JP Morgan Chase and effectively ceased to exist in March of 2008, after two Bear Stearns hedge funds invested in collateralized debt obligations—mainly subprime home loans—and once worth approximately $1.6 billion, lost nearly all of their value. The collapse of Bear Stearns was the harbinger for a succession of massive failures of financial institutions, including Lehman Brothers, Merrill Lynch and AIG, triggering the current global recession.

As reported by New York Magazine, Reuters and the Daily Telegraph, two managers of the hedge funds, Ralph Cioffi and Matthew Tannin were charged in June in the Eastern District of New York with several counts of wire and securities fraud for allegedly misleading investors regarding the status of the funds in the Spring of 2007. Cioffi, a hedge fund manager, and Tannin, the Chief Operating Officer of Bear Stearns Asset Management (BSAM), have pled not guilty. The collapse in value of the funds cost investors approximately $1.4 billion. When traders wanted to sell some of the funds’ subprime mortgages, no one wanted to buy them.

The trial of Cioffi and Tannin is set to begin in October. The evidence against Cioffi and Tannin consists largely of e-mails between them and investors describing the funds as “an awesome opportunity,” despite allegedly knowing that the funds had problems. Bear Stearns investors are expected to testify at the trial. Both men have consistently maintained their innocence. They face a potential 20 years in prison if convicted.

Cioffi is also charged with alleged insider trading for withdrawing $2 million of his own money from the funds. The government alleges that he engaged in hundreds of transactions involving the funds without the necessary approval by the fund’s directors and despite being warned about conflicts of interest. All trades between Bear Stearns, a securities firm, and BSAM, an asset management firm, were supposed to be vetted by an independent committee. In the Fall of 2006, Bear Stearns ordered a moratorium on such internal trades by Cioffi. Prosecutors sought to introduce evidence of Cioffi’s alleged insider trading in order to demonstrate how Cioffi allegedly operated.

British bank Barclays, a shareholder of one of the funds, also filed suit against Cioffi and Tannin for alleged fraud, however, the suit has been withdrawn.

The prosecution of Cioffi and Tannin makes conspicuously noticeable the fact that no senior executives from Bear, Lehman Brothers, AIG, etc., have been charged with any wrongdoing in the fallout from the financial crisis.


Fifth Circuit Denies Sir Robert Allen Stanford Pretrial Release

It has not been a good week for financier Sir Robert Allen Stanford. On Monday, the U.S. Court of Appeals for the Fifth Circuit ordered that Stanford must remain incarcerated pending his trial on charges relating to an alleged multi-billion dollar scheme to defraud investors. The Court of Appeals also denied attorney Dick DeGuerin's motion to withdraw as Stanford's counsel in favor of attorney Robert Luskin of the firm Patton Boggs.

Then on Thursday, Stanford was taken to the hospital with an extremely high pulse rate and irregular heart rythym, as reported by the New York Post. Finally, Stanford's former Chief Financial Officer James Davis, who has been cooperating with the government, entered a guilty plea yesterday in the U.S. District Court for the Southern District of Texas to conspiracy, fraud and obstruction charges.

Stanford is now in an extremely serious position. The government has seized and frozen his assets, preventing him from retaining competent private counsel. Furthermore, even if he were able to retain and pay counsel of his choosing, his ability to participate in his defense has been materially limited by the Court of Appeals' and trial court's denial of pre-trial release. Finally, the government appears to be applying pressure to Stanford's alleged co-conspirators, and they appear to be folding. In view of Stanford's strenuous denials of any wrongdoing, his defense after these setbacks will be watched with substantial interest.

Court Dismisses $1 Billion Fraud and Conspiracy Suit Against AIG

Last Thursday, the U.S. District Court for the Northnern District of Illinois dismissed a $1 billion lawsuit by a group of insurers against insurance giant AIG alleging fraud and conspiracy, according to Law.com. The insurers, part of the National Council on Compensation Insurance (NCCI), alleged that AIG shortchanged workers compensation funds. On Thursday, U.S. District Judge Robert Gettleman dismissed the suit, finding that NCCI did not have standing.

AIG had previously come to an agreement in 2005 with federal regulators regarding the alleged conduct, agreeing to pay $343 million to settle the workers comp claims. The conduct was part of a broader $1.6 billion accounting scandal which resulted in the termination of CEO Hank Greenberg.

NCCI administers a pool that serves as a payer of last resort for injuries at companies that can't acquire insurance on the open market. It filed suit on behalf of 600 insurers which contribute to the workers compensation pool, alleging that AIG's settlement with federal regulators was insufficient and claiming that AIG's false reports shortchanged insurers for at least $1 billion. The court held, however, that NCCI did not have standing as administrator of the pool for the reason that the complaint did not allege that NCCI or the pool were allegedly harmed as a result of AIG's actions.

The court's decision means that the insurers will have to pursue claims against AIG individually. Several have already filed putative class actions and Liberty National has filed an individual suit.


Sir Robert Allen Stanford Changes Counsel; Government Opposes Counsels' Move to Determine Payment of Legal Fees

Financier Sir Robert Allen Stanford continues to seek access to funds to pay for his defense to charges of defrauding investors of hundreds of millions of dollars. On July 31, Mr. Dick DeGuerin of DeGuerin & Dickson filed a Motion to Withdraw as Attorney of Record for Stanford. The Motion stated that Stanford had received a press release and a facsimile informing Mr. DeGuerin that Stanford was replacing him with Mr. Robert Luskin and other attorneys with the firm of Patton Boggs LLP.

On August 4, Stanford filed an Expedited Motion to Permit New Attorneys to Appear for Limited Purpose, seeking to allow the firms Patton Boggs and Sydow & McDonald LLP to appear in the case for the limited purpose of resolving Stanford's access to monies to pay his legal fees and expenses. The memorandum in support of the Motion, filed by Michael D. Sydow of Sydow & McDonald, relates that the Securities and Exchange Commission has seized and frozen Stanford's assets and those of his companies and placed the assets and Stanford's records under the control of a Receiver. The memorandum also relates that, although Stanford is the beneficiary of directors & officers liability provisions of insurance policies through his companies, the insurers have denied coverage because the Receiver has claimed that all insurance proceeds belong to the Receivership Estate. The attorneys state that, if they are successful in receiving sufficient assurances that their legal fees will be paid, they will enter full appearances on Stanford's behalf.

The Government has filed a Response to the Motion. It maintains that allowing such a conditional appearance would create a risk of indefinite delay in the proceedings. It also points out that Patton Boggs already represents Stanford in the SEC proceeding, and that it is capable of litigating Stanford's access to funds in that proceeding. The Government requests that the attorneys' request to make a conditional limited appearance be denied.

Stanford's dilemma is a familiar one in white collar criminal cases. A defendant's assets are frozen, depriving him or her of the means to pay for private counsel to defend against complex criminal charges. The defendant is then given appointed counsel who, in most cases, provide a skilled and competent defense, but in others merely increase the Government's chances of obtaining a plea or conviction.  

Representative William Jefferson Convicted on 11 of 16 Counts

We did not weigh in yesterday, but the biggest federal criminal defense news was clearly the conviction of U.S. Representative William Jefferson of Louisiana in his criminal trial in the U.S. District Court for the Eastern District of Virginia, as reported by the New Orleans Times-Picayune. The jury of eight women and four men returned a verdict of guilty against Jefferson on 11 of 16 counts, including 2 counts of conspiracy to solicit bribes to a public official in violation of the Foreign Corrupt Practices Act (FCPA), 2 counts of soliciting bribes, 3 counts of honest services fraud, 3 counts of money laundering, and one count of racketeer influenced and corrupt organization (RICO) violations. As a testament to Jefferson's defense, the jury did not find Jefferson guilty on three of the honest services charges as well as a charge for obstruction of justice and a count for violation of the FCPA.

Jefferson, who is 62, faced a maximum of 235 years in prison if convicted on all counts. He has been allowed to remain released pending his sentencing on October 30. A forfeiture hearing will be held regarding his assets.

Jefferson was the first African-American congressman from Louisiana since Reconstruction.

Jury Begins Deliberating Rep. William Jefferson's Fate Following Over 2 & 1/2 Hours of Jury Instructions

As reported by the New Orleans Times-Picayune, Judge T.S. Ellis, III, of the U.S. District Court for the Eastern District of Virginia read instructions to the jury yesterday which lasted over 2 & 1/2 hours, and the jury retired for its deliberations in the case against former U.S. Representative William Jefferson. The jury deliberated for about four hours and will re-convene to continue deliberations this morning.

The jury weighing the evidence in the six week long trial of Jefferson on 16 criminal counts, including racketeering, honest services fraud and violations of the Foreign Corrupt Practices Act, consists of two white males, six white females, two black males and two black females. Jefferson's case is the first time the Foreign Corrupt Practices Act has been applied to a public official. The Court sent three alternate jurors home yesterday, instructing them to remain "pristine" with regard to their exposure to information regarding the case.Jefferson's lead attorney, Robert Trout, told reporters that Jefferson intends to be present at Court each morning when the jury arrives.

Closing arguments were heard earlier in the week, with numerous media outlets and journalists from Louisiana in attendance.

Trial Ends in Case of Former Representative William Jefferson; Jury Deliberations to Begin Today

The trial of former Representative William Jefferson, which has gone on for six weeks in the U.S. District Court for the Eastern District of Virginia, will come to an end today. As reported by Ashby Jones at the Wall Street Journal Law Blog and UPI, both sides gave their closing arguments yesterday. Judge T.S. Ellis will give jury instructions and likely send the case to the jury this morning.

The case is best known for the infamous discovery of $90,000 in cash stuffed in boxes for burgers and pie crusts in the freezer at Jefferson's home by federal agents. Jefferson was indicted in 2007 on 16 counts of bribery, racketeering, and violations of the Foreign Corrupt Practices Act. The government charged Jefferson with using his position to promote business ventures in West Africa in exchange for cash payments for his family.

Assistant U.S. Attorney Rebecca Bellows argued during the govenrment's closing that Jefferson allegedly schemed to give at least $100,000 in cash (the "freezer money") to the Vice President of Nigeria, Atiku Abubakar, as a bribe in exchange for granting rights to a telecommunications company with ties to Jefferson's family. The government also played video and audio tapes of meetings between Jefferson and Virginia businesswoman Lori Mody, who was working for the government as an informant. In one video, Jefferson supposedly informed Mody that the cash would be "doled out" to "make sure the hook is in there," and on another tape Jefferson allegedly referred to the bribe as "a goodwill present."

The defense maintained during trial that Jefferson's conduct was stupid or unethical, but not criminal. Defense attorney Robert Trout told the jury during his closing arguments that the government wanted to make Jefferson's actions a crime when it was really a "gray area." He told the jury that Jefferson only agreed to give the money to Abubaker in order to please Ms. Mody.

Prior to closing arguments, Judge Ellis refused to dismiss an obstruction of justice count against Jefferson. Jefferson faces a lengthy prison sentence if convicted.


Sir Robert Allen Stanford's Continuing Pretrial Detention Blues

Sir Robert Stanford has filed a Motion for Relief from Oppressive Jail Conditions. Stanford is currently being held at the Joe Corley Detention Facility in Conroe, Texas. The Motion alleges that temperatures have reached 100 degrees and that the cell in which Stanford is being housed in a cell with 8 to 10 other men and with no windows or air conditioning. Stanford requests transfer to the Federal Detention Center in downtown Houston. The Motion also asserts, as a ground for transfer, the fact that the government has provided discovery in electronic form and the Joe Corley Facility does not permit the use of electronic devices. Stanford's counsel, Dick DeGuerin, claims that he has tried to work these issues out with the U.S. Marshals Service and the staff of the Joe Corley Detention Facility, but to no avail.

A status conference has been set in Stanford's case for September 10, which the defendants moved to continue from August 17. Meanwhile, Stanford's appeal of the District Court's denial of pretrial release is listed in the U.S. Court of Appeals for the Fifth Circuit, U.S. v. Stanford, Case No. 09-20444.

While in no way meaning to detract from the charges against Stanford and his codenfendants, which are extremely serious in magnitude, this Blog notes that arch-Ponzi schemer Bernard Madoff and celebrity attorney-turned-crook Marc Dreier were both granted pretrial release and were confined to their residences with electronic monitoring devices. Given that the government has frozen all of Stanford's assets effectively starving his defense of funding, and that the defense has alleged deliberate misrepresentations by the prosecution in arguing for pretrial detention, pretrial release appears to be appropriate in Stanford's case. We will await the hopefully speedy resolution of the bail issue by the Fifth Circuit.

FBI Operation "Bid Rig" Nabs 44 Suspects in New Jersey Public Corruption, Illegal Organ Transplant and Designer Merchandise Schemes


The 44 public officials and other persons arrested in the massive sweep on Thursday by the FBI, the result of efforts by the convicted son of a rabbi, include:

Daniel Van Pelt, State Assemblyman;

Peter Cammarano III, Mayor of Hoboken, New Jersey;

Dennis Elwell, Mayor of Secaucus, New Jersey;

Anthony Suarez, Mayor of Ridgefield, New Jersey;

Leona Beldini, Deputy Mayor of Jersey City;

Mariano Vega, President of the Jersey City Council, Commissioner with the Jersey City Housing Authority and Director of Parks, Engineering and Planning for Hudson County, New Jersey;

L. Harvey Smith, President of the Jersey City Council and former State Assemblyman;

Lou Manzo former State Assemblyman;

Edward Cheatam, Jersey City Housing Authority Commissioner and Hudson County Affirmative Action officer;

Michael Schaffer an employee of the North Hudson Sewerage Authority and former Hoboken Councilman;

John Guarini, city taxi inspector and former 13th District Congressional candidate

Denis Jaslow, former 32nd District State Senate candidate;

Guy Catrillo, Michael J. Manzo and LaVern Webb Washington, former Jersey City City Council candidates;

Richard Greene, former aide to L. Harvey Smith;

Joseph Cardwell, Jack Shaw, political operatives;

Also Moshe Altman, Charles Amon, Joseph Castagna, Schmulik Cohen, Levi Deutsch, Yeshayahu Ehrental, Mordchai Fish, Yolie Gertner, David S. Goldhirsh, Shimon Haber, Eliahu Ben Haim, Itzak Friedlander, Saul Kassin, Maher A. Khalil, Ron Manzo, Edmond Nahum, Abraham Pollack, Levi Izhak Rosenbaum, Lori Serrano, Jack Shaw, Vincent Tabbachino, Jeffrey Williamson, Lavel Schwartz, Binyomin Spira, Naftoly Weber and Arye Weiss.

As reported by various sources here, here and here, the arrests were part of a 10-year, two-track investigation by the FBI, code named “Bid Rig” which uncovered three criminal schemes: bribery of public officials; an international money laundering ring operating between Deal, New Jersey, and Israel; and trafficking in illegal kidneys and Gucci bags. The schemes were uncovered by a confidential informant had been charged with bank fraud in 2006 and agreed to work with the FBI. Five rabbis from New Jersey and New York were among those arrested. Hundreds of federal agents raided the suspects’ homes in New Jersey and New York. There were so many arrestees that they had to be brought to FBI headquarters in Newark, New Jersey, by bus. One religious leader arrived in a Mercedes-Benz. Bail was set as high as $3 million for some of the suspects.

FBI Special Agent Ed Kahrer stated to reporters that New Jersey has one of the worst, if not the worst, public corruption problems in the nation, and that corruption has become “engrained” in New Jersey’s “political cult.” Acting U.S. Attorney Ralph J. Marra, Jr., announced that the conspiracy, which was headed by rabbis cloaked their criminal activity in a “facade of rectitute.”

Investigators stated that they have hundreds of hundreds of hours of video and audio recordings containing evidence of money laundering and bribery.

The Public Corruption and Bribery Cases

A criminal complaint filed against Hoboken Mayor Peter Cammarano, 32, alleges that Cammarano accepted a bribe in exchange for giving priority to an FBI informant posing as a real estate developer wanting to develop property in Hoboken. Hoboken’s waterfront contains prime real estate across from Manhattan. The informant is believed to have been Solomon Dwek, who was arrested in 2007 and charged with bank fraud for bouncing a $25 million check. Dwek is the son of Rabbi Isaac Dwek of the Deal Synagogue in Deal, New Jersey, which was raided by the FBI on Thursday. Dwek told the conspirators that he was in bankruptcy and was interested in hiding his assets.

The informant met Cammarano while he was running for Mayor and told Cammarano that he would give him $10,000. The complaint alleges that Cammarano promised the informant that he would sponsor the plans and treat the informant like a “friend.” Michael Schaffer, a North Hudson Utilities Authority commissioner and former Hoboken Councilman, allegedly acted as a middle man for the bribe.

Cammarano has only been in office for three weeks. He allegedly told the informant that those who oppose him get “ground into powder.” When the discussion turned to a possible runoff election with Cammarano’s challenger Dawn Zimmer, who lost the election by only 161 votes, Cammarano allegedly told the informant “I could be indicted and still get 85 to 95 percent of the vote.” Cammarano’s attorney, Joseph Hayden, has made a statement that Cammarano intends to fight the charges.

Cammarano is charged with allegedly accepting a total of $25,000 in cash bribes. Dennis Elwell, 64, Mayor of Secaucus is charged with allegedly accepting a $10,000 cash bribe and Anthony Suarez, 42, Mayor of Ridgefield, is also charged with allegedly accepting a $10,000 cash payment—for his legal defense fund.

L. Harvey Smith, Jersey City Council President, and several other current and former Jersey City public officials also are accused of allegedly accepting money to help the fake developer gain permits and approvals. Deputy Mayor of Jersey City Leona Beldini is charged with conspiracy to commit extortion for allegedly accepting $20,000 in illegal campaign contributions.

FBI agents raided the home and office of New Jersey Department of Community Affairs Commissioner and former State Senator Joe Doria as part of the investigation. Doria resigned on Thursday afternoon. Officials have not stated whether he will face charges.

The Money Laundering and Black Market Organ and Designer Goods Cases

Five rabbis from Deal and Brooklyn were charged with alleged money laundering and sale of fake designer bags. The rabbis were approached by Dwek and dealt with him, despite the fact that it was well known that he had been charged by the government. Dwek’s dealings with the rabbis eventually uncovered the public corruption case when a Jersey City building inspector accepted a $20,000 bribe. Rabbi Saul Kassin of Deal is charged with allegedly laundering more than $200,000. Mordchai Fish, a rabbi at Congregation Sheves Achim, and his brother, Lavel Schwartz, laundered nearly $600,000 for Dwek, giving him cash and taking a 15% cut.

Agents raided “cash houses” run by associates of the rabbis, including a charity called Bnoth Jerusalem and a beeper store.

Levy Rosenbaum, a Brooklyn resident, was charged in a criminal complaint with allegedly conspiring to broker a sale of a human kidney for transplant for $160,000. The complaint further alleged that Rosenbaum had been selling kidneys from vulnerable persons in Israel for 10 years, which he would purchase for $10,000 and sell in the U.S. for $160,000.

The public corruption scandals will undoubtedly figure into the current U.S. Senate contest between Senator Jon Corzine and former U.S. Attorney Chris Christie, who claims to have obtained 130 convictions of elected and appointed officials on corruption charges.


Sir Allen Stanford Remains in Custody Pending Appeal

As we have noted, the prosecution of wealthy, international financier Sir Robert Allen Stanford has been characterized from the outset by vigorous disputes over bond for Stanford. The prosecution has argued that Stanford poses a risk of flight given his international connections and the potential that he possesses resources hidden overseas. The defense, led by attorney Dick DeGuerin, has hit back, arguing that Stanford possesses considerable ties to the U.S. and voluntarily surrendered himself, and further charging that the prosecution has made numerous knowing misrepresentations in arguing against bond for Stanford.

The U.S. magistrate judge had ordered Stanford to be released on $500,000 bond, however the District Court Judge reversed the order and ordered Stanford to remain in custody. Last Friday, Stanford's attorneys appealed the Court's bond determination to the U.S. Court of Appeals for the Fifth Circuit.

The government is certainly pulling out all the stops in putting pressure on Stanford, who is charged in an alleged Ponzi scheme which allegedly lost investors $7 billion. Not only has it managed to deny him bond, but it has frozen his assets and those of his companies. Yesterday, the defense was granted permission by the Court to file a motion regarding attorney's fees ex parte and under seal.


Dreier Sentencing Next Monday: Defense Wants 10 to 13 Years/Government Wants 145 Years or Life

As reported by Law.com, the sentencing of celebrity attorney and Ponzi schemer Marc Dreier is scheduled for next Monday, July 13. Dreier was arrested last December for defrauding investors and clients of more than $740 million through a series of schemes. A full history of the Dreier saga is set forth here. He pled guilty on May 11 to one count of conspiracy to commit securities fraud and wire fraud, one count of money laundering, one count of securities fraud and five counts of wire fraud and has remained under house arrest in his luxury apartment in Manhattan.

Dreier's attorney, Gerald L. Shargel, filed a sentencing memorandum on Tuesday requesting a sentence for Dreier of between 10 years and 12 years and 7 months. Shargal asserted that Dreier has already started to be punished through his public disgrace, the loss of his law firm and possession, and "the shame and suffering that his actions have brought upon his family."

However, the prosecution, headed by Assistant U.S. Attorney Jonathan R. Streeter, has filed a sentencing memorandum aiming for a higher sentence for Dreier--145 years in prison, or, in the alternative, "a term of years that would both assure that Dreier will remain in prison for life and emphatically promote general deterrence."

The government's recommended sentence for Dreier is a mere 5 years less than the 150 year sentence imposed two weeks ago on the largest Ponzi scheme fraudster in history, Bernard Madoff (as massive as Dreier's crimes were, Madoff defrauded investors of exponentially more money). Dreier is currently 59. The proposed 145 years aside (and 145 years before his sentencing date--June 13, 1864--Ulysses S. Grant and Robert E. Lee had just concluded one of the bloodiest battles in American history at Cold Harbor, Virginia) any sentence imposed by the Court is all but guaranteed to ensure that Dreier spends the rest of his life behind bars. Although Drier's fraud, as massive as it is, is only a small fraction of the damage caused by Madoff, the record for a white collar criminal sentence is actually 845 years, imposed on Shalom Weiss in 2000 for a $450 million mortgage and insurance scheme against Florida pensioners (to be eligible for release today, even counting "good time," Weiss would have had to have started his sentence in 1290--the year Edward I of England passed the statute of Quia Emptores, which reformed the feudal land system). You can enjoy Money Central's list of the ten longest white-collar criminal sentences here.

Bail Battle Continues in Prosecution of Sir Robert Allen Stanford

The prosecution in the case of wealthy international financier Sir Robert Allen Stanford wants Stanford behind bars even before he has his day in court, arguing that his contacts abroad create a great risk that he will flee the country. Stanford, through his attorney, Dick DeGuerin, has countered that he possesses ties to the U.S. and voluntarily surrendered to authorities following the issuance of the warrant for his arrest. The dispute over potential pretrial release/bail for Stanford in this case has been particularly heated, as shown by a chronology:

June 19: At Stanford's initial appearance, U.S. Magistrate Judge Hannah Lauck of the U.S. District Court for the Eastern District of Virginia determines that Stanford is a flight risk and orders him detained. Stanford is transported to Houston.

June 25: At Stanford's arraignment in the U.S. District Court for the Southern District of Texas, U.S. Magistrate Judge Frances H. Stacy sets Stanford's bond at $500,000 but stays bond pending the prosecution's appeal of the bond.

June 29: U.S. District Judge David Hittner holds hearing on the revocation of Magistrate Judge Stacy's release order. Judge Hittner reverses release order and orders Stanford detained.

July 7: Stanford files a 48-page Motion to Reconsider and/or Reopen Detention Order, with numerous exhibits. Mr. DeGuerian alleges in the Motion that the prosecution made numerous misrepresentations of material facts in arguing for the revocation of Stanford's bond. Stanford claims that the government made the following alleged intentional misrepresentations to the Court in order to cause Stanford's release to be revoked:

1. That Stanford's expired Antiguan diplomatic passport was allegedly "missing;"

2. That Stanford allegedly siphoned approximately $100 million from a bank account with Societe Generale Swiss in late 2008;

3. That Stanford's primary residence is allegedly not the U.S. and that he does not have strong ties to Texas;

4. That $1 billion is allegedly "missing" from Stanford's companies;

5. That Stanford has engaged in allegedly suspicious travel while he has been under investigation and that he allegedly has contacts outside the U.S. who would gladly help him flee; and

6. That Stanford allegedly bribed Antiguan officials.

The Stanford case is a good example of how allegations of prosecutorial misconduct and misrepresentations can play into the very inception of a case or into stricly procedural matters, without having to await formal challenges to charges on the merits. In any event, Stanford's attorneys have certainly presented a forceful argument for his release on bond, and we look forward to monitoring the Court's resolution of his Motion.


Verdict Still Out on Bond for Financier Sir Robert Allen Stanford

As reported by the Houston Chronicle, Texas and Antiguan billionaire financier Sir Robert Allen Stanford remains in custody following a hearing yesterday in the U.S. District Court for the Southern District of Texas in which the prosecution asked the Court to revoke the $500,000 bond initially set for Stanford. Assistant U.S. Attorney Gregg Costa argued to U.S. District Judge David Hittner that Stanford’s international ties make him a substantial flight risk, distinguishing him from former Enron executives Kenneth Lay and Jeffrey Skilling, who were released on bond. The prosecution argued that Stanford might have access to vast wealth from investors hidden abroad. It also speculated that Stanford has a network of wealthy acquaintances abroad who might assist Stanford in fleeing.


Stanford’s attorney, Dick DeGuerin, countered that his client is broke because all of his assets have been seized by the Government. DeGuerin claimed that even though Stanford had been considered one of the wealthiest men in the U.S., with a net worth of more than $2 billion, his family and friends had to come up with the $100,000 in cash for his bond. DeGuerin stated that Stanford has no interest in fleeing because "When we win this case, and we will win this case, Mr. Stanford will be restored of much of what he has been stripped of… That is a tremendous financial incentive to stay." DeGuerin also cited the fact that Stanford has resided in Houston recently, has strong family ties with the U.S., and voluntarily surrendered to authorities. Stanford gave a thumbs up to family members in the courtroom.


Costa claimed that Stanford defrauded investors of approximately $7 billion in a massive Ponzi scheme, diverting $1.6 billion to himself in personal loans to fund a lavish lifestyle, which included six private jets, a helicopter and homes in Miami and St. Croix.

Trial of Former Representative William Jefferson Focuses on His Wife

Checking in on the trial of former Representative William Jefferson, now in its third week in the U.S. District Court for the Eastern District of Virginia, WBRZ in Louisiana reports that yesterday, U.S. District Judge T.S. Ellis stated that Jefferson’s wife, Andrea Jefferson, could be considered part of the bribery conspiracy charged against Jefferson, even though she has not been indicted. Mrs. Jefferson is an Assistant Vice President of Southern University, and owns a consulting company called The ANJ Group along with her five daughters. The Government has alleged that Jefferson steered payments to The ANJ Group in return for promoting a project in Africa for Kentucky telecommunications company iGate. iGate’s President, Vernon Jackson, testified earlier in the trial that he paid The ANJ Group $330,000, although the company did no work for iGate. Assistant U.S. Attorney Mark Lytle argued that Mrs. Jefferson “knew her husband was using her company to further iGate’s ambitions.”


Jefferson’s lead counsel, Robert Trout, argued that there was no connection between Mrs. Jefferson and the alleged scheme. Jefferson is charged with 16 counts, including bribery, conspiracy, racketeering and money laundering, and is alleged to have demanded bribes for himself and his family members in exchange for pushing certain projects in Africa. Jefferson’s attorneys have defended that Jefferson was acting as a private businessman in the alleged dealings, and did not commit official legislative acts such as voting, introducing legislation or appropriating government money.


The prosecution spent most of the day yesterday attempting to prove that Jefferson benefitted from his wife’s company, putting Jefferson’s former campaign and personal treasurer, Jack Swetland, who was also the accountant for The ANJ Group, on the stand. Swetland testified that the company was created in 2001, and by the end of 2005, William Jefferson was sending out the majority of its personal checks.

Another Georgia Sheriff Sentenced for Corruption

Former Telfair County Georgia Sheriff, Jimmie Williamson, was sentenced late last week in federal court to 3 years in prison following his plea earlier this year to honest services mail fraud. Williamson pled guilty to embezzling fine and bond money paid by criminal defendants, accepting bribes in exchange for reduced charges from criminal defendants and purchasing items for his own personal use with Sheriff’s Department funds.

The Macon Telegraph has the story here.

Williamson is the second Telfair County Sheriff to enter a guilty plea to federal charges in the past 2 decades. In the mid-1990s, former Sheriff, Ronnie Walker, was sentenced to 10 years in federal prison for his role in aiding marijuana growers in his county.

The government was represented by an extremely capable young attorney who came to the Southern District of Georgia from Latham & Watkins, Brian Tanner. The Telegraph reports that Tanner argued that the Sheriff had committed a "monumental breach of trust."

Judge Kent Finally Resigns

The Houston Chronicle reported Friday that convicted District Court Judge Samuel Kent finally resigned from his position as a United States District Court Judge effective at the end of this month. Kent was convicted by guilty plea of obstructing an investigation into his conduct. At the core of Kent’s criminal conduct was his predatory sexual abuse of two women who worked for the court.

Kent had earlier offered to resign in June 2010, but hearing that, the House quickly voted to impeach him. Kent had continued to collect his salary of $174,000 per year even though he began serving his 33 month sentence earlier this month. Kent could only be removed by his own resignation, or impeachment. Angered by Kent's arrogance in submitting his resignation for a year down the road, the Senate was moving forward with impeachment.

The Chronicle reports that Kent handed a one sentence resignation letter to Senate officials who showed up at his federal prison last week.

So ends a case that demonstrated all too well that the judiciary is unable to police itself. However, the case also demonstrates that the courage and suffering of two citizens can be redeemed with a measure of justice in our society.

Snipes Case set for Oral Argument

Wesley Snipes' misdemeanor convictions for failing to file a tax return have been scheduled for oral argument in November before the Eleventh Circuit. We blogged on this case with some frequency post verdict. Snipes now has his 7th attorney on board for the purpose of handling his appeal, Philadelphia attorney, Peter Goldberger. Snipes has a rather significant venue issue that was litigated pretrial. The issue -whether Snipes is a resident of central Florida (where he grew up) for purposes of filing tax returns, or whether his residency for tax purposes is in either New York, or Los Angeles where he has resided during his professional life. We’ll follow this appeal as briefs are filed.

Snipes remains free on bond pending appeal.

Sir Robert Allen Stanford Enters Not Guilty Plea to $7 Billion Fraud Charges/Court States Intention to Release Him on $500,000 Bond

Sir Robert Allen Stanford entered a plea of not guilty yesterday to the indictment charging him with alleged defrauding investors in a $7 billion Ponzi scheme. U.S. Magistrate Judge Frances Stacy presided over the arraignment in the U.S. District Court for the Southern District of Texas in Houston.

Also yesterday, Stanford's co-defendant and alleged co-conspirator, Leroy King, a former official with Antigua and Barbuda's Financial Services Regulatory Commission, was arrested in Antigua. King is in custody pending a potential extradition request to the United States.

Stanford remains in custody. Magistrate Judge Stacy told the parties yesterday that she intended to order Stanford released on $500,000 bond, but that she would reserve her ruling until today to give the government time to appeal her decision. Assistant United States Attorney Paul Pelletier argued that there are no set of conditions which would guarantee Stanford's appearance at trial. The Government has filed a Memorandum in Support of Detention, arguing that Stanford should be denied bond based on the fact that he has a motive to flee, as well as the means and opportunity, noting, among other things, that Stanford's passport shows that he has traveled to over 30 foreign countries, and entered Antigua over 40 times in 2008. The defense filed a Memorandum in Support of Standford's Right to Pretrial Release on Wednesday, arguing that Standford is not a flight risk and that Stanford is required to be released on his own recognizance or an appearance bond under 18 United States Code section 3142. The memorandum cites the fact that Stanford voluntarily surrendered his passport to the Government after the Securities and Exchange Commission filed a civil fraud suit against him back in February; and that he arranged to voluntarily surrender to authorities upon learning of his indictment. We note that Stanford also has a home in South Florida... complete with a moat.

Indictment in the Sir Robert Allen Stanford Case/Stanford to Be Arraigned in Houston Today

Sir Robert Allen Stanford is scheduled to be arraigned today on conspiracy, mail and wire fraud, money laundering and obstruction charges in Houston in the U.S. District Court for the Southern District of Texas. Stanford is represented by attorneys Dick DeGuerin and Sean Ryan Buckley, of the Houston firm of DeGuerin and Dickson.

According to the docket for the case, the Government obtained its 21-count indictment, which can be viewed here, last Thursday and promptly moved to seal (i.e. prevent public access to) it, and then unsealed it on Friday shortly before Stanford’s arrest.

The Court will likely revisit the issue of whether Stanford is entitled to release before trial. On Friday, the Court ordered co-defendants Mark Kuhrt and Gilberto Lopez released on a $100,000 unsecured bond. However, given Stanford’s considerable wealth and ties abroad, any amount of bond imposed in his case will undoubtedly be far higher, if Stanford is granted pre-trial release at all, that is. The U.S. District Court for the Eastern District of Virginia determined that Stanford posed a high risk of flight, and denied bond.

The case will be tried before U.S. District Judge David Hitter, a brief description of whom can be found here.

Bernard Madoff Asks for 12 Years

While Sir Robert Allen Stanford was being indicted in the alleged second-largest Ponzi scheme in U.S. history, Bernard Madoff’s defense team was preparing for his sentencing in the largest scheme, set for next Monday, according to the Associated Press and the Daily Telegraph. Madoff’s attorney, Ira Sorkin, has filed documents with the Court arguing that a 12 year sentence of imprisonment would be appropriate for Madoff. Madoff pled guilty in March to defrauding investors in a $50 billion Ponzi scheme which lasted for decades. He could face as much as 150 years in prison. The U.S. Sentencing Guidelines recommend life imprisonment for the offense. Mr. Sorkin cited Madoff’s voluntary surrender to authorities, his full acceptance of responsibility, his cooperation with investigators and the nonviolent nature of the offense as grounds for the low sentence. He stated that Madoff has recently met with the Inspector General of the Securities and Exchange Commission to provide the SEC with information on his conduct for the purpose of strengthening regulation and oversight of Wall Street. The filing gives statistics for the average sentences for fraud offenders who do not receive leniency (15.3 years) and cites the fact that Madoff, who is 71 years old, only has a life expectancy of another 12.6 more years.

Madoff will be sentenced by U.S. District Court Judge Denny Chin. The Court has received dozens of letters from victims urging the Court to ensure that Madoff spends the remainder of his life in prison. Mr. Sorkin stated in the filing that Madoff will speak at the sentencing regarding “the shame he has felt” and “the pain he has caused.” Eight of Madoff’s victims will also testify at the hearing.

Sir Robert Allen Stanford Indicted in Alleged Second Largest Ponzi Scheme in U.S. History

The writers of Federal Criminal Defense Blog have been busy writing on other matter and apologize for the brief hiatus. Much has happened in the sphere of white collar crime even during our short absence, most notably developments in the two largest Ponzi schemes in U.S. history, and we have some catching up to do.

We’ll start with the second largest—an indictment indictment against billionaire Texas financier Sir Robert Allen Stanford, 59, was unsealed in the U.S. District Court for the Eastern District of Virginia on Friday according to the Associated Press  and the BBC. The 50-page indictment alleges that Stanford and six other defendants with allegedly perpetrated a $7 billion Ponzi-style fraud. It charges Stanford and the other defendants with 21 counts, including 7 counts of wire fraud, 10 counts of mail fraud, conspiracy to obstruct an investigation for the Securities and Exchange Commission, obstruction of an investigation by the SEC and conspiracy to commit money laundering. Defendants Laura Pendergest-Holt, Gilberto Lopez and Mark Kuhrt are executives of Stanford Financial Group. Defendant Leroy King, a former bank regulator for the Caribbean island nation of Antigua and Barbuda, allegedly accepted more than $100,000 in bribes from the other defendants in order to allow the alleged scheme to continue.

The indictment alleges that the defendants sold certificates of deposit issued by Stanford International Bank, based in Antigua, to investors, promising large returns. The defendants allegedly made false claims to investors regarding the growth of Stanford Financial Group’s assets.

The scheme had approximately 30,000 investors. Stanford is alleged to have diverted more than $1.6 billion in investment funds in personal loans to himself. More than $1 billion in investment money is allegedly unaccounted for. Stanford is also charged in the indictment with allegedly conspiring to obstruct an SEC proceeding. Stanford Financial Group’s finance chief, James M. Davis, is cooperating with investigators. Davis has been charged with fraud and obstruction in a separate indictment.

Stanford was the owner of a newspaper, two restaurants, and a development company in Antigua, and was a cricket enthusiast and owner of the Stanford cricket grounds in Antigua. In 2008, Stanford staged a $20 million, winner-takes-all, match between a West Indian XI and England at the grounds. In 2006, Stanford became the first American to be knighted by Antigua and Barbuda.

Stanford is represented by attorney Dick DeGuerin, who has issued a statement to the press that Stanford is innocent of the charges. Stanford has made repeated statements as to his innocence and has alleged that no money was lost.

Stanford surrendered to the FBI on Thursday and had his initial appearance on Friday. U.S. Magistrate Judge Hannah Lauck determined that Stanford posed a flight risk and ordered him to remain in custody pending a future detention hearing in Houston. Several governments have frozen his assets. Stanford faces as much as 250 years in prison if convicted.

Former Representative William Jefferson's "Cold Cash" Trial Underway

Seemingly lost in news of the Iranian elections and discussion of healthcare reform, the trial of former U.S. Representative William Jefferson has gotten underway in Virginia. As reported by the New Orleans Times-Picayune here, here and here, Jefferson is being tried in the U.S. District Court for the Northern District of Virginia, before U.S. District Judge T.S. Ellis, III, on 16 counts of bribery, racketeering and Corrupt Foreign Practices Act violations. Jefferson is alleged to have accepted bribes to family-owned businesses in return for securing Congressional approval for projects in West Africa.

The prosecution claims to have hundreds of hours of covertly-recorded conversations between Jefferson and Virginia businesswoman Lori Mody, a wealthy socialite with an interest in bringing technology to African nations, who was an investor of Jefferson’s. In early 2005, Mody suspected that Jefferson had defrauded her and contacted the FBI. Mody agreed to contact Jefferson and allow investigators to record the conversations.

Mody allegedly gave Jefferson $100,000 in marked bills for the purported purpose of bribing Nigeria's Vice President, Atiku Abubakar, at the Ritz-Carlton hotel in suburban Washington, D.C., for an alleged telecom deal. $90,000 of these bills were discovered by FBI agents, wrapped in tinfoil and stuffed in veggie burger boxes inside the freezer in Jefferson's home in Washington, D.C., in 2005, in a now-infamous incident. Jefferson has stated that there is a legitimate explanation as to why this large amount of cash was in the freezer.

The government has stated that, despite her central role in the allegations against Jefferson, Mody will not testify in the case. Whatever the reason, Mody’s absence from the trial is viewed as a highly favorable development for the defense. Jefferson’s attorneys are expected to argue that Mody manipulated Jefferson by convincing him to give himself a larger share of the Nigerian telecom deal.

Jefferson’s attorneys claim that his actions do not meet the legal definition of public bribery because they do not involve “official acts” in exchange for something of value. The defense claims that Jefferson was operating as a private citizen, rather than in his official capacity, to broker deals for businesses.

Jury selection began in the case on June 9. The defense delivered its opening statement yesterday. An attorney for Jefferson, Robert Trout, told the jury that Jefferson was not guilty of any of the charges and that while he may have acted unethically, he did not do anything illegal. Mr. Trout claimed that Jefferson sometimes told Mody what she wanted to hear.

The prosecution, led by Assistant U.S. Attorney Mark Lytle, argued that Jefferson fully intended to deliver the $100,000 to Vice President Abubaker. He cited Jefferson’s and his wife Andrea’s increasing personal debt.

The prosecution then called Vernon Jackson, a former CEO of iGate. Jefferson had pushed for contracts for Jackson in West Africa. Jackson pled guilty to bribery charges and is currently serving over seven years in prison.

The trial is expected to last four to six weeks. Jefferson, who is 62, faces up to 20 years in prison if convicted.

Jefferson, a Democrat, represented the 2nd Louisiana Congressional District, centered on New Orleans, until he was defeated last December by Republican challenger Anh Cao.

Judge Kent Resigns, Impeachment Begins

Defrocked District Court Judge Sam Kent resigned this week. Showing that he truly has no shame, Kent made his resignation effective June of 2010, so he can continue drawing his annual salary of $174,000 while he sits in a federal prison! According to the Houston Chronicle, Kent’s lawyer, Dick DeGuerin, showing a tin ear for the ensuing public outcry, said that he chose the June 1, 2010 effective date for the resignation because that is how long impeachment proceedings will take.

Impeachment proceedings began this week before the House Judiciary Committee. Members of Congress have indicated that they will not put up with Kent’s further corruption of the process. Sen. John Cornyn, R-San Antonio, said the judge “does not deserve another paycheck from American taxpayers.” Kent “betrayed the public trust, broke the law and trashed the oath that he swore to uphold,” Cornyn told the Chronicle.

To read the true depravity of Kent’s actions his victims’ statements to the House are posted here and here. It is still disturbing to me that in the face of the evidence, the Fifth Circuit Judicial Council only reprimanded this man who was abusing his position and sexually assaulting his staff and referred to the evidence as “alleg[ed] sexual harassment.”

More Brady Violations in Alaska Corruption Cases

In an astonishing development in an appeal of one of the Alaska corruption cases that led to the Senator Stevens prosecution, the Department of Justice has admitted that Brady material was withheld from the defense in the case of Victor Kohring. (Brady material is evidence favorable to the defense which the prosecution has to disclose) Yesterday, the Department of Justice Appellate Section filed a motion before the Ninth Circuit admitting that a review of the case by Main Justice attorneys “has uncovered material that, at this stage, appears to be information that should have been, but was not, disclosed to Appellant before his trial.” The government agrees in the pleading that the case should be remanded back to the district court and that there should be an order for the defendant's “immediate release on personal recognizance . . .”

After Senator Stevens’ case imploded over Brady violations, Judge Sullivan, the presiding district court judge, held DOJ trial attorneys Nicholas Marsh and Edward Sullivan and assistant U.S. Attorneys from Alaska, Joseph Bottini and James Goeke, in contempt. Goeke, Bottini, Marsh and Sullivan prosecuted the government’s case against Kohring.

Kohring was convicted in 2007 on bribery and extortion related charges and sentenced last year to 42 months imprisonment. He is currently imprisoned in California.

Every criminal practitioner out there has a duty to press the government to disclose Brady evidence. I believe that what we are seeing here is but the tip of the iceberg in governmental misconduct of withholding evidence that is favorable to the accused.


Gene Cauley, Arkansas Class Action Lawyer, Pleads Guilty

The WSJ Law Blog reports that Gene Cauley, an exceptional young class action plaintiff’s lawyer, entered a guilty plea in federal court in Manhattan yesterday to one count of mail fraud and one count of wire fraud. The article chronicles Cauley’s meteoric rise from failing the Arkansas bar exam upon graduation from law school in 1993 to making more than $4 million in 2000. Cauley was aided, when he was a fledgling lawyer by Bill Lerach, the now defrocked plaintiff’s lawyer, who has also pleaded guilty to federal charges and was sentenced last year to 24 months in prison.

Cauley’s plea involved the admission that he misappropriated $9.3 million of funds that were to be distributed to clients from a class action settlement. Cauley agreed to an hours long interview with the WSJ Law Blog and indicated that he has suffered from severe depression for years.

A good read and cheers to the Law Blog for bringing this fascinating personal look at this case.

Alleged Atlanta Native Terrorists Begin Trial Today

As reported by the Associated Press, the trial of former Georgia Tech student Syed Harris Ahmed begins today in the U.S. District Court for the Nothern District of Georgia. Ahmed is accused of having traveled with a friend,  Ehsanul Islam Sadequee, to Washington, D.C., in April of 2005 and videotaped the Capitol, the Pentagon, the World Bank and other locations. Ahmed is alleged to have intended to send the videos to an overseas contact as potential terrorist targets. Ahmed is also alleged to have traveled to Pakistan a few months later and attempting to join Lashkar-e-Tayyaba, a terrorist group carrying out attacks in Kashmir, however he is not formally charged relating to this conduct.

Ahmed and Sadequee gained the attention of federal authorities when they traveled to Toronto in March 2005 and met with at least three other individuals who were targets of an FBI investigation. Authorities allege that they planned strikes against targets such as military bases and oil refineries, and had a plan to disrupt the Global Positioning System satellite network. Ahmed and Sadequee are also alleged to have plotted an attack on Dobbins Air Force Base in Marietta. Authorities claim their actions involved more than just talk, and that the two received paramilitary training in North Georgia in 2004 and 2005.

Ahmed and Sadequee grew up in the Atlanta area. They have both pleaded not guilty. Ahmed is now 24 and could face up to 15 years in prison if convicted.

Judge Kent Recommended for Impeachment

It is almost exactly two years since a courageous former case manager initiated judicial misconduct proceedings against United States District Court Judge Samuel Kent of Texas. The Fifth Circuit Judicial Council then covered up Judge Kent’s criminal sexual conduct with an order of reprimand for what it termed alleged “sexual harassment.”  Judge Kent's subsequent plea of guilty to obstruction of justice has, apparently, lent that Judicial Council a renewed sense of justice as they have now entered an order recommending Judge Kent for impeachment.

The Houston Chronicle also reports that Fifth Circuit Chief Judge Edith Jones in a letter denying Judge Kent’s request for disabled status that would have preserved his salary of $174,000 wrote that “Kent has forfeited his claim to such status by pleading guilty to a felony.” Kent begins serving his 33 month term of imprisonment next month, but continues drawing his salary while Congress dithers over when to initiate impeachment proceedings.

Rapper T.I. Reports Late to Prison

Rapper T.I., whose real name is Clifford Harris, held a big send off bash at the Phillips Arena in Atlanta Sunday night according to CNN. The going away party, called “T.I’s Goodbye Bash,” was given as Rapper T.I. was set to report to federal prison this week and was attended by 16,000 fans.

In a blatant show of disrespect for the system that treated him with extreme leniency, on Tuesday Rapper T.I. showed up late at the Federal Prison in Forrest City, Arkansas according to the AP. Generally federal inmates who are allowed to turn themselves in at federal prison facilities are given a deadline for showing up at the prison gates. Rapper T.I. was, apparently, 29 minutes late.

The Bureau of Prisons had no comment on whether the rapper’s late arrival at prison would affect his plea deal with U.S. Attorney David Nahmias of Atlanta, who trumpeted the extremely lenient deal for Rapper T.I. months ago because of the exceptional community service performed by the Rapper while awaiting sentencing.

Siegelman to Remain Free on Appeal Bond

Saturday the AP reported that former Alabama Governor, Don Siegelman, will remain free on bond pending resolution of his appeal to the U.S. Supreme Court. The effect of that ruling will delay sending the case back before the trial court where the government is now seeking up to 20 years for Siegelman at the re-sentencing when the original sentence imposed was 7 years. Quite frankly, in seeking such a sentence the government looks petty, and small minded.

One of Siegelman’s attorneys, Vince Kilborn, says the ruling means that Siegelman will remain free for at least another 90 days. Siegelman’s case is a troubling one and even the Eleventh Circuit’s decision seemed to give untoward deference to the jury verdict, when, as we all know, the jury decides the factual, not legal issues presented. This will be an interesting case to continue watching.

Government Dismisses Remaining Castroneves Charge

What a weekend for Indy race car driver Helio Castroneves. As famed trial lawyer Roy Black posited here, the government dropped the lone remaining charge against Castroneves on Friday. Although the Order of dismissal did not state a reason for dropping the remaining charge, Mr. Black set out the reasons that he was going to present to the government as to why they should walk away from the last charge: “the government can't retry Helio on conspiracy because of collateral estoppel. If the jury found no tax deficiency on the substantive evasion counts, then there was no unlawful plan. An agreement to comply with the tax code is not a crime. Or, if the jury found no willfulness on the evasion counts, then there can be no willfulness on the conspiracy. Either way we win.”

Then on Sunday, Castroneves won the Indianapolis 500 for the third time! As the Miami Herald reports, the well publicized trial has given Castroneves a measure of perspective, but he still hopes for a fourth Indy title.


Judge Denies Motions to Dismiss in Miss. Judicial Corruption Case

Judge Davidson of the Northern District of Mississippi denied Circuit Judge Bobby Delaughter’s Motions to Dismiss the judicial bribery and mail fraud counts in the Dickie Scruggs related judicial bribery prosecution. Count One charges a conspiracy to violate 18 U.S.C. § 666, the federal bribery statute. The defense alleged that Count One failed to charge an offense because the bait dangled in front of Judge Delaughter, consideration for a federal judgeship, is not a thing of value. Giving short shrift to the motion to dismiss as more akin to a civil motion for summary judgment, Judge Davidson, opines that the government is entitled to put their proof on at trial.

As to the mail fraud counts, the defense contended that they failed because an ex parte communication does not equal a federal crime. Judge Davidson, states that, in fact, the indictment, “alleges that DeLaughter afforded the Scruggs’ legal team secret access to the court, along with the court’s proposed opinions, and therefore, received an unfair advantage in the Wilson v. Scruggs litigation.” Of course, this just simply makes sense, and the defense’s attempt to minimize this conduct will blow up on them if they take this case to trial. And, quite frankly, it is almost inconceivable that any fair minded judge could argue with a straight face that unfettered, ex parte access to the judge, in what is supposed to be an adversary system is not a violation of honest services mail fraud. Couch it as they may, Judge Delaughter’s counsel are straining at gnats in attemmpting to put the broad brush of innocence on this conduct.

Cert. Granted in Conrad Black Case

As noted on White Collar Crime Prof Blog, the Supreme Court granted certiorari yesterday in the Conrad Black case. Black, a Canadian, is the former CEO of Hollinger International and was the third biggest newspaper magnate in the world, owning newspapers worldwide.

In 2003, Tweedy Browne Co., which owned an 18% interest in Hollinger, demanded that Hollinger investigate Black's compensation and disgorge any funds paid. Black resigned as Chief Executive and Chairman of the Board of Hollinger in late 2003 and early 2004. Hollinger subsequently filed a $200 million lawsuit against Black and his associated companies. In late 2004, a Special Committee of Hollinger's Board of Directors conducted an investigation of Black and made a report, named "The Breeden Report," to the SEC and Department of Justice. The Breeden Report accused Black and others of transferring more than $400 million to themselves and affiliated entities.

In 2005, Assistant U.S. Attorney Patrick Fitzgerald indicted Black and three other Hollinger executives for racketeering, money laundering, obstruction of justice and honest services mail and wire fraud in federal court in Chicago. The bail set for Black was among the highest in U.S. history. The government alleged that the defendants had transferred some $60 million from Hollinger to themselves. Black's trial began in March 2007, and on July 13, 2007, the jury acquitted Black on 9 counts, but found him guilty of three counts of mail and wire fraud and one count of obstruction of justice. He was sentenced to 78 months imprisonment.

Black appealed his conviction to the Seventh Circuit Court of Appeals. Andrew Frey, Black's appellate attorney and a Deputy Solicitor General under three presidents, called the case against Black the weakest he's seen in 45 years. Judge Richard Posner, however, called the case a "pretty naked" case of fraud. The Seventh Circuit affirmed Black's conviction and, despite the addition of Harvard professor Alan Dershowitz to Black's appellate team, denied reconsideration.

Canada revoked Black's citizenship, preventing his possible transfer there in order to receive an earlier parole date. Black is currently incarcerated at the Federal Correctional Institute in Coleman, Florida.


Craigslist: Prosecutorial Grandstanding Means Never Having to Say You're Sorry (Maybe)

Although Craigslist has announced that it will eliminate its erotic services category, which was alleged to be a source for prostitution and criminal activity, most notably in the "Craigslist killer" case of Philip Markoff, all the negative publicity has apparently had an effect and the online classified service is now looking for an apology from some. Specifically, Craigslist CEO Jim Buckmaster has a post on his blog from yesterday entitled "An Apology Is In Order," calling out South Carolina Attorney General Henry McMaster.

In a May 5 letter to Buckmaster, McMaster had accused Craigslist of facilitating criminal conduct. In his post, Buckmaster cites McMaster's subsequent threat to move forward with criminal charges against Craigslist.Buckmaster cites the agreement Craigslist has entered into with various states attorneys general to remove its erotic services category. He points out that numerous prominent companies, including some in South Carolina, carry more adult services ads than Craigslist. Buckmaster asks in his post if McMaster is prepared to accuse these businesses of criminal activity as well. He has recommended that McMaster retract his remarks. Buckmaster writes "We’re willing to accept our share of criticism, but wrongfully accusing craigslist of criminal misconduct is simply beyond the pale. We would very much appreciate an apology at your very earliest convenience."

We await AG McMaster's response.


Government Seeking an Additional 20 Years for Former AL Governor Siegelman

As we have noted, back in march, the Eleventh Circuit reversed two convictions of former Alabama Governor Don Siegelman for honest services fraud. Siegelman was convicted in 2006 along with former HealthSouth CEO Richard Scrushy on charges of federal funds bribery, honest services conspiracy, honest services mail fraud, racketeering conspiracy, racketeering, honest services wire fraud, obstruction of justice and extortion in the U.S. District Court for the Middle District of Alabama. The charges included allegations that Seigelman demanded illegal contributions from Scrushy in order to allow Scrushy to remain on the Alabama Certificate of Need Board which regulates hospitals. Seigelman was sentenced to 7 years imprisonment, and has already served approximately two years at a federal penitentiary in Beaumont, Texas.


Now the prosecution has stated its intent to ask the District Court to sentence Siegelman to an additional 20 years imprisonment, and to be fined up to $250,000, as stated in a letter by prosecutors to federal probation officers. Seigelman’s attorney, Vince Kilborn, has stated that it is “laughable” for the prosecution to recommend a harsher sentence than the sentence Siegelman received before two of his convictions were reversed by the Court of Appeals. His attorneys claim that the government’s request for a harsher sentence is partially based on the reversed charges.


Seigelman has long defended that his prosecution was politically motivated by the Bush administration. He has issued a statement alleging that this new move evidences that the prosecution is “biased and hell-bent to uphold this conviction and try to punish me as much as they can.” Siegelman has stated that he wants the Obama administration to replace the U.S. Attorney for the Middle District of Alabama, Leura Canary, a Bush administration appointee, claiming that she is biased because her husband is a Republican operative, a friend of Karl Rove and a supporter of Republican Governor Bob Riley when he ran against Siegelman in 2002. Canary recused herself from Siegelman’s case.

Wife of Home Depot Kickback Scheme Mastermind Pleads Guilty to Tax Charge

            Another defendant has entered a guilty plea in the Home Depot kickback scheme, as reported by the Atlanta Journal & Constitution. Melissa Deaton Tesvich, the former wife of Anthony Tesvich, a Home Depot employee who accepted kickbacks from overseas vendors to get flooring products carried in Home Depot stores, pled guilty yesterday in the U.S. District Court to filing a false tax return. The Tesviches underreported income from their illegal activities by approximately $1 million.


Anthony Tesvich pled guilty to fraud and tax evasion charges last year and his sentencing is scheduled for June 11. Melissa Tesvich’s sentencing is scheduled for August 3, and she faces a maximum sentence of three years in prison and a fine up to $250,000.

Reflections on Judge Kent's Case

Judge Kent was sentenced to 33 months in prison Tuesday. His cruel reign over his court staff and the lawyers that appeared before him has ended.

First, what strikes me as an entire travesty is the punishment meted out by the Judicial Council for the Fifth Circuit that in September 2007 found that the complaints levied against this federal judge should result in, oh my, a reprimand and a four month suspension. Of course, because the proceedings are “confidential” we don’t know exactly what the Judicial Council considered, but we do know that what the victim of Judge Kent’s conduct described was not “sexual harrasment,” but rather serious felony offenses. It offends every notion of this writer’s sense of justice for a judicial body to impose a “reprimand” for sexual felonies. So much for the judiciary policing its own.

Secondly, when this case broke, there was a public spat between 2 Texas legal gladiators, Dick DeGuerin, Judge Kent’s lawyer, and Rusty Hardin, the accuser’s attorney. Initially, DeGuerin trumpeted that this case would be a swearing match the victim would lose and that this was a consensual relationship. Hardin, Roger Clemens lawyer, should be commended for stepping up to the plate to represent the victim.

Third, although I never appeared before Kent, his arrogance and imperious nature comes through in some of his writings. There is an excellent commentary here entitled Bullying From the Bench about Judge Kent’s writing where he vilifies, in a very injudicious manner two lawyers appearing before him in a case far more serious than his flippant writing calls for.

And, finally, can’t all of the sealed pleadings that Judge Vinson ordered sealed in this case be unsealed now so that the public can be rightfully informed of the details regarding this proceeding?

Woman Indicted in Pitino Extortion Attempt

The bizarre extortion attempt of University of Louisville basketball coach, Rick Pitino, has resulted in an indictment reports the Louisville Courier-Journal. Karen Sypher, the estranged wife of the University of Louisville equipment manager, was the lone defendant indicted yesterday by a grand jury in the Western District of Kentucky for trying to extort money from Pitino. This case came into the news last month when Pitino in a statement released by the university said that he intended to “vigorously defend my reputation and the character of my family.”

Sypher was arrested on a criminal complaint, here, last month filed by the FBI, charging her with attempted extortion of Pitino and making false statements to the FBI. The complaint alleges:

  •  that Pitino received 3 phone messages in February by a then unknown caller, which made personal allegations against Pitino that “could harm Mr. Pitino’s reputation . . . in that they characterized an interaction between Mr. Pitino and an unnamed woman as criminal in nature.”
  • Pitino told the FBI that after the first two phone messages he met with Karen Sypher and her husband and asked what she wanted.
  • In early March Sypher’s husband delivered to Pitino a list of demands written by Sypher that included college for her children, 2 cars, a house paid off, $3,000 per month and a single payment of $75,000.
  • On March 22, 2009 an attorney for Sypher demanded $10,000,000 through a letter sent to Pitino.
  • On April 17, 2009 FBI agents interviewed the individual who made the threatening phone calls to Pitino at Sypher’s request.

Sypher was released following her arrest on an unsecured bond last month and she is to be arraigned today on the charges in the indictment.


Wrestler's Doctor Sentenced to 10 years in Prison

The AP reports that the doctor for Chris Benoit, a WWE wrestler who killed himself, his wife and son in June 2007, was sentenced to 10 years in federal prison by district court judge Jack Camp. Dr. Phil Astin, 54, had pleaded guilty in January to all 175 charges against him of writing illegal prescriptions to known drug abusers.

Astin, a physician in Carrollton, Georgia, admitted in the sentencing memo provided to the court that he treated wrestlers who complained of chronic pain, but in seeking leniency from the court argued that the 19 patients described in the indictment were a small subset of the “large country family practice which [he] had in Carrollton, Georgia."

Astin worked his way onto the federal radar screen when Benoit strangled his wife and son then hanged himself in June 2007. It is not known whether any of the patients identified by initials in the indictment referred to Benoit.

Astin was represented by a federal public defender who termed her client’s conduct as “a certain benevolent recklessness” reports the AP.


The Rise and Fall of Marc Dreier: A Guide


We have tried to sum up for readers the labyrinthine facts and developments in the shocking and fascinating case of Marc Dreier, drawing upon excellent and thorough articles on the subject by Roger Parloff in Fortune Magazine and by Robert Kolker in New York Magazine.

I. The Rise

Marc Stuart Dreier grew up on the South Shore of Long Island, the son of a Polish refugee who built a chain of movie theaters. He graduated from Lawrence High School in the Five Towns.

Dreier attended Yale and then Harvard Law School. On graduation, he became an associate with Rosenman & Colin in New York, and later became a partner.

In 1987, Dreier married Elisa Peters, an associate at Rosenman & Colin. The couple had a son, Spencer, in 1989, and a daughter, Jackie, in 1992. He moved to Houston-based Fulbright & Jaworski’s New York litigation office in 1989. In 1995, Dreier left Fulbright & Jaworski and briefly worked at Duker & Barrett.

In 1996, Dreier started his own firm, Dreier & Baritz, with securities lawyer Neil Baritz. He developed a business practice whereby he entered into agreements with other lawyers and law firms, promising to handle the collection of their gross revenue and payment of their office expenses in exchange for paying guaranteed salaries and incentive bonuses.

II. Sheldon Solow and Kosta Kovachev

It is rumored that Dreier received money to start the firm from New York real estate developer Sheldon Solow, owner of Solow Realty, a billionaire son of a bricklayer turned developer.

               Dreier represented Solow in several matters. One such matter was a dispute over a mansion in East Hampton with Peter Morton, founder of the Hard Rock Cafe, with each man staking a claim to the same multimillion-dollar East Hampton beach house. Another case involved a dispute between Solow and Peter Kalikow, another real estate developer and former owner of the New York Post, over $7 million loaned by Solow to Kalikow while Kalikow’s company was in bankruptcy. Dreier, at the request of Solow, took out full page ads in the Post and the New York Times which looked like legal notices, inviting creditors of Kalikow to call a company called Evergence Capital Advisors.

Evergence Capital Advisors was actually the name of a dissolved Florida corporation formerly owned by a friend of Dreier’s, Kosta Kovachev. Kovachev was a Serbian who attended Columbia University and Harvard Business School and became a banker and securities broker. He was sued by the Securities and Exchange Commission for his involvement in a Ponzi scheme selling time-shares in Florida which defrauded approximately 600 investors in 30 states out of $28 million. Dreier represented Kovachev in the proceeding.

The telephone numbers in the newspaper ads led to Dreier’s offices. More than 50 creditors called the numbers, but never received a response. The U.S. bankruptcy judge sanctioned Solow and Dreier $335,000 over the ads. Solow and Dreier are still appealing the sanctions.

Acquaintances describe Dreier as incredibly charming, but a ruthless litigator. In 2002, Dreier’s wife sued him for divorce. That same year, Baritz severed his ties with Dreier, and in 2003 the firm became Dreier LLP, with about 60 attorneys.

III. The Scheme

Beginning in November 2004, Dreier began to sell promissory notes to hedge funds. Dreier claimed that the notes were issued by Solow Realty, and represented to the funds that he was marketing agent for Solow. In reality, Solow and Solow Realty had no knowledge of the notes, and the notes were forged by Dreier along with fraudulent audit reports on the letterhead of one of Solow Realty’s accounting and firms, Berdon LLP. Dreier would tell fund representatives that Solow was trying to raise $500 million to purchase properties, and that Solow did not want to borrow money from banks for reasons of secrecy and because Solow did not want to be accountable to anyone. He claimed that the notes would return 11% interest a year.

Dreier and his co-conspirators, including Kovachev and a man named Armando Ruiz, would host meetings and conference calls with fund representatives. They would give fund representatives telephone numbers purportedly for Solow Realty’s CEO or Controller, but which actually went to Dreier and his accomplices. Dreier created fake e-mail addresses and obtained no-contract cell phones for the scheme.

The phony notes were purchased by nearly 40 investment funds, including Fortress Investment Group, GSO Capital Partners LP, Elliott Associates, Eton Park, Westford Global Asset Management, Perella Weinberg Partners, Verition and Blackstone Group.

In order to come up with the funds to make quarterly interest payments on the phony notes, Dreier expanded Dreier LLP. The firm eventually employed approximately 260 attorneys and approximately 300 staff and had offices in New York City, Los Angeles, Pittsburgh, Santa Monica, Stamford and Albany, New York. The firm’s New York City office leased 11 floors in a building designed by architect I.M. Pei at 499 Park Avenue.

Dreier lured new attorneys to the firm by guaranteeing them $1 million in salary before bonuses. He financed the expansion by factoring receivables. Although the firm had “partners,” Dreier remained the sole equity partner, which limited oversight.

Dreier amassed a large quantity of luxury property, including a $10 million condominium in Manhattan; two mansions in the Hamptons; properties in the Caribbean; an art collection worth $40 million, including works by Henri Matisse, AndyWarhol and David Hockney; and a 120-foot yacht. Dreier threw lavish parties with private performances by Diana Ross, Bon Jovi or Alicia Keys, and hosted a celebrity golf tournament.


IV. The Fall

By 2008, however, Dreier had a total of $180 million in debt to hedge funds, as well as annual interest payments of $20 million. He began selling a new form of phony note, allegedly issued by the Ontario Teachers Pension Plan (OTPP) and backed by BCE, the parent company of Bell Canada.

In September of 2008, Dreier failed to meet his obligations to one of the funds, likely GSO Capital Partners LP, and the fund demanded to meet with representatives of Solow Realty at Solow Realty’s offices. On October 15, 2008, Dreier, Kovachev and the fund representatives arrived at Solow Realty’s offices, and Dreier, without Solow’s knowledge, proceeded to hold a meeting in Solow Realty’s conference room in which Kovachev pretended to be Solow Realty’s Controller.


Finally, in late October 2008, a prospective buyer of the phony notes finally contacted the Solow Realty’s audit firm, Berdon LLP, whose name had been forged on the notes, and discovered the scheme. Berdon notified Solow, and Tom Manisero, a lawyer for Berdon, telephoned Dreier.


Dreier lied to Manisero, stating that he had only attempted to sell the notes once. He had several other telephone calls with Manisero, which were recorded by the U.S. Attorney’s Office. During the calls, Dreier admitted that the audit reports were fake, and that he was ashamed. On the final call, Dreier attempted to offer Manisero a “settlement.” Meanwhile, the Verition hedge fund discovered the irregularities with the phony notes.


On December 1, a bankruptcy attorney with the firm Norman Kinel sent Dreier an e-mail asking for $38.5 million out of the firm’s escrow account for one of the firm’s clients to pay its creditors. However, less than half of the money remained in the escrow account.


While Dreier was under investigation, he offered Fortress Investment Group $33 million of the phony OTPP notes. A Fortress representative, Howard Steinberg, asked to meet with the OTPP representative in person, and Dreier arranged for a meeting with OTPP’s general counsel in Toronto. On December 2, Dreier flew to Toronto met with the general counsel, Michael Padfield, himself to discuss alleged business opportunities and got his business card. He then proceeded to meet with Steinberg at OTTP’s offices, posing as the general counsel. Steinberg became suspicious and asked the receptionist if Dreier was actually the general counsel, and was told he was not. The police were contacted, and Dreier was arrested for criminal impersonation.


            Prosecutors allege that, after the initial call from Manisero, Dreier attempted to move funds to a personal account Dreier used for his Caribbean properties. On December 3, Dreier’s 19-year-old son, Spencer, attempted to deliver a message from Dreier to about 40 partners of Dreier LLP, but was shouted out of the conference room. Furthermore, at around this time, Dreier succeeded in having the firm’s bank transfer $10 million in escrow monies to one of his personal accounts. At this time also, Kovachev also went to the firm’s offices and took two paintings.


            Dreier posted bail in Canada, and arrived back on New York on December 7, where he was arrested upon arrival. Kovachev was also arrested. Authorities have also subpoenaed all documents from Dreier LLP relating to Armando Ruiz.

On January 29, Dreier was charged with seven counts wire fraud, securities fraud, and money-laundering. He initially pled not guilty, but filed affidavits admitting large portions of the allegations against him. Drier was placed under house arrest in his condominium in Manhattan. He is represented by attorney Gerald Shargel, who has formerly represented members of the Mafia. Dreier’s friend, Erinch Ozada, a Turkish hedge fund manager, is reported to be cooperating with the government.

In the meantime, Dreier LLP has ceased to exist. Attorneys and employees of Dreier LLP have unpaid salaries and unreimbursed expenses.

In all, Dreier is alleged to have committed $700 million in fraud against 13 hedge funds and three individuals, resulting in $400 million in losses, and to have taken $40 million from his clients’ escrow accounts. On Monday, May 11, 2009, Dreier pled guilty to all charges before U.S. District Court Judge Jed Rakoff in the U.S. District Court for the Southern District of New York. He faces a potential 20 years on some counts.

Over 200 creditors have already filed more than $450 million in claims against Dreier LLP. Investigators report that any monies are mostly gone. The government has seized Dreier’s luxury property in order to forfeit the property or distribute it among creditors. There has been some interest in the movie or book rights to Dreier’s saga, however New York’s Son of Sam laws prevent such exploitation.


Dreier Pleads Guilty in Federal Court

Mark Dreier, founder of 250 lawyer, Dreier LLP, with offices in Manhattan, Pittsburgh, Santa Monica and elsewhere plead guilty yesterday afternoon in Manhattan before Judge Jed Rakoff (one of this blogs favorite district court judges). Dreier joined a long line of recent celebrities pleading guilty to running Ponzi schemes - in this case a $400 million Ponzi scheme that purported to sell promissory notes for a New York developer and a Canadian pension fund. Dreier plead guilty to all 8 counts of the Superseding Indictment, a copy of which is here, to include, according to Reuters,  securities fraud, conspiracy, wire fraud and money laundering. The government is seeking $700 million in forfeiture of assets from Dreier. His former law firm is in bankruptcy and a receiver has been appointed to identify assets of Dreier's fraud for the victims.

An excellent time line of Dreier’s rise and fall is here at the New York Law Journal which chronicles Dreier’s graduation from Harvard Law School in 1975 and his rise as the sole equity partner of Dreier LLP.

Sentencing is set for July 13.

U.S. District Court Judge Kent Sentenced to 33 months

United States District Court Judge Samuel Kent of Galveston, Texas, 59, was sentenced to 33 months in prison this morning in Houston by Senior District Court Judge Roger Vinson of Pensacola, Florida for obstructing an inquiry into whether he had sexually harassed employees of the United States District Court reports the Houston Chronicle. A copy of the Factual Basis for Kent’s guilty plea is here.

Two of the victims of Kent’s sexual exploits, a former secretary and former case manager, testified at the sentencing hearing. The government sought a sentence of 36 months. The Chronicle reports that in imposing sentence, Vinson said, “Everyone stands equal in this Court, and former judges are no exception.” Vinson had it right except for the “former judges” comment because showing a startling lack of class and poor judgment, a separate drama is playing out regarding whether Kent will be allowed to retire and continue to draw his salary of $174,000 per year. He has drawn about $36,000 in salary since his guilty plea. Kent has asked the Fifth Circuit to allow him to retire early, so that he can continue to keep getting his pay for life. Kent will continue to draw his pay, even though he is a convicted felon, until he retires, or is impeached. Although I don’t have much confidence in this situation, let’s hope Congress acts quickly to impeach Kent.

Lessons from the W.R. Grace Trial

In a case that was more than 4 years old, the not guilty verdicts against W.R. Grace and three individual defendants was a resounding defeat for the government in one of the most important environmental crimes cases ever brought by the Department of Justice. The case was prosecuted by attorneys from both the Environmental Crimes Section of the Department of Justice as well as the Montana United States Attorneys Office.

An exceptionally well written blog maintained over the months of trial by the University of Montana, documented the passionate intensity of the defense in the case, as well as the silent suffering of the good folk of Libby, Montana where the asbestos was mined as vermiculite.

The case had a fascinating pretrial history where the district court judge ordered the government to disclose, not only a list of witnesses, but also expert witnesses months prior to trial, or to face exclusion of the untimely evidence. (A copy of the district court’s order imposing those deadlines is attached.) This Order has a compelling rationale as to why the government should be required to make a pretrial identification of both expert and non-expert witnesses. Initially, the Ninth Circuit Court of Appeals held that exclusion of witnesses was too severe a remedy, 493 F.3d 1119 (9th Cir. 2007), however, on rehearing en banc in, United States v. W.R. Grace, 526 F.3d 499 (9th Cir. 2008), the Ninth Circuit found that a district court has inherent authority to regulate the conduct of a trial before it (as an aside, all criminal defense attorneys need to cite to this opinion in requesting that relief). Interestingly, this Order that became so critical as the case went forward arose out of the trial court simply issuing orders regulating the conduct of the trial before it.

We’ll try and distill other lessons learned from this trial in coming weeks. Yet, no matter what the result, one has to feel empathy for the residents of Libby, where reportedly, more that 200 residents have died of asbestos related disease and where hundreds more are ill from asbestosis.


Justice Souter on Criminal Law, Part III


                Our final edition of our summary of Justice Souter’s jurisprudence recognizes that the Justice has also broken with the majority on many occasions on issues of federal criminal law. A few of Justice Souter’s dissents are briefly pointed out here. Our attorney readers will be familiar with Rita v. U.S., 551 U.S. 338 (2007), in which the majority, led by Justice Breyer, held that, following the Court’s earlier decision in U.S. v. Booker, 543 U.S. 220 (2005), appellate courts may apply a nonbinding presumption of reasonableness to sentences within the advisory ranges recommended by the U.S. Sentencing Guidelines. Justice Souter filed a lone dissenting opinion in which he raised Congress’ intent to impose greater uniformity in sentencing by enacting the Guidelines and the need for Congressional action to realize its policy of mandatory Guidelines sentence and the Sixth Amendment right to jury trial. In addition there is the well-known case of U.S. v. Lopez, 514 U.S. 549 (1995), in which the Court, former Chief Justice Rhenquist writing for the majority, held that the Gun-Free School Zones Act of 1990 exceeded Congress’ authority under the Commerce Clause. Justice Souter wrote a separate dissent criticizing the Court for failing to defer to Congress and its findings in determining whether Congress possessed a rational basis for its findings.

                In Illinois v. Caballes, 543 U.S. 405 (2005), Justice Stevens, writing for the majority, held that a dog sniff during a lawful traffic stop did not violate the Fourth Amendment, and Justice Souter joined with Justice Ginsberg took issue with the majority’s opinion, contending that dog sniff searches should be held to be a search subject to the Fourth Amendment (in which—apologies to canines everywhere—Justice Souter wrote that “The infallible dog… is a creature of legal fiction”). The plurality in U.S. v. Patane, 542 U.S. 630 (2004), in a decision written by Justice Thomas, held that the failure of law enforcement officials to give a suspect warnings pursuant to Miranda v. Arizona, 384 U.S. 436 (1966) did not require suppression of physical evidence obtained as a result of the suspect’s subsequent voluntary statement pursuant to the “fruit of the poisonous tree” doctrine of Wong Sun v. United States, 371 U.S. 471 (1963). Justice Souter dissented, arguing that the Court’s failure to apply the doctrine “as an unjustifiable invitation to law enforcement officers to flout Miranda when there may be physical evidence to be gained.” In U.S. v. Drayton, 536 U.S. 194 (2002), the majority held that the Fourth Amendment did not require law enforcement officers to advise passengers on a bus during a drug interdiction effort to refuse to cooperate with, or consent to, a search, concluding that the passengers were not “seized” for the purposes of the Fourth Amendment. Justice Souter, joined by Justices Stevens and Ginsburg, argued that, under the circumstances of the search, the passengers effectively confined on the bus and three law enforcement asking them to cooperate should have been found to believe that they did not feel free to decline the search pursuant to the test in Florida v. Bostick, 501 U. S. 429 (1991).

Ohler v. U.S., 529 U.S. 753 (2000) held that, where the district court granted the government’s motion in limine to introduce a prior conviction of the defendant, and the defendant then introduced evidence of the prior conviction on direct examination, the defendant waived the ability to challenge the admission on appeal. Justice Souter authored a dissent, jointed by Justices Stevens, Ginsburg and Breyer, urging that the defendant should not be penalized for introduction of the prior conviction pursuant to Federal Rule of Evidence 609. And in U.S. v. Mezzanatto, 513 U.S. 196 (1995) Justice Souter, joined by Justice Stevens, dissented from the majority’s holding that an agreement in a plea agreement to waive the exclusionary rule for statements made during plea negotiations was valid and enforceable absent evidence that the agreement was entered into involuntarily. Justice Souter contended that the Court’s holding impermissibly rendered Federal Rules of Evidence 410 and Federal Rule of Criminal Procedure 11(e)(6), which provide that statements made during plea discussions are inadmissible against the defendant except in carefully described circumstances, a nullity.


Weekend Roundup - May 9, 2009

Not Guilty Verdicts in W.R. Grace Case

Not a lot happening locally in the federal criminal defense sphere, so we’ll reach out to Montana to report a resounding victory for the defense by way of not guilty verdicts for all remaining defendants in the W.R. Grace case. The University of Montana has this exceptional blog here that has been reporting on this case throughout everyday of trial. The jury deliberated only one full day before returning the not guilty verdicts yesterday for not only the corporate defendant, W.R. Grace, but also the three remaining individual defendants, all former W.R. Grace executives at the Libby, Montana plant (note this cite is, apparently down right now). The AP story is here.

Prominent Arkansas Attorney Under Investigation in New York

The Wall Street Journal law blog reports that a prominent Arkansas plaintiff’s attorney, Gene Cauley, is unable to account for $9 million in settlement funds from a civil securities case. Southern District of New York, District Court Judge Jed Rakoff, who is known to this blogger for some exceptionally well written sentencing orders, requested that the United States Attorneys Office investigate because according to the transcript, Judge Rakoff said, “it appears not unlikely from the little information available to me that Mr. Cauley may have committed a crime or several crimes, that he may have committed disbarrable conduct in one or many ways.” Cauley, who was represented by counsel, who invoked the Fifth Amendment privilege against self incrimination, hopes to have the missing $9 million available shortly. A representative from the U.S. Attorneys Office attended the hearing. No doubt, more to come shortly.

Former Paul Hastings Lawyer Pleads Guilty

Bloomberg reports that a former tax lawyer at Paul Hastings Janofsky & Walker, LLP, in New York, plead guilty yesterday to federal charges of insider trading. Eric Holzer, was a tax associate at the Paul Hastings offices in New York, according to Bloomberg.

Holzer, 34, entered a plea to conspiracy and securities fraud in federal court in Manhattan for trading on illegal tips given to him by Matthew Devlin, a former Lehman salesman, who had stolen the information from his wife.

Paul Hastings reports that the charges were unrelated to Holzer’s duties and that they had cooperated with the government.

Holzer faces up to 18 months in prison, and agreed to forfeit $119,000.


South Carolina AG Threatens Craigslist With Criminal Prosecution

    Although the crimes by the Craigslist killer, Phillip Markoff, took place in New England, Henry McMaster, Attorney General for South Carolina, is trying to share the spotlight. McMaster has now sent a letter to Craigslist CEO Jim Buckmaster demanding that Craigslist eliminate all categories for "erotic services" relating to South Carolina or its municipalities by close of business on May 15, 2009, or face prosecution in South Carolina.

  McMaster's demand to Craigslist is likely also a publicity ploy for McMaster and an attempt to appeal to Palmetto State voters. McMaster, a Republican, is considered to be the front-runner to replace two-term Republican Governor Mark Sanford in the 2010 election.

Commentary on the Fifth Circuit Questions In Minor

In follow up to the post earlier today on the Fifth Circuit's letter to counsel in the Minor case, it seems that the Fifth Circuit is obviously troubled by the proof, if any, between the agency receiving federal funds, the Administrative Office of the Mississippi Courts, and the allegedly corrupt activity of Minor and the judges (Whitfield and Teel) that he sought to influence. First, the limiting cases on 666 violations have generally interpreted that statute very broadly, but a reasonable reading of the Court’s questions indicates a concern for the level of proof of the “nexus” between the Administrative Office of the Mississippi Courts and any agent, or activity of a particular matter before the judges.

Secondly, if such a nexus is required, it seems the Court is concerned whether the issue has been properly preserved both at trial and on appeal.

Thirdly, and most surprisingly, the Fifth Circuit, obviously knows what effect a reversal of those counts would have on the other counts of conviction, “even if the convictions on those other counts were not to be reversed?” The posing of that question by the Fifth Circuit seems almost gratuitous. Counts of conviction are routinely reversed that either don’t effect the sentence imposed, or that require re-sentencing consistent with the Court’s opinion. One has to look no further that Governor Siegelman’s recent case in front of the Eleventh Circuit. Quite frankly, re-sentencings happen all of the time after the reversal of some counts of conviction. Just odd that the Fifth Circuit would pose that question publicly.

As for Paul Minor’s quest for vindication before the Fifth Circuit, sadly, the court's letter indicates that they are going to affirm the other counts of conviction.

Fifth Circuit Requests Additional Briefing in Minor

Yesterday, the Fifth Circuit in a letter to counsel, requested additional briefing regarding Counts 11, 12, 13, and 14, which allege a violation of 18 U.S.C. § 666 (what I've always referred to as the devil statute). In Minor the government charged that the agency receiving government funds was the administrative office of the courts of Mississippi. Generally you see a Section 666 violation when someone has stolen monies from say, a local transit authority, which receives in excess of $5,000 in a given year (thereby conferring federal jurisdiction). And, we all know that almost any program receives that amount from the federal government now.

The Fifth Circuit requested additional briefing on the following questions:

1) What evidence shows that the Mississippi judges were influenced or rewarded in connection with matters related to the Administrative Office of the Courts of Mississippi?

2) Describe the nexus that the “in connection with” clause of 666 requires between the Administrative Office of the Courts of Mississippi and the particular matters in front of the judges supposedly influenced by Minor’s actions.

3) What was the proof of that nexus?

4) Did the appellants adequately preserve the issue in the district court and did they adequately raise the issue on appeal?

5) If the Fifth Circuit reverses any of the Counts 11-14, what effect would that have on any of the other counts of conviction, “even if the convictions on those other counts were not to be reversed?”

The Court gave the parties until May 15 to file briefs of less than 15 pages.

More commentary on this later.

Guilty Plea in Bank Fraud Case

In a case of remarkable chutzpah, Mark Anthony McBride, plead guilty in Atlanta on Friday to a two count information charging him with one count of conspiring to obtain million of dollars in fraudulent mortgages and other loans and one count of bankruptcy fraud.

McBride plead to a scheme he started in 2001 after being released from prison and continued until he reported back to prison in 2002. As soon as he was released from prison in 2006 he was back at making a living in the only, apparent. fashion he knew, being a con artist by completing fraudulent mortgage loans, car loans, lines of credit and continued his scheme until his arrest in September of 2008 for violating his federal probation.

Showing exceptional criminal ingenuity, McBride was able to retain the proceeds of his fraud by filing 8 bankruptcies in Georgia, Alabama and South Carolina.

Methinks McBride's schemes have come to an end. He faces up to 35 years in prison at his sentencing, which is scheduled for July 9, 2009.

More Charges in Fulton County Jail Case

U.S. Attorney David Nahmias said on Thursday that more charges are expected in the continuing investigation of inmate abuse at the Fulton County Jail. On Thursday, two lieutenants, Lt. Earl Glenn and Lt. Robert Hill, pleaded innocent to federal charges of using excessive force and lying to FBI agents investigating the case.

Nahmias has taken an unusual interest in this case, announcing last month the initial arrest of Curtis Jerome Brown, on civil rights, obstruction and false statement charges.

Last week Nahmias said that more charges were expected in the investigation of inmate abuse.

Judge Shoob has monitored conditions at the jail following a lawsuit filed on behalf of inmates accusing the jail of overcrowding and dangerous conditions.

The Latest Chapter in "Ponzimonium"

This era of trillion dollar bailouts is also the era of the multi-million or billion dollar Ponzi scheme, the likes of which would make Charles Ponzi envious. Ponzi type frauds have become so common and extensive that U.S. Commodity Futures Trading Commissioner Bart Chilton warned in March of "rampant Ponzimonium."

Well ponzimonium has struck again. Nicholas Cosmo was indicted last Thursday in federal court in New York on 22 counts of mail fraud and 10 counts of wire fraud. Cosmo ran Agape World and Agape Merchant Advance. The companies promised short-term bridge loans to help companies obtain temporary financing. Investors were promised up to an 80 percent return, but the companies only delivered a return of less than 10 percent. Cosmo's companies made only $30 million in loans, but took in $413 million, and  defrauded 6,000 investors.

Cosmo is scheduled to be arraigned this Wednesday. His attorney has stated that he plans to plead not guilty. Cosmo is currently incarcerated after the court determined that a $750,00 bail offer by the defense was inadequate.

Another Home Depot Manager Charged in Atlanta

Last week the U.S. Attorneys Office in Atlanta charged another Home Depot manager in a two count Criminal Information. Ronald Douglas Matheny II is charged with one count of conspiracy to commit mail fraud and wire fraud, and a separate count of money laundering. Matheny becomes the fourth Home Depot executive charged in the widening investigation into self dealing by the executives that includes kickbacks and payments funneled through shell companies, in this case, more than $1.4 million dollars.

The filing of a Criminal Information usually portends a guilty plea in the near future. The Information alleges that as a product merchant in the Flooring department at Home Depot, Matheny and others engaged in a kickback scheme and accepted bribes in violation of his fiduciary duties owed to Home Depot.

A civil forfeiture complaint filed by the same U.S. Attorneys Office in January mentioned Matheny by name in seeking the forfeiture of certain properties owned by Ian Jay Evans. That case has been put on hold awaiting the “resolution of the pending criminal investigation of Ian Jay Evans.”

Earlier this month, the first of the four charged defendants, James P. Robinson, was sentenced to 63 months in prison, and ordered to pay $1.1 million in restitution. He also agreed to forfeit various properties. The second defendant, Ronald K. Johnston was sentenced the following day to 46 months in prison and ordered to pay $1.785 million in restitution. The third defendant to plead guilty, Anthony Tesvich, is scheduled to be sentenced in June.


Roy Black on the Castroneves Trial

Following his recent victory in the Helio Castroneves tax evasion trial, Roy Black, famed trial attorney from Miami spent some time with us reflecting on that trial:

Q: Thanks for your time and congratulations on the not guilty verdicts in the Helio Castroneves case. Any indication from the government on whether they will retry the conspiracy count against Castroneves and his sister?

Mr. Black: No, but in our view, the government can't retry Helio on conspiracy because of collateral estoppel. If the jury found no tax deficiency on the substantive evasion counts, then there was no unlawful plan. An agreement to comply with the tax code is not a crime. Or, if the jury found no willfulness on the evasion counts, then there can be no willfulness on the conspiracy. Either way we win. At a minimum we get interlocutory review in 11th Circuit before we start any litigation on this issue, we will meet with the government and see what their views are. There are civil remedies the government should be satisfied with.

Q: Did the district court permit the use of jury questionnaires specifically tailored to a tax evasion case?

Mr. Black: Yes, the judge allowed a moderately extensive questionnaire, mainly because of Helio's public image. Ironically few knew him as a driver, but everyone remembered him winning Dancing with the Stars. That tells you a lot about American culture today!

Q: This case presented some interesting issues - the international entities involved, the idea of “constructive receipt” of income and the testimony of attorney witnesses testifying for the government. Did the defense present any expert testimony? Character evidence? Did any defendant testify?

Mr. Black: We presented expert testimony from a tax attorney on all the tax issues in the case. He also testified all the returns were correct, etc. The government called two former tax attorneys of the defendants and also their CPA's. So, the government used these witnesses to present their claims on the tax issues and then called an IRS summary witness who spent a day on the stand putting it together. As you know a summary witness like this gives the government a big advantage because it is really just their summation. We were able to do the same thing with our tax expert and thus overcame some of the government advantage. The defendants didn't testify. Unfortunately for us there had been a civil suit on the same issues and the government used parts of that trial and depositions from that as admissions. We called three days worth of witnesses from Brazil about the business and background of the defendants, which was very effective. We needed it to prove the business necessity of some large deductions. For instance, Helio paid his father a large salary for several years and we needed to prove the payments were proper business expenses.

Q: Were you able to argue that the defendant’s actions after the time frame of the conspiracy were relevant? For instance, I read in the news reports that you had argued that Helio was going to pay his taxes in May of this year. How were you able to persuade the trial judge that evidence of the defendant’s conduct 4 years after the conspiracy ended was relevant?

Mr. Black: After my opening statement mentioning this the government filed an in limine motion to exclude this evidence. The court ruled that it could come in only if Helio testified. He didn't, so it didn't.

Q: Did the fact that you were dealing with a number of international entities hurt, or help the defense?

Mr. Black: It almost always hurts when a U.S. taxpayer has an offshore corporation and bank accounts. Especially Swiss bank accounts. But Helio's situation is different than the usual defendant. Helio is a Brazilian citizen and only in the U.S. on an non-immigrant work visa. He has to leave once his racing career here is finished. So, there is a good reason to have bank accounts in Brazil etc.

Q: Attached is a request that the trial judge order the government to produce all interview memoranda for all witnesses. Were you successful in persuading the judge to provide the defense with that information?

Mr. Black: In the Southern District of Florida we rarely get any agent reports. The government takes the position that they are not verbatim statements., etc, under Jencks [18 U.S.C. 3500]. And as you know the 11th Circuit is not helpful on this issue. So, we got a couple of paragraphs of Brady, but that's all. After Stevens and Shaygan this might change. I think any defense lawyer today must push those cases hard and disgorge more agent interviews. The U.S. Attorney here is reeling after Shaygan and Judge Gold's hard hitting order, so I expect they should be more liberal in discovery. Judge Gold expanded their Brady obligation. Most lawyers have adopted the government's language that Brady is for exculpatory evidence only, instead it is for any favorable evidence which is a much more liberal and useful concept for us.

Q: Was there a particular issue that you felt was outcome determinative in the context of the case to persuade the jury to return not guilty verdicts on the substantive counts?

Mr. Black: There was a huge battle over constructive receipt. It would take me pages to explain it all, but it was a highly contentious issue and for three days of deliberation the jury kept asking for more instructions and definitions of the concepts. The court had a lot of trouble with that. I think the jury got the idea that no one can give an accurate definition of constructive receipt and concepts like beneficial ownership. So, they probably figured a 22 year old from Brazil who barely spoke English didn't understand it either.

Q: How was the experience of trying this case with Bob Bennett out of Washington, D.C.?
Anything you gained from observing his courtroom demeanor/preparation?

Mr. Black: I have known and worked with Bob before and he is a wonderful lawyer. Not just that but the has a great sense of humor which really connects with the jury. One of the funnier parts of the trial dealt with Hugo Boss suits. The government claimed Helio should have reported the income from getting free suits from them. Our defense was that Hugo Boss was a sponsor of the racing team and Helio had to wear the suits. The claim was pretty petty. The total retail value of the suits was around $12,000. The summary government expert even admitted the amount was not material to the return. I cross-examined the CEO of Hugo Boss about how wonderful their suits were and that they wanted to show them off by having a slim good looking guy like Helio wear them. Then Bob got up, stuck his stomach out (which I can attest goes pretty far) and asked how would the suits look on his body. The jury got a good laugh out of that.

Q: I know that you continue to be a student of the law and work tirelessly on behalf of your clients - what can you tell us out in the trenches you learned from this trial?

Mr. Black: Tom as you know, we defense lawyers are counter-punchers. The government always goes first and usually gets all the good rulings from the court. We had some tough days during the trial but our team never lost hope and just kept fighting back. So despite how dark things might look we should not give up.

Roy, thanks very much for your time.

Paul Minor Denied Release for Wife's Funeral

The prosecution of Paul Minor, once one of the best plaintiff’s attorneys in the State of Mississippi, gets more depraved. Minor, currently imprisoned in what is at best an extremely close case on appeal and at trial as detailed here, was convicted in 2007.

As reported by Ellen Podgor of the White Collar Prof Blog, the Fifth Circuit denied Minor’s motion for release so that he could attend the funeral of his wife of 41 years. One of the links cited by Professor Podgor reports that the USAO in the Southern District of Mississippi filed a 77 page brief opposing Minor’s release. Minor’s wife died last week and was buried in New Orleans on Saturday.

In a last ditch effort to squeeze some compassion out of the Buruea of Prisons, Minor’s counsel wrote to the BOP requesting a compassionate release, which was denied.

The last words in this sordid tale have not been written.

Marietta Lawyer Pleads Guilty to $28 Million Ponzi Scheme

Yesterday Marietta lawyer, Robert P. Copeland, entered a guilty plea before federal district court Judge Beverly Martin, to one count of wire fraud for operating a Ponzi scheme. Copeland, who formerly advertised his services for the elderly, solicited victims through seminars and financial planners. He promised his victims that they could receive returns as high as 15% every six months. Copeland operated his Ponzi scheme from 2004 to 2009 and defrauded 125 victims out of $28 million, including funds from his victims’ retirement accounts. Copeland agreed to forfeit up to $28 million (the amount of money the government contends was involved in the offense).  The Northern District of Georgia press release is here and the AJC report is here.

Judge Martin has not yet set a sentencing date. Copeland faces a maximum term of imprisonment of 20 years.

"Die Hard" Director Indicted in Celebrity Wiretapping Case

John McTiernan, who directed “Die Hard” and “Predator,” was indicted on Friday by a federal grand jury in Los Angeles, on two counts of making false statements to the FBI in their investigation of private investigator John Pellicano and one count of perjury for lying to a federal judge while seeking to withdraw an earlier guilty plea. The AJC has the story here.

In April 2006, McTiernan waived indictment by a grand jury and entered a plea to one count of lying to FBI agents in violation of 18 U.S.C. § 1001. When the government informed McTiernan’s counsel that his cooperation had not been significant enough to warrant a departure from the sentencing guidelines and that the government would seek a sentence of imprisonment, McTiernan, now represented by new counsel, moved to withdraw his guilty plea. The district court denied his motion to withdraw his guilty plea and sentenced McTiernan to 4 months in prison. McTiernan appealed and the Ninth Circuit Court of Appeals reversed his sentence. United States v. McTiernan, 546 F.3d 1160 (9th Cir. 2008). Interestingly, the district judge then permitted McTiernan to remain free on bond pending his appeal, which, obviously was successful.

The government has now upped the ante and has charged McTiernan with two false statements counts and one perjury count. Sometimes we have to be careful about what we ask for. McTiernan has obviously bought himself a trial, and, in all likelihood, a stiffer sentence, if convicted.

Castroneves - Not Guilty in Tax Evasion Case

On the afternoon of its sixth day of deliberations in the case of former Indy car driver, Helio Castroneves, the jury returned a not guilty verdict on all charges of tax evasion, but they were unable to reach a verdict on the conspiracy count as reported here. Earlier in the day, the judge had informed the jury that he would not provide them copies of the attorneys’ opening statements because those statements are not evidence.

The jury found Castroneves’ sister, his manager, not guilty on all tax evasion counts, but they also remained deadlocked on the conspiracy count, and they found his former attorney, Alan Miller, not guilty on all counts in a huge win for Bob Bennett, his well known Washington, D.C., attorney. Castroneves, represented by Roy Black, contended that he relied on advisers to handle his finances and that he was going to pay his taxes when the money was attributable to him. The court declared a mistrial on the conspiracy charge. A huge victory for attorneys Bob Bennett, Roy Black, Howard Srebnick and his brother, Scotty Srebnick, all of whom are exceptional attorneys!

Castroneves Jury Reaches Partial Verdict

The Miami Herald reports that the jury in the case of former Indy car driver, Helio Castroneves, who is charged with several counts of tax evasion, has reached a partial verdict as to two of the counts against the Brazilian race car driver, but were deadlocked over the remaining five counts. The jury also said that they have reached a unanimous verdict on one charge against his sister/manager, but were deadlocked on the remaining six counts. Finally, the jury informed the judge that they have reached a verdict on all four counts against Alan Miller, Castroneves, former attorney.

The judge, as detailed here, has given a number of supplemental jury instructions in answer to the jurors questions during deliberations. I’ve always thought that complexity is the enemy of truth, but it seems that this case is truly complex. The jury has struggled with a number of issues throughout its deliberations and in response, the court has supplemented its original instructions, which, quite frankly, seems to add to the confusion.

The Herald reports that the judge has given the jury an Allen charge urging them to reach a verdict and has kept the partial verdicts under seal. Deliberations continue into Thursday afternoon

Minnesota Man Convicted of Impersonating Lawyer in Federal Courts

Interesting case out of North Dakota, where, according to a local newspaper, the United States Attorneys Office indicted a Duluth, Minnesota man on mail fraud and false statements regarding his “representation” of “clients.” Howard Kieffer was convicted after a two day trial and a mere 90 minutes of deliberation (a prosecutorial slam dunk). Kieffer undertook the representation of several defendants in federal court, even though he was not an attorney and had previously been convicted of theft and filing false tax returns and had served time in federal prison. Interestingly, Kieffer was represented by a Georgia attorney, Joshua Lowther, who called no witnesses, but contended that the government failed to prove his client guilty beyond a reasonable doubt.

Mississippi Judge Contends There Was No Crime

Judge Delaughter, currently under indictment in the Northern District of Mississippi has filed his reply brief in which he contends that the government has failed to allege a crime. His attorneys pick up on our point here, that the government’s response does not address several of the points raised in his original motion to dismiss. At bottom, Delaughter’s reply raises two interesting points: first, that ex parte contacts combined with a phone call from Senator Lott to tell Judge Delaughter that he was under “consideration for” a federal judgeship does not amount to a “thing of value and second, that it there is no “knew or should have known” standard in federal criminal cases. My take, the defense prevails on the second point - there is no “should have known” standard in federal criminal law. That is a negligence standard applied to civil negligence cases. The AP has a good discussion here from the Mississippi Clarion Ledger.

Will Castroneves Jury Return Verdict on Tax Day

The jury in Indy race car driver, Helio Castroneves trial, deliberated for a third day yesterday and return today for a fourth day of deliberation. We're taking bets (not really) that this jury will, in a cruel irony either for the government, or for Castroneves, return a verdict today – tax day – April 15.

Historically, the IRS tries to get the most bang for its buck, and it will try to schedule as many guilty pleas as possible around tax day. It will be either a huge victory for the government on tax day, or a huge defeat. The tincture of time will tell.

Castroneves filed yesterday a Motion for Mistrial that outlines the difficult legal questions the jury has been struggling with the last three days.

On Friday, April 10, the jury submitted this question:

“Better define: when does 'unconditional vested right to income' occur.”

On Monday, April 13, the jury requested that it be supplied a copy of the transcripts of the testimony of tax attorneys Fred Feingold and Mark Berg.

And, yesterday, April 14, the jury submitted the following questions:

  • 1.“Legally define: 'beneficial owner' how it pertains to a corporate entity.”
  • 2. “Legal define: 'deferral of income' specifically are there requirements and/or limitations to make a 'stop payment' a 'deferral of income.' "
  • 3. “Does asking someone with whom you’ve entered into a contract with to 'stop payment' before contract commences count as a 'deferral of income.'”

Following the supplemental jury instruction given yesterday in response to those last three questions, Castroneves filed the Motion for Mistrial objecting to the judge's answers to the second and third questions, which stated that Penske was the employer. Quite frankly, my reading of the judge’s jury instruction yesterday is that it was pretty defense favorable. I’m thinking we’ll have a verdict today.

Castroneves Jury Deliberations Continue on Monday

With closing arguments completed on Friday, the jury in Helio Castroneves’ tax evasion case in Miami began deliberating Friday afternoon. The judge discharged the jury and they will return Monday morning to continue their deliberations (as a former prosecutor and now defense counsel, I’ve always believed that interrupting jury deliberations for whatever reason is favorable to the defense).

The Miami Herald has this excellent description of the government’s evidence concerning the alleged tax evasion scheme. Interestingly, Castroneves’ father testified for the defense, and seemed to fall on his sword. More as deliberations continue.

An Analysis of Senator Stevens' Wrongful Prosecution

The Washington Post has this analysis of what went wrong with the prosecution of Senator Stevens’ case. Regrettably, the article seems a little short on specifics. All of us who have practiced against the Public Integrity Section at Main Justice know that their attorneys are less seasoned than those at United States Attorney’s Offices because of their high rate of turnover and the simple fact that as a general rule they have to travel to try their case – thus the high rate of turnover.

Portending problems with the prosecution, Brenda Morris, the lead government counsel, and former Deputy Chief Counsel of Public Integrity, was brought in to the case at a late hour. In a move that turned out to be a succesful legal gambit, pushing the prosecution to its limits, Brendan Sullivan of Williams & Connolly, requested an early trial date, so that Senator Stevens’ could, so the line goes, be exonerated before the election. That time crunch on the prosecution proved to be too much. Morris was a late arrival to the prosecution team, and, to her defense, did not participate in the crucial interview of Bill Allen from April, 2008, where Allen supposedly made favorable concessions about Stevens’ conduct. And, by the way, I’ve listened to the recorded phone calls between Allen and Stevens. The clear affection that Allen expresses for Stevens during those phone calls makes frightening Allen’s later willingness to lie for the government to please his masters.

Again, in an episode that would plainly be admissible against Morris under Rule 404(b) (similar act evidence), she, apparently, pushed prosecutorial discretion beyond its boundaries in a case against San Antonio, Texas, criminal defense lawyer, Alan Brown, who was acquitted at trial, and who brought a subsequent civil suit against the government, who ended up paying $1.34 million to settle his claim.

No doubt, the last words regarding Ms. Morris and others have yet to be written.

Government Strikes Back in Mississippi Judicial Corruption Case

Last Thursday, the government filed its response to Judge Delaughter’s Motion to Dismiss in the Mississippi judicial corruption case related to Dickie Scruggs’ criminal antics. As I had noted last year, I was not impressed with the work of Scruggs’ legal team in its attacks brought against the government’s ultimately successful case, and, quite frankly, I’m not impressed with the papers filed by Judge Delaughter’s crew here, either. As noted, they had filed a motion to dismiss the indictment alleging, among other things that .

  • Judge Delaughter accepted a secret, ex parte communication from the Scruggs legal team, essentially reversing his earlier ruling, and accepting, almost verbatim, a scheduling order favorable to Scruggs;
  • Judge Delaughter secretly provided the Scruggs legal team with an ex parte advance copy of a court order in the Wilson case by electronically mailing the same to Ed Peters, an attorney who had not made an appearance in the case, but who ultimately was paid$1,000,000 for the services rendered for his ex parte contacts with Judge Delaughter;
  • From August 2005 to August 2006 Peters had a number of ex parte meetings with Judge Delaughter designed to influence the judge to shade his ruling in favor of Scruggs;
  • During that same time frame Judge Delaughter secretly communicated with the Scruggs legal team through Peters.

Delaughter’s attorneys filed a couple of motions to dismiss, the most notable of which was the motion to dismiss the honest services mail fraud counts, alleging that the government: 1) failed to allege a state law violation as required by the Brumley Fifth Circuit precedent (interestingly, the govenment did not respond to this argument), 2) failed to allege bribery or material nondisclosure, 3) the mailings were required by state law, and 4) the honest services statute is void for vagueness as applied.

I continue to be impressed with the concise written word coming out of the U.S. Attorneys Office for the Northern District of Mississippi. The government responds that in causing a federal judicial judgeship “to be dangled in front of Judge Delaughter” his hunger for that judgeship clouded his judgment, caused him to rule in favor of Scruggs and through his relationship with Peters, Delaughter knew or should have known that Peters was not working for free. Ominously, the government portends that more bad news for Delaughter is on the horizon, stating that other similar acts will be offered at trial pursuant to Rule 404(b) to show that Wilson v. Scruggs was not the first case in which Ed Peters appeared, ex parte, to secretly influence the judge on behalf of one litigant without the knowledge of opposing counsel. My prediction – this motion to dismiss will be denied. Judge Delaughter has some difficult days ahead.

Helio Castroneves Closing Arguments

Although we’ve not blogged on this topic yet, we’ve been following from afar the tax evasion case against Indy Race Car driver and Dancing With the Stars celebrity Helio Castroneves currently in trial in the Southern District of Florida. Castroneves, represented by Roy Black, his sister represented by Black's partner, Howard Srbenick and one of Castroneves attorneys, represented by distinguished Washington, D.C. barrister, Bob Bennett, are charged with evading $2.3 million in income. The defense contends that the tax is not yet due because of a deferred income arrangement. Castroneves did not testify.

The AP reports that “Castroneves took part in "a pattern of deception" with his sister and lawyer to avoid paying taxes on more than $5.5 million, a federal prosecutor told jurors Thursday in closing arguments. Prosecutor Jared Dwyer said the group had wealth and success but thought "the rules didn't apply to them" when it came to paying taxes. So, Dwyer said, they funneled Castroneves' income into shell corporations and offshore accounts to hide it from the Internal Revenue Service and shirk a tax bill of roughly $2.3 million." Mr. Castroneves wanted to take advantage of all the opportunities in this country but skipped out on his responsibilities," Dwyer said."

The Ft. Lauderdale Sun-Sentinel reports that:

"In closing arguments, defense lawyers for Castroneves insisted he did not cheat on his taxes and had followed the advice of his attorneys and accountants. They reminded jurors Castroneves has not collected most of the money at issue and would only owe taxes when he is paid.". . . Although Castroneves has not yet received the money, he still owes taxes under the constructive receipt rule, Dwyer told jurors. But defense lawyer Roy Black called the government's reasoning absurd. "You pay the taxes when you get the money, that's the bottom line," Black said.The jury is expected to begin weighing the evidence on Friday.”

Closings are expected to conclude tomorrow with deliberations to follow. It’ll be interesting to see what a jury does in a tax evasion case if they have to deliberate Easter weekend.

Hat tip to David Marcus at Southern District of Florida Blog.

Hank Schuelke - The Stevens Special Prosecutor

We all know by now that Judge Sullivan appointed an attorney at a small D.C. firm as the Special Prosecutor to look into issues regarding the government’s conduct in Senator Stevens case. So, the question is who is Henry F. Schuelke, III.

Schuelke’s seven person firm, Janis, Schuelke & Wechsler, has their rather plain website here. It provides a fairly staid biography of Mr. Schuelke. Interestingly, all three of named partners were Assistant U.S. Attorneys for the District of Columbia, and, incredibly, have been practicing together since 1979!

Hank Schuelke received his undergraduate degree from St. Peters College, a Jesuit College in Jersey City, New Jersey in 1964 and his law degree from Villanova University in 1967. Schuelke is one of the good citizens of that difficult time who elected to serve his country, serving four years in the Judge Advocate General’s Corps of Uncle Sam’s Army with the last two years of service as a Military Judge for the U.S. Army Judiciary. Upon his Honorable Discharge from the Army, Hank then served for seven years as an Assistant U.S. Attorney for the District of Columbia with the last three years as an Executive Assistant U.S. Attorney.

He has also served as Special Counsel to the United States Senate, but lists his service as General Counsel to the Autism Society of America ahead of his duties to the Senate.

The AP reports that Schuelke is “low key” and scrupulously evenly balanced, and that he is the perfect person for the job of special counsel, both for the public and the individuals under investigation.

Attorney General Eric Holder in a swearing in ceremony of 11 Assistant U.S. Attorneys in Washington, D.C., told 11 new AUSAs that their job is not to win cases, but, in every case to do justice. Sounds like leadership is back at the helm at the Department of Justice, an institution that should be the shining light on the hill that was seriously damaged during the Gonzalez era. Hopefully, that ship is on course to being righted.

Jury Orders Fen-Phen Lawyers to Forfeit $ 50 Million

Having returned from a trip to Reno, Nevada last night where I didn’t lose a dime (didn’t bet a dime either), I didn't exactly correctly predict in this post on Saturday that this jury might just reach a compromise in the forfeiture phase of a case.

Following the guilty verdicts on Friday of last week, the jury in the Fen-Phen case in Kentucky returned on Tuesday of this week to hear the forfeiture phase of the case. Although there has been scant reporting on this portion of the case, the jury found the same day, apparently, after just argument, and no additional presentation of evidence, that the two now disbarred lawyers must forfeit $50 million dollars. Although the government had sought the forfeiture of $94.6 million, the jury only found that the defendants, William Gallion and Shirley Cunningham, had to forfeit the $50 million.

Proving that the job of a criminal defense practitioner is a difficult one, Cunningham’s attorney, Steve Dobson, said that although it is hard to be satisfied with anything after a guilty verdict, at least the government didn’t get the $94.6 million they were seeking! I’m pretty sure Dobson’s client thinks that’s a pyrrhic victory.

Fen Phen Lawyers Convicted in Retrial

Two lawyers were convicted following a retrial in Frankfort, Kentucky after the first trial last year in Covington Kentucky ended in a hung jury for the two attorneys and the acquittal of a third defendant. The defendants, William Gallion and Shirley Cunningham were taken into custody immediately following the verdict. The Louisville Courier Journal reports that trial will resume on Tuesday for the purpose of determining the government’s forfeiture claims. I’m always interested in post conviction forfeiture proceedings because forfeiture is supposed to be equitable in nature and sometimes juries believe that conviction is a sufficient punishment.

Interestingly, venerable Macon, Georgia attorney Hale Almand represents Defendant Gallion. Apparently, the trial was recessed for several days mid-trial because Mr. Almand was ill and the judge was prepared to declare a mistrial for Mr. Almand’s client, were he unable to continue.

We’ll try and get Mr. Almand’s take on the differences between the first trial that ended in a hung jury and this trial when he gets back to the office.  At least the following may have contributed to a different result in the retrial: venue was moved to Frankfort, instead of Covington, a new judge presided over the retrial, and the government added additional counts, instead of the single count they initially presented.

The case, called the largest theft in Kentucky history resulted from Gallion, Cunningham and the acquitted defendant, Melbourne Mills taking fees of $94 million dollars out of the $200 million dollar diet drug settlement. Renowned class action lawyer, Stan Chesley of Cincinnati, was associated on the case, and testified he was aware of the fees awarded and did nothing to protest it, but that the lawyers should have distributed to their clients any monies not initially paid in settlement.


Blagojevich, Defrocked Governor of Illinois, Indicted

Rod Blagojevich, the defrocked governor of Illinois, was finally indicted on Thursday, April 2, on 16 counts in a 19 count, 75 page Superseding Indictment. Blagojevich, you will recall was arrested on December 9, 2008. The government at the end of December was granted a 90 day extension within which to bring an indictment. That time frame was set to expire on April 7. As expected Blagojevich becomes the second consecutive Illinois Governor indicted for racketeering conspiracy, among other charges, including mail fraud, wire fraud and honest services mail fraud. Five others were also indicted, including Blagojevich’s brother, Robert, a top fundraiser.

The criminal RICO enterprise is alleged to be the Office of the Governor of Illinois and the principal campaign fundraising vehicle for Blagojevich, “Friends of Blagojevich.”

Simply put, the indictment alleges what is generally called a “pay to play” scheme that included Blagojevich using his ability to fill President Obama’s vacant Senate seat, state jobs and other appointments in exchange for contributions, jobs and monies.  The indictment also alleges that Blagojevich made false statements to the FBI in the presence of counsel in a 2005 interview with the FBI. Although Blagojevich’s wife is mentioned on several occasions in the indictment, she has not been charged.

Shocking Governmental Misconduct Leads to Dismissal of Charges Against Senator Stevens

As everyone knows by now, the Department of Justice has moved to dismiss with prejudice the indictment against former Senator Ted Stevens. While the pleadings in this case are extremely detailed in laying out the factual and legal landscape of the government’s misconduct, at the end of the day, it seems the defense had it right when they argued during trial, in one of their many motions to dismiss that “the government’s misconduct was intentional. This case must be dismissed. No other remedy will deter future prosecution teams from engaging in the same tactics. No other remedy will prevent what has happened in this case from happening again.” In that motion, the government set out in exquisite detail how the government agents and attorneys had knowingly withheld Brady material and knowingly put on false and misleading evidence.

After Senator Stevens was convicted one of the co-case agents, Agent Chad Joy, filed a self styled whistle blower complaint that detailed how the lead case agent, Agent Mary Beth Kepner, had intentionally redacted Brady and Jencks Material that the defense was entitled to receive, and how one of the prosecutors, Nick Marsh of the Department of Justice Public Integrity Section, schemed to relocate a prosecution witness, who had also been subpoenaed by the defense.

Of course, when that complaint was made public, defense counsel, again moved to dismiss the indictment arguing that the “complaint submitted by FBI Agent Chad Joy now confirms what the defense has long believed and alleged: the government cheated and lied in order to obtain a verdict against Senator Ted Stevens.”

Litigation then ensued where the district court was trying to sort out who knew what and when. For almost 3 months, Brenda Morris, the lead prosecutor continued to file pleadings defending the government’s actions, that the court ultimately rejected. Judge Sullivan noted that “over and over again the government has been caught in false representations and otherwise failing to perform its duties . . . and over and over again, when caught, the government has claimed that it has simply made good faith mistakes.”

In mid-February the Department of Justice brought in a new team of prosecutors after members of the original team were held in contempt. The district court withheld ruling as to what sanction is to be imposed with respect to that finding of contempt. No doubt collateral litigation will continue regarding the appropriate penalty for the prosecutors’ contumacious conduct.

Ultimately that new team of prosecutors concluded that evidence material to the defense of Senator Stevens was withheld and that government pleadings regarding that material evidence were inaccurate. The government concluded, in moving to dismiss the indictment that “based on the totality of circumstances and in the interests of justice, it will not seek a new trial.”

A press release by Williams & Connolly, Senator Stevens’ counsel, noted that had the district court simply “accepted the word of government prosecutors as is done often in our courts, the extraordinary misconduct would never have been uncovered.”

The DOJ Office of Professional Responsibility is conducting an investigation into the conduct of the government agents and prosecutors.

District Court Judge Sullivan has scheduled a hearing for next Tuesday, April 7, 2009 on the government’s motion to dismiss.


Scruggs II - Judge Delaughter's Motion to Dismiss

Much has happened in the Dickie Scruggs landscape since I last blogged on this topic last year, not the least of which is the changing world in the blogosphere: Tom Freeland, formerly of folo, now has his own blog here and after a lengthy hiatus, David Rossmiller of insurancecoverageblog.com, has now appeared back on the scene.

At any rate, here’s the latest in the Scruggs II investigation in the Northern District of Mississippi,: Bobby Delaughter, a Hinds County, Mississippi Circuit Court Judge was indicted, along with Dickie Scruggs, in January of this year in a mail fraud scheme related to the Wilson v. Scruggs case pending in front of him. The indictment, quite frankly, describes some pretty damning over acts: 

  • That Judge Delaughter accepted a secret, ex parte communication from the Scruggs legal team, essentially reversing his earlier ruling, and accepting, almost verbatim, a scheduling order favorable to Scruggs;
  • That Judge Delaughter secretly provided the Scruggs legal team with an ex parte advance copy of a court order in the Wilson case by electronically mailing the same to Ed Peters, an attorney who had not made an appearance in the case, but who ultimately was paid$1,000,000 for the services rendered for his ex parte contacts with Judge Delaughter;
  • That from August 2005 to August 2006 Peters had a number of ex parte meetings with Judge Delaughter designed to influence the judge to shade his ruling in favor of Scruggs;
  • And, that during that same time frame Judge Delaughter secretly communicated with the Scruggs legal team through Peters.

Now, last week, Delaughter’s attorneys filed a couple of motions to dismiss, the most notable of which was the motion to dismiss the honest services mail fraud counts, alleging that: 1) the government failed to allege a state law violation as required by the Brumley Fifth Circuit precedent, 2) the government failed to allege bribery or material nondisclosure (this borders on the frivolous in light of the factual allegation a Judge was previewing rulings via email to a non-party attorney), 3) the mailings were required by state law, and 4) the honest services statute is void for vagueness as applied.

Interestingly, Delaugher’s counsel was the same counsel in the Sorich case, a political patronage case out of Chicago, in which Justice Scalia recently issued a stinging rebuke to the Supreme Court for failing to take cert. A copy of Sorich’s motion is dismiss is here, and a link to a Chicago Tribune article about the courtroom flair of Mr. Durkin can be found here. My take, however, is that this is a reasonably simple case and that looking at the four corners of the indictment, it does allege a crime, and quite frankly, a crime that goes to the heart of having a fair and impartial judiciary.

Here Judge Delaughter, apparently for nearly a year, was in frequent contact with an attorney, Peters, who had not filed an appearance in the case, but who was being paid $1 million by Scruggs and his counsel in the Wilson civil litigation. All the while, Judge Delaughter was supplying that attorney with previews of rulings, even emailing one order to Peters. I mean, seriously, under those facts, who can legitimately argue that the judicial process in Hinds County Mississippi was not completely bastardized.

The only part of this motion to dismiss that might have some legs is whether the mailings were compelled by law, and, therefore, under binding precedent, they can not form the jurisdictional basis of the mailings. My guess - the prosecution will supersede to cure that defect.

Two National Century Financial Enterprises executives were sentenced to 30 and 25 years on Friday

Two National Century Financial Enterprises (NCFE) executives were sentenced to 30 and 25 years in district court in Columbus, Ohio on Friday for their roles in the failed healthcare finance company’s failure. NCFE was one of the largest healthcare finance companies in the United States until it filed for bankruptcy in November 2002.

Lance K. Poulsen, 65, former president, owner and chief executive officer of NCFE was sentenced to 30 years in prison and three years of supervised release following the prison term. A federal jury convicted Poulsen on Oct. 31, 2008, of conspiracy, securities fraud, wire fraud and money laundering. Poulsen was also found guilty by a federal jury on March 26, 2008, of conspiring to interfere with a witness who was preparing to testify in the fraud trial against Poulsen and other NCFE executives. He is currently serving a 10-year prison sentence for that conviction. The court ordered Poulsen’s 30-year sentence to be served concurrently with the 10-year sentence for witness tampering.

Rebecca S. Parrett, 60, former vice chairman, secretary, treasurer, director and owner of NCFE was sentenced to 25 years in prison and three years of supervised release following the prison term. A federal jury convicted Parrett on March 13, 2008, of conspiracy, securities fraud, wire fraud and money laundering. Parrett fled after the conviction and remains at large.

U.S. District Court Judge Algenon Marbley ordered Poulsen and Parrett to forfeit $1.7 billion of property representing the proceeds of the conspiracy and to pay restitution of $2.3 billion.

Gillen, Withers & Lake, LLC, partner, Craig A. Gillen, was lead trial counsel for James K Happ, who was the seventh former NCFE executive to go to trial, and the only defendant found not guilty. Four other NCFE executives entered guilty pleas.

Eleventh Circuit Reverses Former Alabama Gov. Seigelman's Convictions for Honest Services Fraud, Otherwise Affirms Siegelman's/Scrushy's Convictions in Bribery/HealthSouth Case

Former Alabama Governor Don Siegelman and former HealthSouth CEO Richard Scrushy were convicted of federal funds bribery, honest services conspiracy, honest services mail fraud, racketeering conspiracy, racketeering, honest services wire fraud, obstruction of justice and extortion in the U.S. District Court for the Middle District of Alabama back in 2006. Siegelman has alleged that his prosecution was spurred by the Republican party, especially former White House advisor Karl Rove. Siegelman and Scrushy appealed their convictions.

On March 6, a three judge panel of the Eleventh Circuit issued a per curiamopinion, U.S. v. Siegelman, NO. 07-13163, 2009 WL 564659 (11th Cir., Mar. 06, 2009) (per curiam). The Court began its opinion by acknowledging that the case was an “extraordinary” one, involving corruption at the highest levels of theAlabama government, and straining the resources of both the Alabama and federal governments. Id. at *1. It recited the facts as follows: Siegelman was elected Governor in 1998 and, after his election, established the Alabama Education Lottery Foundation (“Foudation”) to raise money for a ballot initiative to establish a state lottery. Id. at *2. Scrushy had served on the Alabama Certificate of Need (CON) Board, a healthcare regulatory body, by appointment under three previous Governors, but had supported Siegelman’s opponent in the 1998 election. Id. After the election, Nick Bailey, one of Siegelman’s associates, met with Eric Hanson, a lobbyist for HealthSouth, and told Hanson that Scrushy needed to contribute at least $500,000 to the Foundation to “make it right.” Id. Bailey and Mike Martin, former Chief Financial Officer of HealthSouth, testified at trial that Scrushy communicated that he was interested in making the contribution in exchange for the position on the CON Board. Id. at *2, *3. Martin testified that Scrushy instructed him to have HealthSouth’s investment banker, Bill McGahan of UBS, make the contribution, but McGahan balked at doing so, and instead had Integrated Health Services (“IHS”) of Maryland write a $250,000 donation to the Foundation in July of 1999, which Scrushy personally delivered to Siegelman. Id. at *3, *4. Siegelman subsequently contacted the designee Chariman of the CON Board and informed her that Siegelman wanted Scrushy to be Vice-Chair of the CON Board, and the CON Board selected Scrushy for the position. Id. at *4. In March of 2000, Scrushy gave Siegelman another check from HealthSouth for $250,000. Id.

The Court first considered Siegelman’s and Scrushy’s argument that the trial court’s instructions to the jury on bribery, pursuant to 18 U.S.C. § 666, erroneously failed to require the jury to find a quid pro quo, and that the defendants “expressly” agreed to a quid pro quo, in order to convict them.Id. at *6, *7. The Court recognized that the Supreme Court’s decision in McCormick v. United States, 500 U.S. 257 (1991) required more to convict a defendant of bribery than mere proof of a campaign donation followed by an act favorable for the donor. Id. at *7. It noted the Supreme Court’s holding that payments are only criminal if they “‘are made in return for an explicit promise or undertaking by the official to perform or not to perform an official act…’” Id. (emphasis in original) (quoting McCormick, at 273). However, the Court held that an “explicit” promise does not mean an “express” promise, and cited the Supreme Court’s subsequent decision in Evans v. United States, 504 U.S. 255 (1992), which held that the “‘Government need only show that a public official has obtained a payment to which he was not entitled, knowing that the payment was made in return for official acts.’”Id. at *8 (quoting Evans, at 258). “[T]here is no requirement that this agreement be memorialized in a writing, or even, as defendants suggest, be overheard by a third party. Since the agreement is for some specific action or inaction, the agreement must be explicit, but there is no requirement that it be express.” Id. (emphasis in original). On the contrary, an “explicit” agreement may be implied from words and actions. Id. (citing Evans, at 274). The Court also rejected Siegelman’s and Scrushy’s arguments that the evidence was insufficient to support their bribery, conspiracy and honest services mail fraud convictions, noting that Bailey had testified at trial that Siegelman had told him that Scrushy wanted “the CON Board” in exchange for the donation, and that Bailey and Martin had given other testimony which indicated that Scrushy bribed Siegelman, holding that the jury could have inferred that Scrushy and Siegelman agreed to a corrupt quid pro quo from the surrounding circumstances. Id. at *10, *11.



Continue Reading...

Madoff Pleads, Describes Fraudulent Scheme, Is "Deeply Sorry and Ashamed"

Bernard Madoff pled guilty this morning to all charges in the criminal complaint against him in the Southern District of Georgia and United States District Judge Denny Chin accepted the plea, as reported at the Wall Street Journal Law Blog and elsewhere. Judge Chin also revoked Madoff's bond and remanded him to custody. Madoff's sentencing is scheduled for June 16.

In his allocution, the full text of which is available at the WSJ, Madoff admitted that he operated a Ponzi scheme through his business, Bernard L. Madoff Securities LLC. He admitted that he would receive funds from clients for investment which he never invested but instead deposited in a bank account at Chase Manhattan Bank. Madoff stated that when his clients wanted to cash out their gains or principal, he would pay them with other clients' monies from the account. Madoff admitted that he induced investors through a purported “split strike conversion strategy,” in which the client's money would allegedly be invested in a number of common stocks within the Standard & Poor’s 100 Index, and intermittently in Government-issued securities, allegedly selling option contracts on the stocks to limit his clients' liability caused by stock losses.

Madoff admitted to lying to clients and sending false trade confirmations and account statements. He also admitted to making false  certified audit reports and financial statements to the SEC and giving false testimony during an SEC hearing in 2006. Later, he concealed his fraud by wiring money from the U.S. to a United Kingdom corporation, Madoff Securities International Ltd., in order to create an appearance of actual securities transactions.

Madoff expressed remorse and shame for his actions, and asserted that he believed the scheme would end and that he would be able to extricate himself and his clients from the scheme. He also sought to protect his family to some degree, by stating that the other activities of his business, which were managed by his brother and his sons, were legitimate.

Commentators have remarked on the strange absence of any conspiracy allegation in the criminal complaint against Madoff, however this would not prevent the prosecution from bringing subsequent charges against others, including Madoff's family members. The docket sheet for the case reveals that Madoff entered into an agreement to forfeit property to the government back in December 2008.

Gillen Withers & Lake LLC is headed by former federal prosecutors who vigorously defend and represent their clients at every stage of the process, with an outstanding track record. Contact us at (404) 842-9700 (Atlanta) or (912) 447-8400 (Savannah).

Madoff More Than Likely to Plead Guilty Tomorrow

As reported by most media outlets today, Ponzi scheme mastermind Bernard Madoff who is responsible for billions in losses to investors will likely plead guilty tomorrow to charges against him in the United States District Court for the Southern District of New York. Madoff's attorney, Ira Sorkin, told United States District Judge Denny Chin yesterday, during a hearing regarding potential conflicts of interest in Sorkin's representation of Madoff, that Madoff was likely to plead guilty to the 11 counts against him, including securities fraud and perjury.

Numerous victims lost what amounted to billions of dollars as a result of Madoff's fraud, including schools, charities and Holocaust survivors. Madoff was present at the hearing wearing a bulletproof vest. At least 25 investors have requested to speak at the hearing tomorrow. Madoff could face a sentence of as much as 150 years. Prosecutors have reserved the right to seek up to $170 million in forfeiture.


Madoff is alleged to have solicited money from investors and not to have invested it, instead using it himself and in his businesses, in what amounted to a massive Ponzi scheme. Differing accounts of the extent of the fraud exist. The prosecution claims that Madoff admitted to his family that he had carried out a $50 billion fraud and alleges a $64 billion fraud in filings with the court. However, experts have stated that these high numbers reflect the high profits that Madoff promised investors, and that the actual loss is likely much less. Investigators have found $1 billion in losses to investors so far.


Gillen Withers & Lake LLC are white collar and corporate criminal defense attorneys with an outstanding reputation and track record, handling cases throughout Georgia and the nation. Call our Atlanta, Georgia, office at (404) 842-9700 or our Savannah, Georgia, office at (912) 447-8400.

Plea Expected in Madoff Case Tomorrow

Bernard Madoff, the mastermind of a $50 billion dollar Ponzi scheme, may enter a guilty plea at his arraignment tomorrow in the United States District Court for the Southern District of New York, as reported in an article today at Law.com. Prosecutors filed an information against Madoff on Friday. One of Madoff's attorneys, Daniel J. Horwitz of Dickstein Shapiro,confirmed on Friday that Madoff would waive indictment. Madoff and his attorneys have been working with the government to determine the extent of the fraud and to locate assets.

70 year-old Madoff was arrested on December 11, 2008. He is alleged to have admitted his crimes to an FBI agent and to his sons.

Madoff was initially released on $10 million bail, which was subsequently revoked after Madoff mailed more than $1 million in jewelry to family and friends. The court ordered Madoff confined to his Park Avenue penthouse on electronic monitoring and surveillance by security guards

The lead attorney for the defense, Ira L. Sorkin, has been alleged to possess a conflict of interest in representing Madoff as a result of the fact that Sorkin's late father had an account with Madoff and Sorkin's representation of  Avellino & Bienes, an investment firm which funneled its clients' money to Madoff. A hearing on the issue has been set for Tuesday.

Meanwhile, the Securities Investor Protection Corp. (SIPC), an industry-funded organization that assists when brokerage firms fail, sent two checks on Friday to two of Madoff's investors. Investors are eligible for up to $500K from the SIPC, and will have until July to file claims.

An international coalition of 34 law firms from North America, Europe and South America who represent banks, hedge funds, public institutions and individuals who were victims of Madoff's fraud are also meeting today at the Park Avenue offices of McCarter & English, a Boston-based law firm, to plan their actions against Madoff


Gillen Withers & Lake LLC are white collar and corporate criminal defense attorneys with an outstanding reputation and track record, handling cases throughout Georgia and the nation. Call our Atlanta, Georgia, office at (404) 842-9700 or our Savannah, Georgia, office at (912) 447-8400.

James K. Happ Acquitted on All Counts in Final National Century Financial Enterprises Trial


National Century Financial Enterprises Case (NCFE), a healthcare financing company, collapsed in 2002, resulting in a loss of $2.9 billion to investors, including the world’s largest bond fund manager, Pacific Investment Management Co., Pimco and Credit Suisse Group. The failure also hastened the bankruptcies of some 275 hospitals and healthcare providers. A dozen NCFE executives and employees were indicted in the Southern District of Ohio in 2003 on charges of conspiracy, mail and wire fraud, securities fraud and money laundering, including NCFE’s former Executive Vice President, Mr. James K. Happ. NCFE, which purchased accounts receivables from healthcare providers at a discount, was alleged to have advanced $2.2 billion to six companies in which its Chief Executive, Lance K. Poulsen, owned stakes, and to have charged NCFE’s clients for the advances. NCFE’s fraud is considered the largest by a private company in U.S. history, and case has received nationwide media attention.

Several of the NCFE defendants pled guilty, and the remaining defendants were convicted in three trials on all counts. In particular, Poulsen was convicted in July for obstruction, and in October, on a total of 17 counts. Poulsen has already been sentenced to 10 years imprisonment on four of the counts, and faces a sentence of 30 years to life in prison on the remaining counts. NCFE co-founder Rebecca Parrett was convicted of 9 counts in March, but disappeared in March when she was given leave by the Court to return to Arizona to tend to her personal affairs.

Mr. Happ, who was charged with counts of conspiracy, money laundering conspiracy and three counts of wire fraud, was to be the seventh NCFE executive tried and the fourth and final NCFE trial. The case was presided over by the Honorable Algenon Marbley, United States District Judge. Mr. Happ was represented in the proceedings by the Columbus, Ohio, law firm of Kravitz, Brown & Dortch, LLC, and by the Atlanta, Georgia, law firm of Gillen Withers & Lake, LLC. Eminent attorney Max Kravitz, founding member and managing partner of Kravitz, Brown & Dortch and professor of law since 1976 at Capital University Law School, represented Mr. Happ until Mr. Kravitz’s untimely passing in August 2007. Representing Mr. Happ at trial were founding member and managing partner of Kravitz, Brown & Dortch, attorney Janet Kravitz, and attorney Craig A. Gillen, founding member and managing partner of Gillen Withers & Lake, serving as lead counsel. Mr. Zach Kravitz, Mr. and Mrs. Kravitz’s son, who is a recent graduate of the University of Florida School of Law, also served as counsel.

During the three-week trial, the defense argued that Mr. Happ was not involved in any wrongdoing and never lied to NCFE’s investors. The prosecution attempted to allegedly connect Mr. Happ to the fraud through witness testimony, including from NCFE Executive Vice-President Sherry Gibson and Frank Magliochetti, Jr., Chief Executive Officer of Med Diversified. The defense impeached the witnesses’ statements against Mr. Happ, and argued that while Mr. Happ advanced monies to healthcare companies, he did so merely as part of NCFE’s legitimate business, that the advances to companies had been occurring for eight years prior to Mr. Happ’s joining NCFE in 2000, and that Mr. Happ was not involved in the creation of any false investor reports or financial documents.

At the close of the trial, the prosecution urged the Court to instruct the jury on intent and “deliberate ignorance” or “willful blindness,” the concept that a defendant may still be found guilty of a crime where the defendant deliberately closes his or her eyes to criminal conduct. The defense responded that the jury could not be instructed on both intent and deliberate ignorance/willful blindness, citing an unpublished decision by the Sixth Circuit Court of Appeals, United States v. Ramos, 38 F.3d 1217 (6th Cir.1994) (unpublished per curiam), in which the Court held that “[t]he deliberate ignorance instruction should not be used where the evidence points to ‘either actual knowledge or no knowledge at all of the facts in question.’” Id. at *4 (quoting Sanchez-Robles, 927 F.2d at 1074; quoting United States v. Perez-Padilla, 846 F.2d 1182, 1183 (9th Cir. 1976)). The Judge found that a deliberate ignorance/willful blindness instruction could not be given where the government attempts to prove a defendant’s intent through direct evidence, pursuant to Ramos, and denied the prosecution’s proposed instruction. The jury subsequently found Mr. Happ not guilty on all counts. Jurors who were questioned following the verdict informed the media that they felt that the government did not prove its case. Mr. Happ is the only NCFE defendant to be acquitted. The acquittal has been widely reported in the national media.



Gillen Withers & Lake LLC are white collar and corporate criminal defense attorneys with an outstanding reputation and track record, handling cases throughout Georgia and the nation. Call our Atlanta, Georgia, office at (404) 842-9700 or our Savannah, Georgia, office at (912) 447-8400.

Ron Sailor, Jr., Sentenced to 5+ Years

Former Georgia State Representative Ron Sailor, Jr., was sentenced last week to 5 years, 3 months imprisonment by United States District Judge Jack T. Camp of the United States District Court for the Northern District of Georgia on charges of money laundering and mail fraud. Sailor was further ordered to forfeit property worth $181,802.24.

Sailor represented District 93, consisting of parts of DeKalb and Rockdale Counties. He originally pled guilty to money laundering charges in March of this year for laundering drug proceeds. Sailor had met with an undercover law enforcement officer posing as a drug dealer and had informed the agent that he was looking for a drug dealer to give him $300,000 which Sailor would launder for a fee. An agent subsequently met with Sailor and provided him with approximately $375,000, and Sailor returned the funds to the agent in the form of checks which falsely stated that they were for consulting work, and which had Sailor's fee deducted. Sailor resigned from the General Assembly following his guilty plea.

Following his plea, Sailor agreed to cooperate with authorities in an unrelated investigation. However, he also attempted to obtain a $250,000 loan by using the Greater New Light
Missionary Baptist Church, on Campbellton Road in Southwest Atlanta, where he was a pastor, as collateral, without the church's permission. Sailor caused the church's corporate registration to be changed to show himself as the Chief Executive Officer, and created a false resolution of the church's Board of Directors authorizing the church to use the property to obtain a loan and Sailor to bind the church to the loan, forging the signature of the church's Secretary on the resolution. Sailor also forged false church by-laws, falsely signing for the Secretary and embossing the by-laws with a fraudulent church seal. Sailor presented the fraudulent documents to Georgia Business Capital Ban, which proceeded to lend Sailor $250,000 with the church's property as collateral. Sailor used $141,386.72of the proceeds to pay his personal expenses. Additional charges were filed against Sailor for this conduct, which Sailor pled guilty to in June of this year.

Largest Legal Fees in U.S. History, $688 Million, in Wake of Enron Scandal

The attorneys who have assisted shareholders and investors in recovering for their losses in the wake of the prosecution and demise of Enron will receive a handsome reward for their labors-$688 million in legal fees, the largest amount ever earned in a case in U.S. history. The settlement is part of a $40 billion lawsuit by investors alleging that Bank of America, JPMorgan Chase, Citigroup participated in the accounting fraud which led to Enron's collapse.

Coughlin Stoia Geller Rudman & Robbins had the fee approved yesterday. The court stated that the fee was reasonable and was earned by "an extraordinary group of attorneys."

Coughlin Stoia Geller Rudman & Robbins and others helped investors recoup $7.2 billion, mostly from Enron's former banks. Approximately 1.5 million individuals and institutions will be eligible to share in the distribution under the settlement plan. The plan will pay about $6.79 per share of common stock and $168.50 per share of preferred stock to investors or shareholders who purchased Enron-related securities between 1997 and 2001.

Several financial institutions, including Merrill Lynch, Credit Suisse First Boston and Barclays Bank, have not yet entered a settlement and remain defendants in the case.

Abramoff Gets 4 Years

Former lobbyist Jack Abramoff was sentenced to 4 years imprisonment yesterday, as reported by the Associated Press. The Abramoff scandal shook Washington and contributed to the Republicans' loss of Congress in the 2006 mid-term elections. Following his arrest, Abramoff cooperated with the FBI in investigating his own corruption and that of others. Abramoff assisted the Justice Department in obtaining corruption convictions against former Republican Representative Bob Ney, former Deputy Interior Secretary J. Steven Griles and several aides.

Abramoff told the court that he was a "broken man," and was not the same person "who happily and arrogantly engaged in a lifestyle of political and business corruption." Abramoff's cooperation with the government spared him what could have been a maximum sentence of 11 years. He also faces criminal proceedings in Florida for a fraudulent casino deal.


Anthrax Scientist's Attorneys Issue Press Release Asserting His Innocence

The suicide on Friday of Bruce Ivins, a biodefense researcher who worked for 18 years at the government’s biodefense labs at Fort Detrick, Maryland, who was believed to be responsible for the 2001 anthrax attacks, has made national headlines. The attacks killed 5 people, and a federal grand jury was to hold proceedings this week to indict Ivins--the fact which is believed to have prompted his suicide. Prosecutors had planned to seek the death penalty against Ivins.

According to the Wall Street Journal
, Ivins made death threats to his counselor, Jean Duley, who had been subpoenaed to testify before the grand jury. Ivins was committed to a psychiatric hospital in July, and was scheduled to appear in a Maryland court to repond to an application for prtective order by Duley. Duley's petition averred that Ivins had a history of homicidal threats to his therapists dating back to his days as a graduate student.

In the wake of Ivins suicide, his attorneys Paul F. Kemp and Thomas M. DeGonia of Venable, LLP, released a statement remarking that Ivins had fully cooperated in the government's investigation, citing his long career with the Department of the Army, and stating

"We are saddened by his death, and disappointed that we will not have the opportunity to defend his good name and reputation in a court of law. We assert his innocence in these killings, and would have established that at trial. The relentless pressure of accusation and innuendo takes its toll in different ways on different people, as has already been seen in this investigation. In Dr. Ivins’ case, it led to his untimely death..."

"Perry Mason of Hollywood" Set to Be Indicted on Criminal Campaign Finance Charges

As reported by the Wall Street Journal, California attorney Pierce O’Donnell has represented clients including actress Faye Dunaway (in a wrongful termination suit against Andrew Lloyd Webber), columnist Art Buchwald (in a suit against Paramount), as well MGM, NBC and Lockheed, and has been called the new Perry Mason of Hollywood. In addition to his legal celebrity, O'Donnell is further an author, poet and screenwriter, publishing “Fatal Subtraction: The Inside Story of Buchwald v. Paramount,” about the Buchwald case; “Dawn’s Early Light,” a book of poetry; and “In Time of War: Hitler’s Terrorist Attack on America,” as well as co-writing the film "Home Team" with actor Steve Guttenberg. O'Donnell stated in an interview with Fortune magazine that "The trial lawyer has to embody the skills of a great filmmaker. He’s a writer — he writes his own material, he outlines what his witnesses are going to say. He’s the director — he directs the performances. He’s the producer — he has to make all the physical arrangements. And he’s the actor."

However, O'Donnell may be forced to take a leading role he does not want--that of criminal defendant. The Los Angeles Times has reported that a federal grand jury has been investigating O'Donnell to determine whether O'Donnell allegedly violated campaign finance laws by asking employees of his law firm to contribute to the 2004 presidential campaign of former North Carolina Senator John Edwards and reimbursing employees who did. O'Donnell has responded that he would be willing to plead to a misdemeanor and pay a large fine, however, representatives of the United States Attorneys Office for the Southern District of California have stated that they would require O'Donnell to plead guilty to a felony.

O'Donnell pleaded no contest in 2006 to state charges for similar conduct in the campaign of Los Angeles City Attorney James Hahn for Mayor of Los Angeles, and was sentenced to probation and ordered to pay more than $155,000 in fines and penalties.

Former State Representative Pleads Guilty-Again

    Former Georgia State Representative Ron Sailor plead guilty to a superseding indictment and charges of money laundering, wire fraud and fraudulently obtaining a loan today in the United States District Court for the Northern District of Georgia. Sailor had initially plead guilty to laundering and attempting to launder $375,000 worth of alleged drug proceeds in March. However, the court revoked Sailor's plea agreement when it was discovered that, following his December 2007 arrest, Sailor had secretly obtained a $250,000 loan using the Greater New Light Missionary Baptist Church, where he was a pastor, as collateral, without the church's knowledge. Sailor re-pled today to the money laundering charges and the added loan charge.

   Sailor caused the church's annual registration to be changed to show that he was the Chief Executive Officer and drafted a fake resolution of the church's board of directors purportedly authorizing Sailor to borrow money against the church's property, forging the signature of the church's secretary on the document. He also created false church bylaws. Sailor then submitted the documents to a Georgia bank which (with a startling lack of due diligence) made the loan. He hid the loan from the government, whom he was supposed to be assisting with another criminal investigation.

   Sailor will be sentenced in September and could receive a maximum of 80 years in prison and a fine of up to $2.25 million.

CEO Convicted in $150 Million Hedge Fund Scheme

     Kirk Wright founded and was Chief Executive Officer of Atlanta-based International Management Associates (IMA), which managed several hedge funds, as reported by the Atlanta Business Chronicle. By 2006, IMA had thousands of clients, had received more than $150 million in investments and also had offices in New York, Los Angeles and Las Vegas. However, IMA actually lost almost all the money invested, yet Wright falsely reported monthly gains to investors. At the same time, Wright diverted millions to his personal use, spending the money on a half million dollar wedding, multiple properties in Atlanta and California, luxury vehicles, jewelry and on relatives.

     When several investors requested distributions early in 2006, IMA collapsed and the investors, including several National Football League players, received bad checks and filed suit against IMA. Wright proceeded to take $500,000 in cash from the company and fled. The Federal Bureau of Investigation conducted a nationwide manhunt and arrested Wright in May of 2006 at the Ritz Carlton hotel in Miami Beach, Florida, finding him in possession of numerous pieces of false identification and equipment for making false identifications.

     Wright was charged with mail fraud, securities fraud and money laundering and was convicted following a two week trial in the United States District Court for the Northern District of Georgia. He faces up to 710 years in prison and $16 million in fines.

A Lesson in Duplicity - The Barry Bonds Superseding Indictment

     Charging two or more distinct offenses in a single count is what the law refers to as duplicity. See generally 1 Wright, Federal Practice and Procedure, § 142 (2nd ed. 1982); 8 Moore’s Federal Practice, § 8.03 (2nd ed. 1984). The test for determining whether separate statements in a single false statement count constitutes a single offense turns on whether each alleged false statement in a given count is substantially the same as the others. United States v. Graham, 60 F.3d 463 (8th Cir. 1995); United States v. Bins, 331 F.2d 390, 393 (4th Cir. 1961)(“the test for determining whether several offenses are involved is whether identical evidence will support each of them, and if any dissimilar facts must be proved, there is more than one offense”). In a fascinating case against a sitting federal district court judge, the Ninth Circuit noted that the vice of a duplicitous indictment is that a conviction could be obtained without a unanimous verdict as to each of the false statements in a particular count. United States v. Aguilar, 756 F.2d 1418, 1420 (9th Cir 1985). Continue Reading...

Snipes Sentencing Tomorrow - No Defense Sentencing Memo

With sentencing scheduled for Thursday, April 24, Snipes has:

  • added another lawyer, his sixth attorney, that, apparently, will be present at sentencing,
  • moved to continue sentencing, and,
  • all important, has requested the use of a laptop at sentencing!

As noted here, the resolution conference to resolve disputed issues regarding the presentence investigation report was held on Friday, April 11, 2008. By Monday of the following week, April 14, 2008 the government had filed a 36 page sentencing memo arguing that by any stretch of a sentencing calculation, Snipes faces a 36 month term of incarceration.

Snipes counsel’s reaction was to file the following day, a motion to continue sentencing. That motion, filed on tax day, was denied by Judge Hodges the following day.

The government, meanwhile has filed a Motion for Bill of Costs, seeking costs of just over $250,000.00.

Yet to be filed by defense counsel is a sentencing memorandum, fairly standard practice in any case of complexity, particularly, where counsel seeks to argue that the factors set forth in 18 U.S.C. § 3553 provide some ground for departure from the applicable guideline range. My guess, any pleading filed the day before sentencing, is filed a day too late.

So, what does Judge Hodges have to consider the day before sentencing – the presentence report, which will recommend a 36 month sentence and the government’s 36 page sentencing memorandum arguing for a 36 month sentence (is there some cosmic symmetry to the pagination). Mr. Snipes should prepare for 36 months.

Hollywood Wiretap Case Widens to Include Elite, Attorneys

The prosecution decided not to call Bertram “Bert” Fields, “lawyer to the stars,” to testify at the trial of Anthony Pellicano, “private eye to the stars.” Fields had earlier announced his intent to plead the Fifth if called as a witness.

Clients of Field’s firm Greenberg Glusker, including hedge fund manager Adam Sender and movie producer Andrew Stevens, have already testified under grants of immunity to having listened to illegal wiretaps by Pellicano. The government’s wiretap evidence further has Pellicano referring repeatedly to Fields in conversations with others. Fields, who referred Greenberg Glusker clients to Pellicano, is suspected to have known of Pellicano’s illegal methods.

Another lawyer, Terry Christiansen, attorney for billionaire Kerk Kerkorian, has also been charged for retaining Pellicano to wiretap Kerkorian’s ex-wife during child support proceedings.

Continue Reading...

Government's Sentencing Memo in Snipes - 36 Months

The government has filed a 36 page Sentencing Memorandum, available here, contending in exquisite detail that the appropriate sentence for Wesley Snipes is 36 months, the statutory maximum for the 3 misdemeanors for which he was convicted. In my view, and as expressed earlier here, and here, that Snipes will get 36 months is a foregone conclusion. Quite frankly, what is astonishing in reading the Sentencing Memo is how in the world he was acquitted of the remaining counts of the Indictment when he didn’t testify, and the government presented such powerful evidence of his guilt - makes you admire the work of Snipes’ trial counsel, now dismissed, Robert Bernhoft.

The government persuasively argues that for a variety of policy reasons it is appropriate to bring tax cases against high profile targets and that

  • “this case cries out for the statutory maximum term of imprisonment . . . because of the seriousness of Snipes’ crimes and
  • because of the singular opportunity this case presents to deter tax crime nationwide." (p. 1)
  • As Professor Berman points out here, Snipes’ sentencing, which is set for April 24 comes just a few days too late for maximum deterrent value.

At any rate – why is Snipes going to get 36 months:

  • because the “tax loss for counts of conviction alone is $2,771,682” (p. 6)
  • based on unreported gross income of $13,858,419 for the tax years for the counts of conviction!!
  • which results in a guideline sentencing level far in excess of 36 months.

What is interesting in reading the Sentencing Memorandum, apart from the persuasive evidence of intent presented at trial, is that the Presentence Report has been submitted to the parties, and a resolution conference held with the Probation Office on Friday, April 11, 2008, wherein “counsel for the defendant proffered a one-page, high level summary schedule showing a purported tax loss of merely $227,959 for the years 1999-2001” and “a one page analysis captioned ‘Detail of RAR [Revenue Agent Report] Analysis by Year’ covering only 1999 . . . [n]o other schedules have been provided to date.” (p. 6-7) 

For those not familiar with the process, the Presentence Report is prepared, and objections to it are presented to the Probation Officer. Then a meeting is held between counsel and the Probation Officer.

So, one business day after that conference was held with the Probation Officer, the government files its detailed Sentencing Memo outlining the available sentencing calculations for Snipes, none of which get him close to getting under the 36 month statutory maximum.

There will be no Booker issues in this sentencing. There will be no acquitted conduct issues in this sentencing. Snipes will get at or near the 36 month maximum.        

Stars Come Out in Hollywood Wiretap Case

    Tony Pellicano was the "Private Eye to the Star." However, Pellicano's investigative techniques included threats, illegally tapping phones, and bribing police and telephone company officials to run illegal checks. Consequently, Pellicano and his associates are now in a California district court on numerous charges, including wire fraud, identity theft and illegal wiretapping. Hollywood elite who have already testified at the trial include Garry Shandling, Sylvester Stallone, Chris Rock, Paramount Pictures CEO Brad Grey and former Walt Disney Co executive Michael Ovitz.
     Pellicano's activities were finally discovered when he smashed the windshield on the car of investigative journalist Anita Busch and left a dead fish on the car with a rose in its mouth and a note saying "Stop" in 2002. Later, two men tried to kill Bush at her apartment. Police raided Pellicano's Hollywood office and uncovered evidence of his illegal tactics.
     Pellicano is acting as his own attorney at the trial. The prosecution was forced to drop 28 charges when it could not bring forward the witnesses to prove them, and has rested its case.

Wesley Snipes Changes Lawyers Again as He Approaches Sentencing

Sentencing for Wesley Snipes is set for April 24, 2008 and he has just dismissed his trial counsel, Robert Bernhoft and his firm. Bernhoft, who, you will recall, was brought into the case, just prior to trial has had notable success against the government in prior IRS cases, and he did a masterful job at trial in this case. The jury acquitted Snipes of the felony charges and convicted him of three misdemeanors. 

Snipes, appearing ecstatic after the verdict, apparently, is ecstatic no longer because Bernhoft filed a motion to withdraw as counsel of record last Tuesday, April 1. Judge Hodges granted that motion the following day, noting that Snipes had instructed the Bernhoft firm to file the motion. Snipes apparently has no clue how bad this lawyer shifting makes him look, but to gain an understanding of the musical chairs at play here, take a gander at the timeline of events:

Trial was originally scheduled for October 22, 2007.

October 3, 2007 just three weeks before trial was scheduled to begin, Bernhoft filed his notice of appearance in the case, along with a Motion for Continuance, which was denied.

October 3, 2007, previous counsel for Snipes, including Daniel Meachum, filed a motion to withdraw as counsel.

October 9, 2007 Bernhoft filed a scathing Motion for Reconsideration alleging a variety of deficiencies in preparation by prior counsel.

That Motion was granted and trial was scheduled for January, 2008.

January 11, 2008, Meachum filed a notice of appearance and was back in the case.

February 1, 2008, the jury acquitted Snipes of the felony tax counts, but convicted him on three misdemeanor tax offenses.

March 28, 2008 two new counsel filed motions indicating that they were appearing as counsel for Snipes.

April 1, 2008 Judge Hodges granted those motions.

April 1, 2008, exactly three weeks before sentencing Bernhoft and his firm filed a Motion to Withdraw as counsel of record.

April 2, 2008 Judge Hodges granted the Bernhoft firm's motion to withdraw.

In an earlier post, I had posited that Snipes’ acquittal on the more serious felony charges was a pyrrhic victory since all of his relevant conduct would be taken into account at sentencing. My prediction then and now is that Snipes will receive a  sentence toward the upper end of the statutory maximum sentence of three years.

Snipes is still left with several lawyers, but Bernhoft did a magnificent job at trial. That Snipes has again dismissed his lead counsel just prior to sentencing is now an established pattern, which, quite frankly, looks bad, and my guess is, doesn't sit well with the Court. 

This set of musical chairs as sentencing approaches has the look of desperation. April 24 will be an unpleasant day for Mr. Snipes, no matter his machinations with counsel.

Reflections on the Dickie Scruggs Saga

I have yet to weigh in on the many fine blogs that have followed the Dickie Scruggs case since the indictment in November of last year (particular kudos are due to David Rossmiller’s exceptional work here), but with Zach Scruggs’ plea to misprision of a felony last week, and, since Mississippi is the land of Faulkner, here is my editorial stream of consciousness:

My first thought on Zach Scruggs’ plea:

This is the way the world ends,
This is the way the world ends,
This is the way the world ends,
Not with a bang, but a whimper.

T.S. Eliot, The Hollow Men

It has been said by one prosecutor that misprision is for girlfriends, but, apparently, that prosecutorial gift extends to sons as well. It is surprising in the extreme that the government allowed Zach to enter a plea to misprision. The sentencing guidelines for misprision are very low, and that plea virtually guarantees that Zach won’t serve much time in prison.

One of the things that has struck me about the defendants’ plea colloquy is that several of them have wanted to weigh in and lessen their culpability (see here, Zach's plea transcript, p.15-16, and here, Dickie's plea transcript and his famous earwig comment, p. 15). Generally, statements by defendants in mitigation are not made until sentencing, and even then that can be a dangerous tact because here the defendants are entering pleas to some of the most serious offenses, bribing a judicial official, and straining at gnats at the plea is not cottoned to by district court judges.

I  was fundamentally surprised at three things in the pretrial motions practice in this case: (1) that more attacks were not raised by defense counsel against the wiretaps (there is an entire body of Title III litigation out there); (2) the shrill, overblown writing style of the defendants’ motions that, (3) was very effectively countered in direct, succinct writing that highlighted the nits at which the defendants were picking and the substantial, and fundamentally wrong conduct the defendants were engaged in.

Finally, I was extremely surprised at Dickie Scruggs’ guilty plea, particularly because the plea agreement, p.10, does not protect him from additional criminal investigations that, plainly, are ongoing.

In that respect, Balducci predicted in one of his conversations with Judge Lackey that he knows where the bodies are buried (Scruggs Indictment, p. 5). My guess, there are other bodies out there, and it will be interesting to see how aggressively the government pursues those case.

State Representative Resigns and Pleads Guilty to Drug Money Laundering

Georgia State Representative Walter Ronnie Sailor, Jr., who represents District 93, which incorporates parts of DeKalb and Rockdale Counties, pled guilty on Tuesday to a federal money laundering sting count, and further resigned from the General Assembly. Sailor is alleged to have approached an undercover Federal Bureau of Investigation agent posing as a drug dealer at an Atlanta hotel in November 2007, allegedly offering to launder drug proceeds for a fee. The agent allegedly met Sailor several times to provide him with sums of money represented to be drug proceeds, and Sailor would allegedly meet with the agent to provide the agent with checks for the proceeds. Sailor was arrested last December, and immediately began cooperating with the government. He will be sentenced in May.

Wecht Trial

In the trial of long time Allegheny County, Pennslyvania coroner, and famed forensic pathologist, Cyril Wecht, closing arguments begin tomorrow in front of District Court Judge Arthur Schwab. The indictment, charging mail fraud, wire fraud, and honest services, was recently trimmed down, the government alleges, to streamline trial, and because certain counts were infirm as there was no mailing to suport the charge.  

This case has been particularly rancorous, even in the context of federal criminal trials where the stakes are high.

  • The defense moved to recuse the trial judge because of his alleged ex parte contacts with government counsel;
  • The trial court referred the government’s motion for sanctions against defense counsel to the Disciplinary Board of the Supreme Court of Pennslyvania;
  • Several appeals have been taken on various issues to the Third Circuit Court of Appeals, with Judge Schwab, a careful, no non-sense jurist, having been reversed on 2 occasions (484 F.3d 194 (3rd Cir. 2007);  and
  • Congressional testimony by Former Attorney General and Wecht defense counsel decrying the alleged political motives behind the prosecution

In the course of the six week trial, the government presented evidence that Wecht made underlings run personal errands, that he overbilled clients for travel and that he had a had a quid pro quo with Carlow University that was expressly debunked by the administrators at Carlow

  • Is this the stuff - having to run unauthorized errands for your boss - that federal crimes are made of?
  • Is every moral lapse a federal criminal case?

One famed prosecutor has argued that fraud is as ancient and as versable as man himself, and was first set forth in Leviticus 19:11-13 - do not lie, do not cheat, do not deceive one another (citation). But, is that, in fact, the case?

  • Are there instances, where deceptive conduct is handled by termination?
  • Are there not instances where conduct exceeding the bounds of office decorum and decency are handled by civil filings?

With closing arguments to begin tomorrow it will be interesting to see if the jurors believe that what the government has charged and proven is actually a crime.

Snipes Verdict

Friday February 1, 2008 was a good day for actor Wesley Snipes, who was acquitted of the felony charge of conspiring to defraud the Internal Revenue Service, and convicted of three misdemeanor counts. Snipes, who on one occasion sent a 600 page diatribe to the IRS, had changed attorneys a mere 90 days prior to trial terminating the services of high profile counsel Billy Martin, and hiring the less well known, Robert G. Bernhoft of Milwaukee.

Interestingly, Bernhoft’s trial strategy of fronting the inanity of Snipes’ personal beliefs regarding his tax protester status, worked with the jury rejecting the felony conspiracy charge, but convicting him of only three misdemeanor counts.

It will be interesting to watch Snipes’ sentencing to see if the felony/misdemeanor distinction is a pyhricc victory as all relevant conduct will be attributable to Snipes. It is this writer’s guess that Snipes will still be facing a sentence at the upper end of the maximum sentence he can potentially receive – 3 years.

Defendant Sentenced to 7 years in $112 Million Mortgage Fraud Case

One of the defendants in an Atlanta-area mortgage fraud ring involving approximately 20 other persons was sentenced on Thursday by United States District Judge Thomas W. Thrash, Jr., to 7 years imprisonment, followed by 3 years supervised release, and a staggering $40,226,000 in restitution. Leslie Rector was one of the leaders of the scheme, which was headed by Phillip Hill, and which involved more than 50 homes and 250 condominiums in the Atlanta area.

Similar to numerous other increasingly common mortgage fraud cases, the defendants would sell the properties to “straw purchasers” at inflated prices, who would apply for a mortgage loan at an inflated price, in the process making numerous false representations on loan documents that the purchaser had paid a downpayment, would reside in the home and would be responsible for repayment of the mortgage. In exchange for engaging in these loan “flips,” the defendants would pay kickbacks to the purchasers.

The defendants rounded out their scheme by obtaining fraudulently inflated appraisals on the properties. The extensive scheme involved appraisers, loan officers, “recruiters” of straw borrowers and attorneys, many of whom pled guilty prior to the 8 week trial in March of 2007.