Former CEO of Kansas Utility Westar Energy Receives $36 Million Settlement, Plus $3.1 Million in Legal Fees for Dismissed Criminal Prosecution

Westar Energy, the largest electrical utility in the State of Kansas, announced last week that it will pay former Chief Executive Officer, President and Chairman of the Board, David Wittig $36 million as an arbitration settlement relating to Wittig's compensation contract, as well as $3.1 million in attorney's fees and $2.7 million in stock compensation, according to the Topeka Capital-Journal. Westar's settlement with Wittig follows its settlement in the Spring with its former Vice President of Corporate Strategy, Douglas Lake for $21 million in unpaid compensation and $5.3 million in legal fees. Wittig and Lake claimed Westar violated their employment contracts by terminating them prematurely.

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The compensation for legal fees was for Wittig's and Lake's defense of a criminal prosecution. In 2003, the men were charged in the U.S. District Court for the District of Kansas with conspiracy, circumventing internal accounting controls and falsifying books and records, honest services fraud, wire fraud, submitting false statements and engaging in monetary transactions derived from an unlawful activity. Their first trial ended in a mistrial in 2004 after the jury could not reach a verdict. They were convicted at their second trial in 2005, but the Eighth Circuit Court of Appeals reversed their convictions last year following the U.S. Supreme Court's decision regarding honest services fraud in U.S. v. Skilling.

Blagojevich Recap (Part II)

The recap of the trial thus far of former Illinois Governor Rod Blagojevich, from the coverage of the Chicago Tribune's "Blagojevich on Trial" Blog and the Springfield State Journal-Register's Blagojevich trial coverage continues.

Thursday, June 17, 2010: Former Democratic Party fundraiser Joseph Cari testifies that Blagojevich spoke with him about presidential ambitions and getting contributions from businesses in exchange for awarding state business. Cari states that Antoin “Tony” Rezko told him he made decisions as to who got state work. Cari also testifies that he pressured venture capital firm JER, which was seeking to gain an $80 million allocation from Illinois’ teacher’s pension panel, to hire a consultant designated by Rezko, who would be paid a large finder’s fee. The defense gets Cari to admit that Stuart Levine—not Blagojevich—told Cari that JER would not receive the pension investment business unless it hired the consultant. Cari does admit that JER received the allocation even though it did not ultimately hire the consultant. Blagojevich’s attorneys point out that Cari did not tell federal investigators about his alleged conversations with Blagojevich until 82 days after they first contacted him, and attempts to portray Cari as lying to prosecutors in order to obtain a plea deal. Former Illinois Director of Boards and Commissions Jill Hayden testifies that she gave the most weight to recommendations by Rezko and Chris Kelly in selecting candidates to fill State boards. Rezko and Kelly selected five of the nine member Illinois Finance Authority (IFA). Hayden testifies that Rezko also called her and told her Levine needed to be reappointed to the Illinois Teacher’s Retirement System Board. Blagojevich aid Alonzo “Lon” Monk subsequently contacted Hayden and told her not to take any more calls from Rezko because the FBI had tapped his phones. Ali Ata, former head of the IFA, testifies that, in August 2002, he met with Blagojevich, Rezko, Kelly and legislator Jay Hoffman and gave Blagojevich $25,000 in return for a position in the administration. He states that gave Blagojevich another $25,000 in 2003 at Rezko’s request, and that Blagojevich had thanked Ata and said that he knew he was considering a job with the administration and that it had better be a job where Ata could “make some money.” Ata testifies that Rezko also came to him while he was Chief of the IFA seeking $16 million to refinance his restaurant businesses, stating that he would get the Governor to approve it. Ata states that he did not support the plan. Ata testifies that Rezko promised him a job on the Capital Development Board, but that the position was given to someone else. He also states that Rezko became increasingly paranoid about being bugged by federal investigators. On cross-examination, the defense attempts to have Ata admit that Blagojevich himself never informed Ata that he was receiving a State post in exchange for his campaign contributions.

Monday, June 21, 2010: John Johnston, owner of the Maywood and Balmoral race tracks, testifies that Lon Monk came to see in December of 2008 and asked him for a contribution right before the Governor signed legislation extending subsidies for race tracks. E-mails are introduced indicating that former U.S. Representative and White House Chief of Staff Rahm Emanuel supported Blagojevich in 2006 in exchange for the State authorizing a $2 million grant for construction of athletic fields for the Academy for Urban School Leadership, a school in Emanuel’s district. Former Deputy Governor Bradley Tusk testifies that Emanuel contacted him when the grant money for the school was held up, and that Blagojevich’s advisors said that the Governor wanted Emanuel’s brother, a wealthy Hollywood agent, to hold a fundraiser for the Governor. Tusk requested that Emanuel write a letter to the Chicago Tribune in support of the Governor’s programs. He also testifies that he met frequently with Rezko and Kelly during his tenure as Deputy Governor, and that he signed checks for Blagojevich when the Governor was not present. John Harris, Blagojevich’s Chief of Staff, testifies that Blagojevich had stated to him that he wanted to run for President. Harris testifies that Blagojevich directed him to block two investment firms from getting any State business on the grounds that the firms had failed to hire the Governor’s wife, Patti Blagojevich. Harris also testifies that Blagojevich was interested in finding a State position for his wife, including on the Illinois Pollution Control Board.

Tuesday, June 22, 2010: Harris testifies that Blagojevich became increasingly worried about his finances, including his legal bills of approximately $1.7 million from the law firm of Winston & Strawn. Blagojevich paid his legal expenses from his campaign funds. Harris testifies that Blagojevich considered appointing Illinois Senate President Emil Jones, and even himself, to the U.S. Senate seat vacated by President Barack Obama. However, when Jones caused an ethics bill which Blagojevich opposed to pass the Senate, Blagojevich allegedly told Harris that there was no way Jones would get the seat. Harris testified that he had conversations with Blagojevich regarding “how much” he could get for the Senate seat, including from wealthy businessmen Blair Hull and J.B. Pritzker. Harris testified that he and General Counsel Bill Quinlan told Blagojevich not to consider such ideas. Harris testified that Rahm Emanuel telephoned him and told him that President Obama was interested in having Valerie Jarrett, former Chairman of the Chicago Transit Authority, appointed to fill the seat. The prosecution plays an audio recording of a conversation between Blagojevich and Harris regarding Emanuel’s suggestion of Jarrett. Blagojevich asks Harris on tape what he can get for appointing Jarrett, including a potential appointment as Secretary of the U.S. Department of Health and Human Services.
 

Defendant in Stock Option Backdating Case Requests Hearing Based on Prosecutorial Misconduct/Interference with Witnesses

As reported by Law.com, Bruce Karatz, Chief Executive Officers of KB Home, a home construction corporation based in Los Angeles, California, was indicted in the action of U.S. v. Nicholas, 2:09-cr-00203-ODW (C.D.Ca. 2009), on 20 counts of fraud for defrauding the company and its shareholders of millions of dollars in undisclosed backdated stock option over a period of seven years, and concealing the fraud from KB Home's  directors, compensation committee and shareholders. Karatz's trial in the U.S. District Court for the Central District of California is scheduled to begin on February 23.

Karatz's attorneys have requested a hearing regarding whether prosecutorial misconduct has tainted the government's case against Karatz. Karatz contends that two witnesses for the government--James Johnson, former Chairman of the Board of Directors' Compensation Committee for KB Home, and Gary Ray, former Vice President of Human Resources--initially believed that the stock options grant practice was lawful, but changed their position following contacts with the prosecution. Karatz's lawyers want to examine Johnson regarding why he denied allegedly defending KB Home's option granting process during an internal investigation by the company's outside counsel in his statements to prosecutors. 

The defense also wants to question Ray, who has pled guilty to obstruction of justice and is cooperating with the government, regarding why he had allegedly previously maintained that the process was "lawful and proper." Following is a link to

Karatz's Motion for Evidentiary Hearing Regarding Testimony of Crucial Witnesses

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Karatz's motion is based on an order in December by U.S. District Judge Cormac Carney in the action of U.S. v. Nicholas, SACR 08-00139 CJC (C.D.Ca. 2008), another backdating case, in which the Court dismissed the government's indictment against co-founder of Broadcom Corp., Henry Nicholas, and former Broadcom Chief Financial Officer William Ruehle, blasting the prosecution for "distorting the truth-finding process" by intimidating and improperly influencing key witnesses. Karatz also relies on the Ninth Circuit Court of Appeals' overturning last August of the conviction of former Chief Executive Officer for Brocade Communication Systems, Inc., Gregory Reyes, for backdating based on false statements by the prosecution in closing arguments that Brocade's finance department didn't know about backdating. A hearing on Karatz's motion has been scheduled for February 8.

Chief Justice John Roberts Issues Year-End Report on the Federal Judiciary; Judiciary "Operating Soundly"; New Criminal Cases at Highest Levels Since 1932

As the final hours of 2009 were running out on New Years' Eve, U.S. Supreme Court Chief Justice John Roberts issued the Chief Justice's Year-End Report on the Federal Judiciary, available here, a tradition begun by Chief Justice Warren Burger in 1970 to address the most critical needs of the federal judiciary. The Chief Justice has used the Year-End Report in the past to call for salary increases for federal judges. However, this year, the Report merely states that the federal courts are operating soundly, citing the hardships experienced by the nation in 2009.

The Appendix to the Report surveys the workload of the federal courts in 2009. It notes that the total number of cases filed in the Supreme Court decreased by about 6.1% from 2007 to 2008, however the Court hear more cases argued and issued more signed opinions in 2008 than 2007. Filings in the Federal Circuit Courts of Appeals also declined 6% to 57,740, mostly due to a drop in appeals from the Board of Immigration Appeals.

The Year-End Report notes, however, that criminal case filings in federal district courts rose 8% to 76,655, and the number of defendants climbed 6% to 97,982, surpassing the previous record for the number of defendants, 92,714, set in 2003, and reached its highest level since 1932. Filings relating to immigration, fraud, marijuana trafficking, and sex offenses increased. The number of mmigration cases and defendants reached record levels, as a result of illegal re-entries and visa or entry permit fraud. Most of the increase was in five federal districts near the southwestern border. The Report also observes that, as of September 30, 2009, the number of persons under post-conviction supervision was 124,183, an increase of 3% from the previous year. Supervised release cases and pretrial services cases also rose by several percent.