TPMmuckraker quotes a National Journal story (here) that public corruption is now the top priority of the FBI, which is committing increased resources to the cases. The story states: "According to FBI officials, cases involving corrupt government officials are now the bureau’s top criminal priority. The number of FBI agents focusing on public corruption has jumped by more than 40 percent—from 451 agents in fiscal 2001 to 641 in fiscal 2007. In 2005 and 2006, FBI probes were instrumental in the convictions of 1,060 government officials on corruption charges — 177 federal officials, 158 state officials, and 725 local officials and police — an increase of 40 percent from the previous two-year period." Recent investigation trends show a decrease in white collar crime cases over the past three years, although it’s not clear whether those statistics include public corruption investigations. Just based on media reports, it appears that there are a number of investigations of members of Congress, some spawned by the cooperation of former superlobbyist Jack Abramoff, and others involving Congressional earmarks that favor campaign contributors and local businesses. (ph)
Category: Investigations
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As the investigations of corporate options backdating wind down, the next source of cases for the white collar crime departments at major firms is appearing on the horizon: investigations of companies that received contracts as part of the Iraq rebuilding effort. As discussed in an earlier post (here), the Department of Defense Inspector General will be heading to Iraq with a team to look into the award of billions of dollars worth of contracts, and Capitol Hill will be conducting hearings on the contracts. According to a story in The National Law Journal (here), "The war in Iraq has an army of high-profile attorneys working to steer defense contractors through a minefield of lawsuits and federal investigations involving war profiteering and fraud." Here is the primary selling point to firms facing increased scrutiny: "The first step in surviving a government inquiry: Get the right lawyer." Well, of course that’s what you have to do, silly, and don’t ask how much it will cost, because you can’t really know and probably won’t want to think about it as the bills for a cadre of lawyers for the company and individual officers come rolling in. (ph)
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The SEC’s insider trading investigation of questionable options purchases in Placer Dome in October 2005 has taken an international turn as the Commission is seeking authority to interview witnesses in Canada, the U.K., and the Isle of Man. On October 31, 2005, Barrick Gold Corp. made a hostile offer for Placer Dome, and as happens in so many deals, there was questionable trading in Placer Dome before the announcement. Both companies are headquartered in Canada, and the SEC recently made a filing in federal court in New York seeking judicial authorization to require witnesses outside the United States to testify in its investigation. The SEC filed an "unknown traders" suit on November 3, 2005, to freeze the $3 million proceeds of the Placer Dome options trading (see SEC Litigation Release here), and has identified the primary investor in Toronto. The SEC is now trying to trace who might have been the source of the information.
While the federal court has subpoena authority to compel witnesses to appear in the U.S., the Commission has to resort to the foreign courts and foreign securities regulators to obtain evidence abroad. In its filing, the Commission cited an e-mail sent on October 23, 2005, by the Toronto investor who purchased the Placer Dome call options that states, "I hear from the Swiss lads that G is running at PDG. Act accordingly." "G" is the ticker symbol for Barrick Bold, and "PDG" the symbol for Placer Dome. There’s more than a little smoke coming from that e-mail, which likely means a criminal investigation for insider trading. A Globe and Mail story (here) discusses the SEC filing. (ph — with thanks to YH)
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Two staffers for Rep. John Doolittle (R. California) have been subpoenaed to testify before a grand jury. According to the press (Fox here) the investigation stems from lobbyist Abramoff’s investigation and later conviction. In April, Rep. Doolittle’s home in Virgina was searched. (See Washington Post here and blog here).
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The military is stepping up its investigations of fraud, bribery, and kickbacks related to the Iraq war and rebuilding program. According to an AP article (here), the Army will look at up to 18,000 contracts that have been issued since 2003 to determine whether there has been fraud in the issuance of them, or waste and abuse of government services. The Department of Defense will send its Inspector General, Claude Kicklighter, and a team of investigators to Iraq to "take a look at overall contracting procedures," according to an Armed Forces Press Service article (here). There have been embarrassing revelations lately of officers and civilians taking bribes to award no-bid contracts, so the effort to root out fraud is probably long overdue when contracts have been issued over the past four years for billions of dollars. (ph)
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When the FBI executed a search warrant at the home of Alaska Senator Ted Stevens, that was a pretty strong indication he was a target of a corruption investigation. But "target" is very much a term of art, meaning that the person is viewed by prosecutors as likely to be charged with a crime — a position no one wants to be in. The Department of Justice is not obligated to tell someone whether he or she is a target, so it can be good PR to say one is not officially a "target of the investigation" despite appearances otherwise. In answering questions posed by a reporter for KTUU in Anchorage, Alaska, Senator Stevens stumbled over whether he is a target of this investigation while noting that he has been involved in other investigations before (video here and transcript here). He said, "I’m not sure I’m a target yet. I’ve not been told I’m a target. But as a practical matter, the situation — I shouldn’t have answered that question either . . . I was not a target of those other investigations, is what I was saying." Got that? Watching the video doesn’t make it any clearer what he meant. (ph)
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Famed class action attorney William Lerach is stepping down from his firm as of August 31 in the midst of a drawn-out federal investigation of kickbacks paid to plaintiffs through his former firm, Milberg Weiss. Lerach broke away from Milberg Weiss in 2004 and moved to a new firm in which his name came first, at least until Labor Day when it will be become Coughlin Stoia Geller Rudman & Robbins. An e-mail to firm members, reprinted on the Wall Street Journal Law Blog (here), states in part:
As you know, I will be retiring in short order to resolve the investigation about alleged events at my former firm more than a decade ago – long before this firm was even a twinkle in the eye. Because the events in question do not involve this 3-year-old firm or any of you, my decision to step aside will ensure continuity and stability for the hundreds of clients who benefit from your stellar work. This will end the investigation. Despite my mistakes, I am immensely proud that together we built a firm without peer and never shied away from taking on the world’s most powerful and corrupt corporations. [Italics added]
That certainly sounds like someone who may be close to resolving the case by way of a plea bargain, which was offered by prosecutors a few months ago but turned down. References to moving on "to resolve the investigation," "end the investigation," and "my mistakes" convey a feeling of resignation that a conclusion to the criminal case is near. Lerach’s purported rejection of the earlier plea offer came before another former Milberg Weiss partner, David Bershad, agreed to plead guilty and is cooperating in the government’s investigation. That may impel Lerach to cut his own deal given the statement of facts in which Bershad admitted that Milberg Weiss partners contributed money and made secret cash payments to plaintiffs.
Lerach has not lost his edge, of course, beginning his e-mail by noting that "[n]ow that I have outlasted Karl Rove, John Ashcroft and Alberto Gonzalez, it is time for me to retire." I suspect this may be the first time we have seen Lerach’s name linked to these three stalwarts of the Bush Administration. (ph)
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The NYTimes reports on a continuing investigation into the handling of weapons for Iraq. With increased reporting for businesses under SOX, it is surprising to see that the military is having recordkeeping problems. Do they need a SOX type of statute? Many federal criminal investigations start small, and through cooperation move up the chain to individuals with more power. It is likely that a key issue here will be to determine if acts were committed with fraudulent intent or whether the individuals involved were just plain incompetent.
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Those of us who remember our civics class probably studied the wonderful flow chart of "How a Bill Becomes Law" that set forth the steps by which a Congress passes a piece of legislation that becomes the law of the land — recall the cute stick figure putting a bill in the box at the start of the process. At TPM Muckraker (here), there is a review of how the language in an appropriations bill containing a $10 million earmark for a section of I-75 in Florida got changed after it was approved by both houses of Congress but before it was sent to the President to be signed into law. The bill itself was the 800-page transportation appropriations bill approved in 2005 that contained 6,371 special earmarks totaling $24.2 billion for special projects. It seems that one of these earmarks, sponsored by Alaska Representative Don Young, was changed from "Widening and Improvements for I-75 in Collier and Lee County" to "Coconut rd. interchange I-75/Lee County" after it was approved. Interestingly, the person who wanted the new interchange, which was opposed by the county, also helped raise $40,000 for Representative Young. I don’t recall seeing a little stick figure soliciting campaign contributions in the flow chart.
There is a federal investigation of the Coconut Road earmark, and any attempt to obtain materials from Representative Young related to it could trigger some thorny Speech or Debate Clause claims. The issue of the scope of the protection afforded legislative acts has already come up in the investigation of Louisiana Representative William Jefferson, whose Capitol Hill office was searched by the FBI. Representative Young’s possible involvement in the earmark squarely raises questions related to the exercise of legislative authority, so any attempt to subpoena records or conduct a search of his office will run into the privilege afforded members of Congress. (ph)
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The Senate and House Judiciary Committees are not the only ones on Capitol Hill hounding the White House and various agencies about soon-to-be former Presidential aide Karl Rove’s work in federal agencies. Representative Henry Waxman, chairman of the House Oversight and Government Reform Committee, sent a letter (here) to eighteen agencies asking for information about “asset deployment” meetings organized by the political office at the White House allegedly to discuss the use of federal resources to promote the election of Republicans in Congress. The agencies receiving Waxman’s letter are the Departments of Justice, Education, Energy, Health and Human Services, Homeland Security, Housing and Urban Development, Interior, Justice, Treasury, Veterans Affairs, Labor, State, Agriculture, Commerce, Transportation, Environmental Protection Agency, Small Business Administration, General Services Administration, United States Agency for International Development, and the Office of National Drug Control Policy.
The Department of Justice responded to an earlier Committee request for information about political briefings in a letter (here) sent on June 14 outlining the dates of the meetings and the participants. The letter shows five such meetings in 2001, two in 2002, and one in 2003, and then the next one is in March 2006. There were four meetings in August and September 2006, shortly before the mid-term elections, including one on September 5 that may well pique the attention of investigators looking into the firing of nine U.S. Attorneys. The letter describes the meeting as being for agency chiefs of staff and White House liaisons, and "the briefing would be led by Karl Rove." It’s not clear if former DOJ chief of staff Kyle Sampson and former White House liaison Monica Goodling, both of whom quit during the U.S. Attorney firing probe, attended the meeting, but it looks like they had it on their calendars. Is this another avenue of inquiry into the politicization of the Department of Justice, and if asked about the meeting, will the White House assert Executive Privilege to shield the discussion? (ph)
MattBray.net 