The U.S. Attorney’s Office for the Northern District of California announced that FBI agents executed search warrants at the plants of two Central Valley food processors in connection with an investigation of spinach from Salinas contaminated with E. coli. In September, over 200 people fell ill due to contaminated spinach, and one person died from eating spinach infected with E. coli 0157:H7 traced to the Salinas area. A press release (here) issued by U.S. Attorney Kevin Ryan states, "I want to reassure the public that there is no indication in this investigation that leaf spinach was deliberately or intentionally contaminated. We are investigating allegations that certain spinach growers and distributors may not have taken all necessary or appropriate steps to ensure that their spinach was safe before they were placed into interstate commerce. Moreover, the investigation has not revealed any evidence of a new or continuing threat to public health in connection with the matters under investigation." A San Francisco Chronicle story (here) indicates that agents searched the two plants for documents related to quality assurance and whether FDA guidelines were followed in the packaging of the spinach. The execution of the search warrants means that the spinach investigation has moved from a public health issue to a full-scale criminal investigation. (ph)
Category: Investigations
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Kobi Alexander, former CEO of Comverse who was found in Namibia (see here), has now appeared in court and according to the Wall Street Journal he was granted bail. (see here)
The question will now be whether Namibia will extradite Alexander back to the United States. Bloomberg News reports here that the initial charges related to alleged backdating may not be all that is involved in this matter, as a US rep argued that Alexander allegedly "tried to bribe a colleague to take the blame."
This raises some new questions. Can Alexander be extradited premised upon charges related to backdating, or is this not a crime in Namibia and therefore beyond the Dual Criminality Rule (see here)? Would having a charge of bribery be a better basis for permitting the extradition so that the dual criminality rule is not violated?
(esp)
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The investigation of the inappropriate e-mail and text messages sent by former Representative Mark Foley to former House pages threatens to become a much broader investigation. While Speak Dennis Hastert initially asserted he did not learn of the communications until they came to light this week, Representative Thomas Reynolds asserts that he informed the Speaker last year about some of the messages involving Foley, according to a Washington Post article (here). Congress likes nothing better than an investigation — see the recent Hewlett-Packard hearings and the hearings last year on steroid use in baseball — but when it gets close to home then the analysis may be different.
With Congress out of session now as legislators tend to their reelection campaigns, Speaker Hastert requested the Department of Justice conduct a criminal investigation of Foley’s communications. His letter to Attorney General Gonzales on Sunday, October 1, states that the investigation should include anyone "who had specific knowledge of the content of any sexually explicit communications between Mr. Foley and any former or current House pages and what actions such individuals took, if any, to provide them to law enforcement." The relationship between the House of Representatives and the Department has been rather testy since the search of Congressman William Jefferson’s office in May related to a corruption probe, with the claim that the Executive Branch overstepped its bounds by searching a legislator’s office. By being invited by Congress to conduct the investigation, the Department of Justice and FBI will likely be unopposed in seeking records from Representative Foley’s office related to a potential violation of federal child exploitation laws, such as 18 U.S.C. Sec. 2422(b) (here) on use of a means of interstate commerce to solicit a minor to engage in sexual conduct. The investigation is likely to be run through the Department’s Child Exploitation and Obscenity Section in the Criminal Division, and could put a number of members of the House leadership under an very uncomfortable microscope. (ph)
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The sight of ten witnesses taking the Fifth Amendment at the House Subcommittee hearing looking into Hewlett-Packard’s conduct of its internal investigation sure makes it look like everyone was working together, although each has his or her own reasons for asserting the privilege. The key question for the two top H-P lawyers caught up in the case, former general counsel Ann Baskins and former chief ethics officer Kevin Hunsaker, is whether their links with the phalanx of private investigators who conducted the pretexting are sufficiently close to tie them into potential illegal conduct. Evidence revealed at the hearing shows that their contacts with the PIs may have been closer than it first appeared when H-P took the position that the pretexting was unknown to — and unauthorized by — company executives.
Handwritten notes of Baskins from June 2005, at the start of the first leak probe by the company (Kona I), show her writing "Obtaining phone #’s is a time consuming process . . . Call carriers (Nextel/Sprint) via pretext to extract info. I didn’t make the call." The notes are from a meeting to brief H-P about the conduct of the internal investigation. Like any set of sketchy notes, it’s not entirely clear what was meant, except that the magic word "pretext" appears in an early phase of the internal investigation and seems to tie Baskins directly into the conduct of the outside investigators. An e-mail from a member of H-P’s security department to Hunsaker in February 2006 called into question the legality of the pretexting, shortly after Hunsaker’s earlier exchange with former H-P security officer Anthony Gentilucci in which Hunsaker was told pretexting was "at the edge" of legality and responded, "I shouldn’t have asked . . . ." The e-mails and notes seem to link Baskins and Hunsaker much more closely to the use of pretexting while it was occurring and not just down the line when the results of the probe were made known.
The more the two lawyers were involved in the oversight and, perhaps, even decision-making in the internal investigation, the more likely prosecutors will look at them as targets of the investigation. One way to tie them in with the PIs is through a conspiracy charge, which under the Pinkerton doctrine means that a person is liable not only for the conspiracy but also all the offenses committed by the co-conspirators. In the face of clear warnings about the legality of pretexting, the H-P employees and outside investigators may have agreed to move forward with an investigation that used illegal means to gather information. Under conspiracy law, an agreement need not be express, and the co-conspirators need not know all aspects of the illegal conduct so long as there is an agreement to engage in criminal conduct, or to use illegal means to reach an otherwise lawful objective. An interesting question will be whether there is in fact a crime from pretexting, because the object of the conspiracy must be illegal. As more information comes out about the involvement of Baskins and Hunsaker in the internal investigation, the greater the reason for them to assert the Fifth Amendment before the Subcommittee. A Wall Street Journal story (here) discusses the new information about H-P’s internal investigation. (ph)
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It is not every day that a company’s most recent general counsel and corporate ethics officer assert their Fifth Amendment privilege at the same hearing, but that’s what happened at the hearing before the House Energy & Commerce Subcommittee investigating Hewlett-Packard’s internal investigation that involved "pretexting" to obtain personal records. Ann Baskins, the general counsel during the investigation who the company announced was leaving her position just hours before the hearing, and Kevin Hunsaker both refused to answer questions. Asserting the Fifth Amendment is often a ground for being terminated, particularly when the person is the general counsel, and having the company cut you off from receiving any future benefits. Moreover, the Thompson Memo (here) states that one factor in determining whether to charge a company with a crime is "whether the corporation appears to be protecting its culpable employees and agents," which can include "the advancing of attorneys fees." The recent district court decision in U.S. v. Stein, involving former partners and employees of KPMG, held that the Thompson Memo’s position on the payment of attorney’s fees is unconstitutional.
The Stein decision may have an effect on whether the government views Baskins’ separation agreement (here) with H-P as an indication of a lack of cooperation by the company. In addition to receiving unvested stock options that will be worth $1 million, the agreement contains the following language:
To the extent doing so is consistent with the exercise of my rights under the federal and state Constitutions, I agree that I will cooperate with the Company in connection with any internal investigation, and the defense or prosecution of any claim that may be made against or by the Company (with the exception of any claims that may be asserted by the Company against me), or in connection with any ongoing or future investigation or dispute or claim of any kind involving the Company, including any proceeding, civil or criminal, before any arbitral, administrative, judicial, legislative, or other body or agency, including testifying in or in connection with any proceeding, to the extent such claims, investigations or proceedings relate to services performed or required to be performed by me, pertinent knowledge possessed by me, or any act or omission by me.
The key to this provisions is that an assertion of the Fifth Amendment by Baskins does not mean she has failed to cooperate with the company in connection with any investigations. The agreement further provides that "[t]he Company agrees to indemnify me to the fullest extent permitted by the Company’s bylaws and applicable law to include but not limited to Section 2802 of the California Labor Code," and that "the Company agrees to advance Expenses actually and reasonably incurred by me in connection with any Proceeding provided I acted in good faith and in a manner I reasonably believed to be in or not opposed to the best interests of the Company and, with respect to any criminal action or proceeding, I had reasonable cause to believe my conduct was lawful." Baskins’ right to receive attorney’s fees permits her to assert the Fifth Amendment and still be viewed as acting in good faith, so her invocation of the privilege against self-incrimination at the Subcommittee hearing will not affect her right to have H-P pay the cost of her lawyers, which could be considerable over the next few months.
The Stein decision took dead aim at the Thompson Memo’s statement regarding attorney’s fees, and it may be that the U.S. Attorney’s Office does not want to pick this fight again, at least not while the district court’s decision is on appeal. The government’s credibility on Capitol Hill is not all that high at the moment, so it may not want to raise the issue of attorney’s fees at this time. It will be interesting to see if the two other former H-P executives, Hunsaker and security chief Anthony Gentilucci, who asserted the Fifth Amendment have similar agreements with the company. If so, then the government could raise the issue of cooperation with H-P, although I don’t think it is a particularly strong basis on which to judge whether a company is being cooperative. (ph)
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In a joint request by federal prosecutors and defense counsel, U.S. District Court Judge Paul Huck postponed the prison reporting date for former superlobbyist Jack Abramoff from October 2 until November 15. Judge Huck expressed some reluctance to grant the request, according to an AP story (here), stating that "there comes a time when people have to pay the piper, so to speak. I think that time has come." The government requested a 90-day postponement, and the judge only granted about half of that. The reason for postponing the start of the prison term is to allow Abramoff to continue his cooperation in the continuing corruption investigation that recently resulted in the guilty plea of Ohio Rep. Bob Ney. With a cut-off of November 15 to have Abramoff readily available, prosecutors may move more quickly to bring charges against additional defendants. This can’t be good news for those on Capitol Hill who dealt with him, and perhaps the White House. An AP story (here) discusses a draft report by the House Government Reform Committee that details 485 contacts Abramoff had with the Administration, although it notes that he was largely unsuccessful in helping his clients. (ph)
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The first panel before the House Energy & Commerce Subcommittee investigating "pretexting" by Hewlett-Packard has come and gone, and all of them asserted their Fifth Amendment privilege and refused to answer questions. Among those who asserted the Fifth were H-P’s former general counsel, Ann Baskins, who announced her resignation shortly before the hearing, former chief ethics officer Kevin Hunsaker, and former security chief Anthony Gentilucci. In addition, all the private investigators who assisted in the pretexting for H-P asserted their self-incrimination privilege.
After the dismissal of the witnesses, Rep. Joe Barton, the chairman of the full committee, said that he had never seen an entire panel take the Fifth Amendment and lamented the inability of the Subcommittee to gather information. It is clear, however, that holding a hearing while there are ongoing federal and state criminal investigations, including an assertion by the California State Attorney General that crimes took place, is almost a guarantee that witnesses who were involved in the alleged misconduct will assert their constitutional privilege before knowing where the criminal investigations are going. It may be hard for Congress to hear this, but criminal liability is much more important to a witness than what a committee or subcommittee wants to hear. For those interested in listening to the hearing, it is available on the Subcommittee website (here). (ph)
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The impending House Energy and Commerce Subcommittee hearing promises to have some potential fireworks, or a parade of witnesses taking the Fifth Amendment, with the issuance of subpoenas the day before the hearing to five private investigators who purportedly did the "pretexting" on behalf of Hewlett-Packard. According to an AP story (here), the five PIs are: Bryan Wagner, Charles Kelly (CAS Agency), Cassandra Selvage (Eye in the Sky Investigations), Darren Brost, and Valerie Preston (InSearchOf Inc.). I doubt any of them will remind us of Jim Rockford, but they do have a couple of catchy agency names. Wagner is reported to have said he destroyed his home computer with a hammer after the news about H-P’s investigation hit, so I suspect that’s at least one witness likely to assert the privilege against self-incrimination in the face of a possible obstruction of justice investigation. The hearing starts at 10:00 a.m., and now includes a second day when the Subcommittee will hear from telecom companies about their efforts to combat pretexting. Let the games begin. (ph)
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The hearing on September 28 before the House Energy & Commerce Subcommittee looking into the Hewlett-Packard internal investigation’s use of "pretexting" to obtain private records has become a bit more threatening for two former H-P executives. The Subcommittee issued subpoenas, rather than invitations, to its former ethics officer, Kevin Hunsaker, and a former security chief, Anthony Gentilucci. Both left the company in the past few days because of their roles in the internal investigation. The Subcommittee invited the other witnesses from the company, Patricia Dunn, Mark Hurd, and Ann Baskins, to appear, although it is not an invitation one turns down easily. Hunsaker and Gentilucci were identified during a company press briefing on September 22 as those inside the company with primary responsibility for the internal investigation and the use of outside investigators who engaged in pretexting to obtain the telephone records of journalists, board members, and other executives.
The interesting question will be whether Hunsaker and Gentilucci testify at the hearing or assert their Fifth Amendment privilege. A New York Times article (here) indicates that Gentilucci’s attorney said that a decision on that issue has not been made, and Hunsaker’s lawyer has not indicated whether his client will testify. Given that California Attorney General Lockyer has asserted that criminal conduct took place in connection with H-P’s investigation, and the U.S. Attorney’s Office for the Northern District of California also is conducting an investigation, it may be prudent for those closest to the alleged misconduct to protect themselves by asserting the Fifth Amendment at this point. It is certainly not good publicity, and the Subcommittee members may force them to assert the constitutional privilege publicly at the hearing, but the more important issue is what comes down the road. If there is some assurance that neither will be charged by California, or that they are not targets of a federal grand jury investigation, then cooperating with the Subcommittee by answering questions may be the better course. Without that comfort, it may be that a "protective" assertion of the self-incrimination privilege is the better course at this point in time. It is a difficult decision, and one that often has to be made with less-than-complete knowledge of the situation or the consequences. (ph)
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Hewlett-Packard CEO Mark Hurd held a press briefing — no media questions were allowed so it was not very enlightening — in which he described his role in the company’s internal investigation that involved "pretexting" to obtain private data on journalists, directors, and officers. In addition to apologizing for H-P’s conduct, Hurd’s eight minute statement (audio available here) describes his peripheral involvement in the investigation and admits that he was asleep at the switch when he received but did not review a report of the process. By not allowing questions, Hurd avoided having his story challenged, a situation that is less likely to prevail at the House Energy and Commerce Subcommittee hearing on September 28 at which he will testify. In addition, Patricia Dunn will step down immediately as chairwoman of the board, rather than waiting until January 2007 as previously announced. She has clearly become scapegoat number one, but others will likely follow in that role. (AP story here)
Hurd’s statement contains an interesting admission regarding the first investigation of the internal investigation, in May and June when issues were raised about the propriety of the company’s conduct. Hurd states that a law firm performed that investigation, although he does not identify it, and then goes on to describe the recent investigation by Morgan, Lewis & Bockius as "more comprehensive." What was wrong with the earlier investigation? Were limitations placed on the law firm that conducted it to limit the scope of the inquiry, similar to the restrictions placed on Vinson & Elkins back in 2001 when it undertook an "investigation" of the allegations of wrongdoing at Enron leveled by Sherron Watkins? In an e-mail exchange between Larry Sonsini and former H-P board member Tom Perkins, Sonsini says that outside counsel conducted an investigation and gave the internal investigation that included "pretexting" a clean bill of health. Was that investigation done by Wilson Sonsini, H-P’s long-time outside counsel? If Morgan Lewis can discover problems in only two weeks, why didn’t the other law firm ferret them out? If Wilson Sonsini did that first investigation, then Sonsini’s assertion to Perkins might be a bit disingenuous by referring to a law firm that was in fact his own.
Hurd states that all the facts related to the leak investigation may never be known because of the extensive use of outside parties. Hurd emphasized that the leaks from H-P that trigger this entire mess were a violation of the company’s ethics policy, but that cannot justify unleashing an investigation apparently subject to such little oversight that H-P says it may never know what happened. (ph)
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