The personal attorney for San Francisco Giants slugger Barry Bonds, Laura Enos, expects her client will be indicted in the next week on perjury and tax evasion charges. An AP story (here) quotes Enos as stating, "We are very prepared . . . We have excellent tax records and we are very comfortable that he has not shortchanged the government at all." The federal grand jury in San Francisco investigating Bonds is set to expire in the near future, perhaps as early as Thursday, July 20, so any indictment must be returned by then barring a six-month extension of its term. Bonds’ former personal trainer, Greg Anderson, remains in jail for civil contempt for refusing to testify before the grand jury, and the Ninth Circuit denied his motion for bail while he appeals the contempt or, more likely, waits for the clock to wind down — a witness is released from civil contempt once the grand jury’s term expires. A lot of people will be watching for signs of an indictment on July 20, when the Giants will be home playing the division-leading San Diego Padres. (ph)
Category: Investigations
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The "free money" that can be made when trading in the options of a company about to be acquired is just too darn tough to resist, at least for some. On the heals of last month’s SEC filing alleging insider trading by purchasers of call options in Maverick Tube right before it announced it would be taken over (see earlier post here), the Enforcement Division is now looking at trading in the two companies — Western Gas Resources and Kerr-McGee — that Anandarko Petroleum Corp. announced on June 23 it agreed to acquire. A Denver Post article (here) confirms that Anandarko Petroleum is cooperating with an informal SEC request for information related to the two acquisitions, and a study of the call options in both companies shows suspicious spikes in the volume right around the days when executives of each were working out the final details of the acquisitions. The story gives the example of the purchase of 322 July 50 Western Gas call options, which were slightly out of the money, the day after executives met to discuss the merger and the day before the board held a special meeting to consider the transaction; over the prior two weeks, the average daily volume for that series was 17. A similar pattern is shown in the Kerr-McGee call options, and each transaction involved a substantial premium that sent the shares of both well above the call option strike prices, meaning the purchasers realized substantial gains.
Needless to say, the SEC doesn’t view winners of the call option lottery in the weeks before the announcement of an extraordinary transaction to be just lucky, and we should expect to see an insider trading action filed in the none-too-distant future. As always, the key issue for the traders is whether the U.S. Attorney’s Office is in the vicinity, and the safe bet is that federal prosecutors will be monitoring the SEC investigation. (ph)
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Media reports (see here) indicate that federal prosecutors may seek a grand jury indictment of San Francisco Giants slugger Barry Bonds, probably this month, on perjury and tax evasion charges. The perjury relates to his testimony before a grand jury in 2003 regarding his use of steroids received from Balco (Bay Area Laboratory Cooperative) in which he is reported to have denied knowing that two substances provided by his personal trainer, Greg Anderson, contained steroids. Anderson, Balco founder Victor Conte, and two others entered guilty pleas in 2005 to drug charges related to the creation and distribution of so-called designer steroids — which had nicknames like "the clear" and "the cream" — that were undetectable until the recent development of new drug tests.
A U.S. District Court judge recently sent Anderson to jail for civil contempt because he refused to testify before the grand jury investigating Bonds. He has filed a motion with the Ninth Circuit for bail while he appeals the contempt citation, but the grand jury is ending soon, perhaps at the end of the month, and it’s unlikely he will be released before it expires or Bonds is indicted (see AP story here). From earlier reports about the appearance of witnesses, it appears that this is a "Thursday Grand Jury" that meets once each week, so any indictment is likely to come on that day.
The perjury case against Bonds looks to be based on the testimony of a former business partner involved in selling memorabilia autographed by Bonds and a former girlfriend who claims, among other things, that Bonds gave her $80,000 in cash. The tax charges likely relate to memorabilia sales that may not have been reported as income. If there is an indictment, I suspect any tax count is part of a "Liar, Liar" approach in which the government will try to show that Bonds was deceptive in other areas of his life to bolster the theory that he was not truthful in the grand jury about his use of steroids. The amount of income involved is unlikely to be significant for someone with Bonds’ salary and ability to generate additional income through appearances and autograph sessions, so any tax charge looks to me to be part of a broader strategy to call into question his truthfulness. Moreover, if there is a basis for tax evasion charges, that would make it more difficult for Bonds to take the witness stand to explain his earlier testimony. If that is the case, the defense will focus on trying to undermine the credibility of the government’s witnesses.
Mark you calendars for Thursdays during July, because something more than hot pennant races may be of interest. (ph — sorry for the headline, I couldn’t resist)
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The search of Rep. Jefferson’s congressional office was ruled constitutional by a district court (see Washington Post here). The decision here (via Talk Left here and How Appealing here) clearly rules against the arguments presented by Rep. Jefferson on his Rule 41(g) motion.
In this decision, the court states that "the Speech or Debate Clause’s testimonial privilege was not triggered by the execution of the search warrant." The district court notes that:
"[t]he D.C. Circuit has held that the ‘touchstone’ of the Speech or Debate Clause privilege is ‘interference with legislative activities.’ . . . Thus the Court’s decision here depends upon whether the execution of the search warrant impermissibly interfered with Congressman Jefferson’s legislative work." (citation omitted)
The district court further states:
"The Speech or Debate Clause is not undermined by the mere incidental review of privileged legislative material, given that Congressman Jefferson may never be questioned regarding his legitimate legislative activities, is immune from civil or criminal liability for those activities, and no privileged material may ever be used against him in court."
The court also rejected a separation of powers argument.
According to the Washington Post here , counsel for Rep. Jefferson plans to appeal this decision. An interesting question will be whether this ruling is appealable. Can one appeal a Rule 41(g) motion for return of property?
There are cases to support both sides here. See, e.g., Sealed Appellant 1 v. Sealed Appellee, 199 F.3d 276 (5th Cir. 2000) (holding the denial of return of property is not appealable); but see First National Bank of Tulsa v. U.S. Department of Justice, 865 F.2d 217 (10th Cir. 1989)(holding that the court of appeals had jurisdiction to hear denial of motion for return of property).
This particular case presents the added factor that it pertains to the office of a congressman. As stated by the district court in its opinion here:
"While Congressman Jefferson overlooks the sure availability of a motion to suppress the evidence seized during the search should the Government’s investigation result in his indictment, the Court recognizes that ‘[t]he unprecedented search of Congressman Jefferson’s office has raised questions of serious constitutional magnitude that directly implicate the fundamental workings of the federal government.’ Reply 19. The Court agrees that the interests of justice demand that these issues be addressed now." Id. 7-8.
(esp)
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The case related to the prosecution of the KPMG defendants may rest to some extent on the legality of the tax shelters. According to the NYTimes here an investigation in Deutsch Bank’s role in some tax shelters may also present this same problem. The added issue here is whether "advice of counsel" (claiming a legality of these shelters), renders a defense if they are proven to be improper. As this investigation unfolds – some thoughts:
- How does one assess the intent of individuals setting up tax shelters? Where is the line between criminal conduct and legal tax shelters?
- In assessing the intent, should the government factor in the harm to individuals who may have suffered the ramifications of some of these tax shelters?
- Are there some shelters that are just so blatantly fraudulent that they deserve prosecution?
- In assessing intent, how much weight should be given to extrinsic evidence such as emails, conversations, etc. that demonstrate a desire to avoid taxation?
- Will juries be able to understand tax shelter prosecutions, or will DOJ, to simplify cases, be focusing on extrinsic evidence that may present damaging evidence against a particular defendant?
One thing for sure – – if you are not an accountant or tax specialist, the acronyms here can be pretty confusing. We find CARDS (Customized Adjustable Rate Debt Facility), BLIPS (Bond Linked Issue Premium Structure), FLIPS (Foreign Leverages Investment Program), etc.
(esp)
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The documents seized by the FBI from Louisiana Representative William Jefferson’s office back in May remain unreviewed, even though the President’s order (here) directing the Solicitor General to hold them undisturbed for 45 days expired on July 9. Chief U.S. District Judge Thomas Hogan, who approved the search warrant, held a hearing on June 16 (see earlier post here) in which Representative Jefferson moved to have the documents returned and the chief counsel of the House of Representatives argued that the search violated the Speech or Debate Clause protection in the Constitution. The judge has not issued a decision yet, and while the 45-day cooling-off period was designed to permit the Department of Justice and Congress work out some resolution related to reviewing the documents, it does not appear that the two sides have reached an agreement. It is likely that the DoJ will stay away from the documents for now, despite the expiration of the President’s order, because the issue is before the court and any move to look at them would be a slap at Congress that the Administration does not need at this point. If the judge upholds the search and rejects the claimed constitutional protection for congressional documents, the issue will likely boil back to the surface with an appeal likely, perhaps just in time for the fall elections. An AP story (here) discusses the status of the case. (ph)
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Greg Anderson, the former personal trainer for San Francisco Giants slugger Barry Bonds, will be spending at least a few weeks in jail for refusing to testify before a federal grand jury in San Francisco investigating whether Bonds committed perjury in the Balco (Bay Area Laboratory Cooperative) steroids investigation. Anderson first refused to testify a week earlier because he believed that his plea agreement did not require him to do so and the government was acting improperly. U.S. District Judge William Alsup held Anderson in civil contempt and ordered him sent to jail, rejecting a request by Anderson’s attorney, Mark Geragos, for bail while he appeals the contempt.
An AP story (here) notes that the grand jury is set to expire in a few weeks, and a civil contempt only lasts as long as the grand jury is authorized, which is usually eighteen months. Geragos noted — or perhaps boasted — that there were things in refrigerators with a longer shelf-life than the grand jury investigating Bonds. That may be, although under Federal Rule of Criminal Procedure 6(g) a grand jury "may serve more than 18 months only if the court, having determined that an extension is in the public interest, extends the grand jury’s service. An extension may be granted for no more than 6 months, except as otherwise provided by statute." Therefore, if the particular grand jury hearing evidence of possible perjury by Bonds has not been extended once, the court could push its service out another six months and Anderson could be held during the extended term. Similarly, there is nothing that would prevent prosecutors from transferring the case to a new grand jury once the current one’s term expires and resubpoenaing Anderson to testify, leading perhaps to another civil contempt, although if the judge believes jailing him is futile then Anderson would have to be released.
Given the grand jury’s short remaining term, assuming no extension or transfer, then we are likely to learn in the next few weeks whether Bonds will be indicted on perjury charges, and perhaps other violations identified during the investigation. Just in time for the dog days of August when the pennant races tighten considerably. (ph)
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For those of you keeping score over the long holiday weekend, add two more Silicon Valley companies to the list of those who have received grand jury subpoenas from the Northern District of California in the ever-widening stock options-timing probe. Maxim Integrated Products, Inc. — not to be confused with the magazine — and Zoran Corp. disclosed (here and here) that they were served with the grand jury subpoenas and, as usual, will cooperate in the criminal investigation, in addition to providing documents to the SEC in its informal investigation of the issuance of the stock options. On top of Apple’s recent disclosure of possible problems in the grant of options in the 1990s to its executive, including Steve Jobs, these latest subpoenas show that the investigation is still in its growth phase. Given the near-addiction high tech firms have for stock options, look for more announcements of the receipt of grand jury subpoenas and pledges of cooperation. (ph)
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According to a press release here of the U.S. Attorney’s Office in the Northern District of Illinois (USA Patrick Fitzgerald), an indictment was issued against a physician medical director for "allegedly defrauding Medicare of more than $875,000 by falsely claiming to have provided services that he never performed and billing for more complex services than he actually provided." The indictment which charges violations of the health care fraud statute (sec. 1347), can be found here.
(esp)
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According to the Washington Post (AP) here, Yale University has received federal agency subpoenas for documents. It is not surprising to see Yale "urging" employees to cooperate. If in fact there were accounting irregularities, cooperation could prove crucial to Yale and the federal government reaching an agreement. A resolution could be very important to a university that obtains substantial funding from the federal government.
But whether the university’s recommended approach will prove beneficial for individual researchers may be a different matter.
(esp)
MattBray.net 