The St. Pete Times reports (here) that the FBI has joined the investigation of possible corruption and procurement fraud at the Special Operations Command (SOCom), which is headquartered at MacDill Air Force Base in Tampa. The Pentagon’s Inspector General has been conducting a preliminary inquiry into the conduct of SOCom’s commander, Gen. Doug Brown, and the addition of the FBI likely means that a wider-ranging investigation will take place. The newspaper also reports receiving an anonymous letter stating the Gen. Brown directed lucrative contracts to friends and former SOCom commanders, a charge the General’s spokesman denies. The newspaper has refused to turn over the letter to the FBI or the Inspector General’s investigators. (ph)
Category: Investigations
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Mercury Interactive Corp. announced the appointment of a new CEO, CFO, and General Counsel as a result of an internal investigation that turned up substantial problems in reporting by officers of the dates on which options were granted. According to the company’s press release (here):
From 1995 to the present, there have been forty-nine instances in which the stated date of a Mercury stock option grant is different from the date on which the option appears to have actually been granted. In almost every such instance, the price on the actual date was higher than the price on the stated grant date. These instances represent the overwhelming majority of the grants between January 1996 and April 2002. The misdating occurred with respect to grants to all levels of employees.
Chief Executive Officer Amnon Landan, Chief Financial Officer Douglas Smith, and General Counsel Susan Skaer were each aware of and, to varying degrees, participated in the practices discussed above. Each of them also benefited personally from the practices. While each of these officers asserts that he or she did not focus on the fact that the practices and their related accounting were improper, the Special Committee has concluded that each of them knew or should have known that the practices were contrary to the options plan and proper accounting. While the Special Committee is appreciative of and sympathetic to the far-reaching demands of these executives’ positions during this critical period, missing or overlooking a practice as basic and important as the proper granting of options is not acceptable.
The internal investigation also disclosed that Landan received a $1 million loan from the company in 1999 to fund an options exercise, but no documentation for the loan could be located, although the board approved an extension of the loan and it was ultimately repaid. Needless to say, that type of disclosure will invite an SEC investigation and a torrent of securities fraud lawsuits..
Landan, Smith, and Skaer resigned, and the company will probably have to delay the filing of its quarterly and annual reports due to the internal weaknesses identified in the internal investigation — the press release notes that a timely filing of its Form 10-Q and 10-K is in "serious jeopardy." (ph)
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With the indictment of "Scooter" Libby, and an ongoing investigation by Prosecutor Fitzgerald, one has to ask how a leak such as this could have happened.
If this was a US corporation or a business and there was alleged criminal activity occurring within the corporation, a prosecutor might be looking at the entity to discern whether the entity should be charged with a crime. And the prosecutor would probably be turning to the Thompson Memo of January 20, 2003, and the nine factors to be considered in deciding whether to indict the corporation.
Now obviously the US government is not a corporation, but perhaps this is a good time to re-evaluate some of the provisions of the Thompson Memo, and also evaluate whether the Office of the President and Vice-President are handling the recent developments in the same way they demand of corporations and businesses.
The Thompson Memo uses nine factors "in reaching a decision as to the proper treatment of a corporate target." Six of these nine factors present interesting questions here for the government:
1. the nature and seriousness of the offense, including the risk of harm to the public, …. WE ARE TALKING ABOUT THE LEAK OF A CIA OPERATIVE’S IDENTITY AND NATIONAL SECURITY – THIS ONE’S EASY
2. the pervasiveness of wrongdoing within the corporation, including the complicity in, or condonation of, the wrongdoing by corporate management – -DID CHENEY KNOW?
4. the corporation’s timely and voluntary disclosure of wrongdoing and its willingness to cooperate in the investigation of its agents, including, if necessary, the waiver of corporate attorney-client and work product protection . . . – – ARE THEY WILLING TO WAIVE ALL ATTORNEY-CLIENT PRIVILEGE AND WORK PRODUCT PROTECTIONS?
5.the existence and adequacy of the corporation’s compliance program . . .- – DO THEY HAVE AN INTERNAL COMPLIANCE PROGRAM AND IS IT AN "EFFECTIVE PROGRAM"?
6. the corporation’s remedial actions, including any efforts to implement an effective corporate compliance program or to improve an existing one, to replace responsible management, to discipline or terminate wrongdoers, . . . – – ARE THEY DISCIPLINING EVERYONE WHO DID WRONG?
Obviously, this is the government we are talking about and not a corporation, but should the executive be held to the same standard that they hold businesses and corporations?
(esp)
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The Wall Street Journal reports (here) that Santo Maggio, the former head of Refco’s securities unit, is cooperating in the government’s investigation of Phillip Bennett, former CEO of Refco who was charged with one count of securities fraud. It was the revelation of accounting fraud related to receivables on the company’s books for which Bennett was responsible that led to the quick demise of the firm, which had been the largest futures trading firm. The government charged Bennett in a single count criminal information in order to prevent him from leaving the country, and he has been confined to his Park Avenue apartment since the arraignment. Under Federal Rule of Criminal Procedure 5.1(c), the government must present its evidence at a preliminary hearing within 20 days of Bennett’s initial appearance unless he consents to an extension or the government obtains a grand jury indictment. Maggio’s cooperation will be important because the government generally seeks to avoid a preliminary hearing, and a broader indictment is likely. (ph)
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The latest AP report (here) has Special Counsel Patrick Fitzgerald meeting with Chief U.S. District Judge Thomas Hogan, who is responsible for (among other things) overseeing the grand jury and dealing with the administrative details for the courthouse, after a three hour grand jury session. Was Fitzgerald seeking an extension of the grand jury, or clearing procedures for returning a sealed indictment (and the resultant media circus that will attend an arraignment), or perhaps reviewing the Redskins smashing victory over the 49ers? FBI agents were out conducting interviews with neighbors of Valerie Plame and Joseph Wilson while the grand jury met with Fitzgerald and assistants from his office. As the legal adviser to the grand jurors, Fitzgerald most likely is explaining the law and discussing the evidence presented, and could even be working through a draft indictment (or two). We will know when we know — no truer tautology than that. (ph)
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Bausch & Lomb Inc. disclosed that an accounting fraud problem in its Brazilian subsidiary may require the company to postpone filing its quarterly financial report due to problems with its books and records. The company issued a press release that the general manager and others in its BLIO subsidiary tried to hide pension compensation by falsifying entries in the company’s records, and the Brazilian government is seeking to assess a penalty on the company. A company press release (here) states:
In September of 2005, the Audit Committee of the Board of Directors commenced an independent investigation into allegations of misconduct by the management of BLIO, which had been reported to the Company’s senior management by a BLIO employee pursuant to the Company’s established compliance program. The Audit Committee has engaged the law firm of Cahill Gordon & Reindel LLP to assist with the investigation. Bausch & Lomb also voluntarily reported these matters to the staff of the Northeast Regional Office of the Securities and Exchange Commission, which has commenced an informal inquiry into the matter.
The Audit Committee’s independent investigation to date has determined that the general manager, the controller and other employees of BLIO, in violation of Company policies, engaged in improper management and accounting practices, including, among other things, the mischaracterization of approximately $600,000 in expenses to fund an approximately $1.5 million, unauthorized local pension arrangement for the benefit of themselves and other members of local management, the avoidance of Brazilian payroll tax obligations, the amount of which has not yet been determined, and the misuse of Company assets for personal benefit.
Also as a result of the Audit Committee’s investigation, it was learned that certain Brazilian tax authorities have made tax assessments relating to or arising from Brazilian VAT, social contribution, income and certain import-related taxes against BLIO for unpaid taxes totaling approximately $5 million, interest of approximately $7 million, plus approximately $21 million in claimed penalties which relate back to various earlier periods. Appropriate reserves relating to these assessments were not reflected by BLIO in its subsidiary financial statements, as required by the Company’s established policies and procedures.
The Brazilian subsidiary accounts for less than 1% of Bausch & Lomb’s annual sales, but even a small problem can turn into a serious accounting and reporting issue, and no one wants to mess around with that.(ph)
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One has to admit one thing about Patrick Fitzgerald’s investigation in the leak case, and that is with three days remaining he has managed in one of the highest profile cases to have everyone guessing. Obviously the last thing he wants is to have a leak coming from his office or the grand jury. And the result is that everyone appears to be guessing at what Prosecutor Fitzgerald will do with information that he has. The Wall Street Jrl’s latest is here, the NYTimes is here and the LATimes here. When they say that prosecutors have enormous power, were they referring to their power to keep everyone guessing?
(esp)
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Accroding to the St. Pete Times, SOCom, the United States Special Operations Command, has had its share of white collar related problems within its ranks. In this past month alone, the St. Pete Times reported on the "widening" of a bribery scandal. (see post here) Yesterday, the St. Pete Times provided a listing of some of the titles of articles they have published on SOCom, "the military arm that overseas the nation’s elite commmandos such as the Green Berets and the Navy SEALS." The titles of these articles included "SOCom Target of Bribery Investigation," and "SOCom Hides $20-million from Congress." (see article here – titled "Despite Problems, SOCom Carries On). Paul De La Garza of the St. Pete Times provides an in depth report in this article of investigations, responses by SOCom, etc.
(esp)
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Judith Miller said in her NYTimes story here that:
"Before the grand jury, Mr. Fitzgerald asked me questions about Mr. Cheney. He asked, for example, if Mr. Libby ever indicated whether Mr. Cheney had approved of his interviews with me or was aware of them. The answer was no."
In our post here we questioned "[w]hy was Patrick Fitzgerald asking Miller about whether Cheney knew anything?"
Clearly a thorough prosecutor probes all angles in an investigation. But one now wonders if there is more here than known before. In a New York Times article here one learns that there may be a reason why Vice President Cheney’s name arises in this testimony.
Everyone, however, seems to be discarding the possibility of a criminal charge premised upon the disclosure of the information – the leaked name – and instead looking at obstruction, false statement or possible perjury charges here. The key here is whether there was an intentional leaking. Obstructive conduct, false statements, and perjury, may be the reason why the true story is not coming to light. And if so, these charges may be warranted. But irrespective of whether the name was leaked intentionally or negligently, is someone saying that the government did not have in place a proper compliance program to avoid leaks of this nature? Did the government not demand of its employees what it demands of U.S. corporations?
(esp)
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Unlike one political officeholder who is downplaying the leak of a CIA agent’s identity, or calling a possible perjury charge a "technicality" to justify a two year investigation (see post here), President Bush is recognizing the gravity of such a leak. According to a Reuters (Yahoo News) report here President Bush called this investigation "very serious." One assumes he finds it "very serious" because of the implications of a leak to our national security, and not because of any serious harm it may do to his administration. An administration that has called for extreme measures such as some found in the Patriot Act, would be inconsistent to then say a security leak of this nature was not important to national security.
(esp)
MattBray.net 