This one is not a white collar crime, at least not strictly, but the apparent ease with which it took place makes me wonder about how well valuable items are protected. The U.S. Attorney’s Office for the District of New Jersey announced the indictment (here) of a defendant for violating 18 U.S.C. Sec. 668 for theft of an object of cultural heritage, Goya’s oil painting "Children with a Cart." The theft of the 1778 painting made the FBI’s Top Ten Art Crimes list (here) when it was taken on November 8, 2006, while being transported from the Toledo Museum of Art to the Guggenheim in New York for an exhibition of Spanish painters. A high tech theft, along the lines of It Takes a Thief? Well, not really, at least according to an FBI press release (here) announcing the painting’s recovery almost two weeks after the theft. The release states, "The painting was stolen from a transport truck as it was parked overnight in a hotel parking lot in Stroudsburg, Pennsylvania." I hope it was at least padlocked in the lot, given that the painting is valued at over $1,000,000. The painting did make it to the Guggenheim for the exhibit, and is now back home in Toledo. (ph)
Category: Prosecutions
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The former general counsel for Amkor Technology, Inc. was convicted on securities fraud charges related to his trading in company stock (indictment here). According to a press release (here) issued by the U.S. Attorney’s Office for the Eastern District of Pennsylvania:
Heron traded Amkor securities while in possession of material, non-public information including, among other things, the company’s financial condition, proposed mergers and/or acquisitions, and potential litigation exposure. He generally made his trades via the Internet using his office computer to access his online personal brokerage account. As a result of his illegal trades, Heron realized approximately $290,000 in gains and/or avoided losses.
The trades included buying put options on Amkor’s stock as a bearish bet on the stock before the announcement of an earnings decline that caused a 32% drop in the share price. It’s not clear whether the former GC tried to hide his trading by using a fictitious name on the account, and he placed the trades from his office computer, so it was easy to trace. This was not exactly the most sophisticated insider trading scheme even launched. The SEC has a pending civil injunctive action (here) alleging the same violations. (ph)
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The House Judiciary Subcommittees on Crime, Terrorism and Homeland Security and Commercial and Administrative Law will hold a hearing today on "Allegations of Selective Prosecution: The Erosion of Public Confidence in Our Federal Justice System." The hearing starts at 10:00 a.m. and the witnesses scheduled to appear are: Former Attorney General Dick Thornburgh, Former Alabama U.S. Attorney Doug Jones, Professor Donald C. Shields and Professor Emeritus, Department of Communication, University of Missouri.
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A partner in the New York office of Baker & McKenzie and five other defendants were charged with conspiracy, securities fraud, and money laundering that totaled $55 million, according to a nineteen-count indictment returned on August 30 but only unsealed on October 19 (available below). The case involves so-called PIPE transactions, which are private-investment-in-public-equity deals that allow unregistered stock to be acquired in publicly-traded companies at below market prices because they are a cheap source of capital for the issuer. The other defendants are three officers of the public companies, which have gone into bankruptcy, and two investors from Israel. According a press release issued by the U.S. Attorney’s Office for the Eastern District of New York (here):
The indictment alleges that EDWARD and STEVEN NEWMAN, BROWN, and WEISBERG caused Xybernaut and Ramp, two publicly traded companies, to issue hundreds of millions of heavily discounted shares through private investments in public equity, or “PIPE” transactions, to dozens of offshore nominee entities created and secretly controlled by SALTSMAN and EITAN. In order to lock in profits, SALTSMAN and EITAN sold the shares “short” in advance of the PIPE transactions and later “covered” the short positions with the discounted stock.
The U.S. Attorney’s Office noted that one of the defendants was arrested in London prior to the unsealing of the indictment, and another was arrested in Virginia. Another defendant is residing in Israel, and prosecutors will seek the extradition of the foreign defendants, while arrest warrants have been issued for two other defendants.
Baker & McKenzie announced that the partner had been placed on leave after the announcement of the indictment. A New York Law Journal story (here) discusses the indictment. (ph)
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The prosecution of an Iowa state Senator on corruption charges has triggered a filing seeking dismissal of the indictment on the ground of prosecutorial misconduct. The trial is set to begin on October 29 on an indictment (here) charging a single violation of the Hobbs Act for extortion under color of official right related to an alleged demand for payment for home security systems in what the state Senator called a business deal that went sour. The defense motion (available below) argues that
the government has withheld exculpatory evidence, has provided deliberately false and misleading answers to discovery, has made false and misleading representations to the Court, has manipulated the Grand Jury process and stood silent in the face of testimony that the AUSA knew constituted perjury and did nothing to correct the record. In isolation, any one of these outrageous acts would warrant dismissal. Collectively, these actions mandate dismissal and additional sanctions to curb blatant prosecutorial abuse.
A copy of the correspondence between defense counsel and the prosecutors is also available below as exhibits to the motion to dismiss. In addition to seeking dismissal of the indictment, the defense asks for the postponement of the trial. (ph)
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Former Congressman and Reagan Administration budget wunderkind David Stockman faces a variety of charges related to accounting fraud at Collins & Aikman, a defunct auto parts supplier where Stockman was CEO before it collapsed into bankruptcy. Although a trial date hasn’t been set yet, Stockman continues to take the offensive and stated in an interview with Bloomberg (here) that he plans to testify at trial. Stockman was charged along with three other former C&A executives, and he is accused of conspiracy, securities fraud, bank fraud, wire fraud and obstruction of an agency proceeding. Stockman responded to the indictment by stating that "[t]he utter reckless irresponsibility of that act is beyond belief," and the day after being charged he wrote a thirty-one page memorandum to his lawyer outlining the propriety of his conduct. Deflecting blame from himself, Stockman claimed in the interview that C&A’s board of directors "totally panicked" while New York law firm Davis Polk, which conducted the internal investigation at the company, "needed to scapegoat somebody" while its "modus operandi is, `We’ll protect the board and the company and throw the corpse of the officers to the wolves.’"
Stockman is thoroughly convinced of his innocence, which is common in white collar crime prosecutions involving corporate executives. Whether he’s doing his case any good by announcing he will testify and giving interviews assailing the indictment as "reckless irresponsibility" is another question. Any number of recent white collar crime cases involving CEOs have not had the defendant testify, and in some of the cases in which they did — such as the prosecution of Enron’s Ken Lay and Jeffrey Skilling and WorldCom’s Bernie Ebbers — the jury’s negative reaction to the defendants likely contributed to the guilty verdicts. Stockman appears to have a tendency to lecture others, and he explains in perhaps excruciating detail why he is right. That may play well in a corporate boardroom, or when arguing for (or against) a budget decision, but it might not be the best strategy in a federal courtroom.
Stockman, like every defendant, gets to decide whether or not to take the witness stand, but he may be limiting the options for his lawyers in deciding best how to proceed with the defense by asserting well in advance of trial that he will testify and outlining how he will defend himself. Stockman gave the Bloomberg reporters his thirty-one page memo sent to counsel, so the government may even try to get a copy for itself to preview the defense and see if there are any statements it can use against Stockman. In case anyone was worried that there might not be any interesting CEO prosecutions on the horizon, this case should put those fears to rest. (ph)
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One of the original defendants in the Milberg Weiss kickback case pleaded guilty, leaving only two individuals remaining along with the firm. Seymour Lazar entered a guilty plea to obstruction of justice, filing a false tax return, and making a false declaration in federal court. Lazar had served as the representative plaintiff in a number of Milberg Weiss class actions, and admitted to accepting $2.6 million from the firm for his compliant service as the named plaintiff in the actions. According to an AP story (here), prosecutors will recommend the eighty-year old Lazar be sentenced to home detention due to his declining health. Lazar is unlikely to be a witness in the prosecution of Melvyn Weiss, the only attorney from the firm who is fighting the charges after three of his former partners — Steven Schulman, David Bershad, and William Lerach — pleaded guilty and admitted to making the payments to class representatives. Lazar proclaimed his innocence rather loudly after being indicted, and would not be a particularly strong witness for the government if he is only sentenced to home detention.
The plea deal with Lazar lets the government puts its focus on Weiss, who has indicated that he has no intention of making a deal — although this case has shown that hardline statements about seeking vindication at trial do not necessarily mean the case will play out in court. The strength of the government’s case will be the testimony of Schulman and Bershad, who dealt with Weiss directly on the payments. Lerach is not required to cooperate as part of his plea deal, and his contentious relationship with Weiss, which led to the break-up of the original version of Milberg Weiss in 2004, would not make him an effective witness. (ph)
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A petition for certiorari (available below) was filed on behalf of Timothy and John Rigas, former CFO and CEO of Adelphia. The elder Rigas, now 82 years old, is serving a 15-year sentence, and Timothy is serving 20 years. A couple of fascinating questions are raised for the Supreme Court to consider. One issue relates to GAAP [Generally Accepted Accounting Principles], and whether it is possible that the level of proof could be lower in a criminal case, with liberty interests at stake, than in a civil case? Should the government be required to present certain evidence to meet its burden of proof on the GAAP issue? These are some of the questions under review.
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Justin Scheck has an interesting and thorough article in The Recorder (here) discussing the recent superseding indictment of Melvyn Weiss and his firm, Milberg Weiss, and how the firm appears to have made a series of missteps that jeopardizes its continued existence. While former Milberg Weiss partner William Lerach’s plea deal gets extricates his new firm — formerly Lerach Coughlin, now Coughlin Stoia with Lerach’s retirement — from the criminal investigation, Weiss’ indictment keeps his firm in the cross-hairs, with no resolution of the charges in sight yet. With the plea agreements of two former Milberg Weiss name partners, Steven Schulman and David Bershad, it will be just this side of impossible for the firm to defend itself from the charges because of the acts of its agents can be attributed to the entity. The article describes the firm’s leadership as being in turn "indecisive, myopic, stubborn and simply unlucky." Milberg Weiss has been under indictment for almost a year and a half now, and it continues to survive, although perhaps not thrive with the indictment hanging over its head. Getting out of the case will cost it millions, so it won’t be easy to resolve the case. (ph)
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Undercover investigations of courts, judges, bailiffs, and attorneys are not new. There was Operation Corkscrew, Operation Greylord, Operation Bartab and many others. Now there is Operation Broken Gavel. And coming from this investigation is the indictment of two sitting state court judges in Louisiana. The ABA Reports here and the Shreveport Times here, pertaining to whether these judges will remain on the bench and whether they will hear cases during the pendency of the action against them. One of the judges sits in a drug court. The allegations concern bribery.
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