The jury selection is complete, the opening statements made, so the trials of former CEOs Conrad Black (newspaper publisher Hollinger International) and Joseph Nacchio (telecom Qwest Communications) are now moving ahead with the first witnesses being called by the government. Criminal trials, perhaps most particularly white collar crime cases, can be rather boring, unlike the impression given by programs like Law & Order, Boston Legal, and Shark that make them appear to be full of high drama. There’s nothing quite like a records custodian to make it dreadfully dull. But there are moments that catch your attention. In the Black trial, one of his attorney’s, Edward Genson, described the Lord of Crossharbour in the opening as someone who "sounds snotty" and "has an arrogant attitude" — not a ringing endorsement, but then you don’t have to be lovable to be not guilty (see Reuters report here). In the Nacchio trial, the live-blog written by Jeralyn Merritt for Denver magazine 5280 (here) discusses an objection by the prosecutors to the defense opening argument, causing the judge to note that he did not want constant hearings interrupting the case that would require him "to babysit the lawyers or encourage thumb-sucking." No word on whether any blankies were taken away. (ph)
Category: Prosecutions
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It is clear that the U.S. Attorney "firings" is not going away, as some may have thought. The latest is Congress authorizing subpoenas to white house personel (e.g. Karl Rove) (see N.Y.Times, Wall Street Jrl, and Washington Post). The President’s response – (see Wall Street Jrl here).
Should a showdown result between the legislature and executive, here are some interesting case quotes that we may be seeing:
U.S. v. Nixon, 418 U.S. 683 (1974):
"However, neither the doctrine of separation of powers, nor the need for confidentiality of high-level communications, without more, can sustain an absolute, unqualified Presidential privilege of immunity from judicial process under all circumstances. The President’s need for complete candor and objectivity from advisers calls for great deference from the courts. However, when the privilege depends solely on the broad, undifferentiated claim of public interest in the confidentiality of such conversations, a confrontation with other values arises. Absent a claim of need to protect military, diplomatic, or sensitive national security secrets, we find it difficult to accept the argument that even the very important interest in confidentiality of Presidential communications is significantly diminished by production of such material for in camera inspection with all the protection that a district court will be obliged to provide."
U. S. v. American Tel. & Tel. Co., 551 F.2d 384 (D.C. 1976):
"In the only previous suit presenting a clash of congressional subpoena power and executive privilege, Senate Select Committee on Presidential Campaign Activities v. Nixon, 498 F.2d 725 (1974), this court reached the merits. In that case Congress sought the assistance of the courts to enforce a subpoena against the President, who claimed an executive privilege based on the need for confidentiality of communications between the President and his advisors. We held that, in light of the fact that the tapes were already in the possession of another congressional committee, the Senate Select Committee’s showing of need for the subpoenaed tapes to perform its legislative function was inadequate to overcome the President’s claim of confidentiality. Senate Select Committee establishes, at a minimum, that the mere fact that there is a conflict between the legislative and executive branches over a congressional subpoena does not preclude judicial resolution of the conflict. United States v. Nixon, 418 U.S. 683 (1974) resolved an analogous conflict between the executive and judicial branches and stands for the judiciability of such a case."
Cheney v. U.S. Dist. Court for Dist. of Columbia, 542 U.S. 367 (2004):
"In light of the ‘fundamental’ and ‘comprehensive’ need for ‘every man’s evidence in the criminal justice system, not only must the Executive Branch first assert privilege to resist disclosure, but privilege claims that shield information from a grand jury proceeding or a criminal trial are not to be "expansively construed, for they are in derogation of the search for truth," The need for information for use in civil cases, while far from negligible, does not share the urgency or significance of the criminal subpoena requests in Nixon. As Nixon recognized, the right to production of relevant evidence in civil proceedings does not have the same "constitutional dimensions." (Citations omitted)."
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With the Conrad Black trial ready to start with opening statements today (see here), here are background posts on this trial –
Ready to Roll in the Black Trial
Another $1 Million in Cash Will Keep Lord Black Free on Bail
Hollinger Will Pay a Substantial Portion of Lord Black’s Attorney’s Fees
Lord Black Learns the Hard Way that Documents Don’t Get Much Protection
Lord Black Enters His Second Not Guilty Plea This Month
Lord Black Indicted on Additional Charges
Three Outside Hollinger Directors Receive Notice of Possible SEC Civil Suit
Lord Black Pleads Not Guilty 12/2/05Hollinger Execs Case – A Lot Happening
Lord Black Will Be Arraigned on Nov. 30
Lord Black Indicted on Fraud Charges
Will Lord Black Be the Next to Try the "Honest-but-Ignorant CEO" Defense?
Lord Black Is the Target of a Criminal Investigation
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U.S. District Court Judge Amy St. Eve. narrowed the jury pool to twenty, from which a twelve-person jury with six alternates will be chosen to hear opening arguments on March 19 in the conspiracy, securities fraud, and RICO prosecution of Lord Conrad Black and three former senior executives of Hollinger International (now Sun-Times Media Group). The jury will have a blue-collar tint, according to an article in Canadian Business (here). Black’s three co-defendants are John Boultbee, Hollinger’s former CFO, former executive vice president Peter Atkinson, and former general counsel Mark Kipnis, and they have been largely ignored in the media’s focus on Black. It will be interesting to see if they will present a united front at trial, and whether any (or all) will testify. While Black is reputed to have a rather imperial manner, little is known about the other three defendants, who may be able to connect with the jury better than the former CEO.
The government’s key witness, former Hollinger chief operating officer and long-time Black lieutenant David Radler, settled the SEC’s civil securities fraud action by agreeing to pay disgorgement (plus interest) of $23.7 million, a $5 million civil penalty, and a lifetime officer/director bar (SEC Litigation Release here). Radler earlier entered a guilty plea, and the SEC settlement may be a means to bolster his credibility by allowing prosecutors to point to the costs of his agreement to cooperate, which will also include a prison term. Of course, given the long relationship between Black and Radler, it’s unlikely that either has many secrets the other does not know, so look for Radler’s cross-examination to be particularly lively. (ph)
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A jury in the Northern District of Georgia returned guilty verdicts against ten defendants accused of a mortgage fraud scheme that involved 50 houses and 250 condominiums in the Atlanta area. The lead defendant, Phillip Hill, operated through his company, Pinnacle Development Property, in a series of transactions involving inflated appraisals and straw borrowers that led to charges of conspiracy, mail and wire fraud, and money laundering. According to a press release issued by the U.S. Attorney’s Office (here):
Each property was sold at an inflated price to a “straw purchaser” who applied for a mortgage loan based upon the inflated price. Such a fraudulent transaction is called a mortgage “flip.” The straw purchasers who participated in these mortgage flips were paid a kick-back out of the excess loan proceeds for the use of their name and credit. The victim-lenders granted the loans based upon numerous false representations and documents regarding the credit qualifications of the straw purchaser, as well as false representations that the straw purchaser had paid a down payment, would reside in the home, and would be responsible for the loan payment. In addition, the lenders were induced to make the loans based on fraudulently inflated appraisals. Some of the properties were “flipped” more than one time.
The nine other defendants were released on bail while they await sentencing, but the court ordered Hill to be held because he posed a flight risk due to the lengthy sentence he faces from a scheme that caused $41 million in losses. Two co-defendants were acquitted at the close of the evidence, and two more await trial. An Atlanta Journal-Constitution article (here) discusses the convictions. (ph)
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The prosecutions brought by California against four defendants for pretexting as part of an internal investigation by Hewlett-Packard have been dropped. Former chairwoman Patricia Dunn had the charges dismissed completely, while the three other defendants, former H-P ethics officer Kevin Hunsaker and private investigators Ronald DeLia and Matthew DePante, will have their charges dismissed after completing 96 hours of community service and payment of restitution. Dunn is undergoing treatment for cancer. The dismissal could be particularly important for Hunsaker because his law license was in jeopardy if he was convicted of the charged offenses, particularly the felony count. California has a new Attorney General, former Governor and Oakland Mayor Jerry Brown, and much of the impetus for the case seemed to disappear after his predecessor, Bill Lockyer, left office.
Although the defendants are largely clear of the state charges, it remains to be seen whether the U.S. Attorney’s Office for the Northern District of California will pursue a case against any of them. A fifth defendant in the state case, private Investigator Bryan Wagner, earlier entered a guilty plea to federal charges, resulting in the dismissal of the state prosecution under a California statute prohibiting a second prosecution for the same conduct. Wagner agreed to cooperate in the federal investigation, but it’s uncertain what knowledge, if any, he has about the conduct of Dunn, Hunsaker, or any other H-P employees. Turnover in the U.S. Attorney’s Office may affect the investigation, with former U.S. Attorney Kevin Ryan among the seven (or eight) fired earlier this year by the Department of Justice. An AP story (here) discusses the dismissal.
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Former Peregrine Systems CEO Stephen Gardner and two other former executives entered guilty pleas to securities fraud charges related to manipulating revenue to make it appear the company was hitting its targets. Gardner was set to go to trial in April on the charges, along with other Peregrine officers, for their role in the accounting fraud that included holding open the company’s books and misusing reserves to pad earnings. Ten defendants have now entered guilty pleas in the case. A San Diego Business Journal article (here) discusses the case. (ph)
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Two former CEOs will be headed to court in March to face charges related to their tenure at the top of large, publicly-traded companies. First, Lord Conrad Black, former CEO and controlling shareholder of newspaper publisher Hollinger International, Inc. — now the Sun-Times Media Group — faces charges along with three former company executives related to looting the company. The indictment (here) alleges mail and wire fraud, money laundering, and perhaps most ominously for Lord Black, RICO related to a series of deals in which he received substantial payments that the government alleges essentially stolen from the company. The trial is set to start on March 14 in U.S. District Court in Chicago, and may last up to three months. A Bloomberg story (here) provides a good overview of the case.
Out in Denver, former Qwest CEO Joseph Nacchio faces 42 counts of insider trading related to his sales of company stock that netted him over $100 million shortly before the share price collapsed. While Qwest had significant accounting problems, federal prosecutors brought an insider trading case rather than a broader securities fraud case of the type seen in the Enron and WorldCom prosecutions. The allegations against Nacchio focus on his knowledge that Qwest’s financials were deteriorating over the five months of 2001 when he sold the shares. Insider trading charges will avoid much of the accounting minutiae that has bogged down other trials. One aspect of the defense has been the claim that Nacchio was privy to secret intelligence contracts that could bolster Qwest’s revenue, and there has been an ongoing issue with discovery under the Classified Information Procedures Act, as discussed in a Denver Post story (here). Like most securities fraud cases, including insider trading prosecutions, the issues in the trial set to start March 19 in the U.S. District Court in Denver revolve around Nacchio’s intent, whether his trading was motivated by knowledge of impending financial problems at Qwest, so that he sold to avoid substantial losses. (ph)
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Able Laboratories, Inc., which made generic drugs, collapsed in 2005 due to improper manufacturing procedures at its New Jersey facility, and now a former vice president and three former chemists at the company have been charged. The three chemists agreed to plead guilty to conspiracy to distribute adulterated and misbranded drugs, while Shashikant C Shah, who was Vice President of Quality Control, Quality Assurance and Regulatory Affairs, entered his plea to conspiracy to commit insider trading and selling the adulterated/misbranded drugs. The SEC also filed a civil insider trading case against Shah, and its Litigation Release (here) describes his trading:
The Commission’s complaint alleges that on eight separate occasions from August 2003 through December 2004, Shah acquired an aggregate of 58,000 shares of Able’s common stock by exercising employee stock options, and in each case sold the securities either immediately thereafter or within a few days. According to the complaint, at the time he engaged in these transactions, Shah was aware that Able was concealing from the U.S. Food and Drug Administration (FDA) problems with the quality control testing of Able products that resulted in the public release of drugs failing to meet established quality control standards. Shah reaped $909,000 in ill-gotten gains as a result of his unlawful trading. In May 2005, Able’s common stock price fell more than $18 per share, or 75%, in one trading day, after Able discovered faulty testing practices of the type Shah had known about, and the company suspended all product shipments. Able’s stock price continued to fall in the ensuing months, and the company eventually declared bankruptcy in July 2005, selling substantially all of its assets five months later.
Prior to its collapse, Able Laboratories employed 500 people and manufactured generic drugs to treat cardiac and psychiatric problems. (ph)
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