The U.S. Attorney’s Office for the Southern District of Florida announced (here) the indictment of Joseph H. Shook for violating the computer crime statute, 18 U.S.C. Sec. 1030, for allegedly hacking into the computer system of his former employer. Shook had been the Director of Information Technology for Muvico, which operates movie theaters, primarily in Florida. He was laid off from his position in February 2006. On May 5, 2006, the day Mission: Impossible III premiered, Muvico’s computers suddenly stopped taking on-line ticket orders, and the theaters at six of its largest complexes could not process credit card payments for tickets, forcing the theaters to accept only cash. The company estimated that the computer problem caused it to lose at least $100,000 in sales. A few months after the problem, the government seized a wireless access device from Shook that had the same Media Access Control (MAC) address as the computer that accessed Muvico’s system on May 5 and blocked electronic payments. The indictment (here) notes that the only way to tap into the Muvico’s computer system through the wireless device is to be inside its headquarters building or within five hundred feet of it. Whoever hacked into the system literally may have been hiding in the bushes when the computer access occurred. As the IT director responsible for implementing Muvico’s computer security measures, Shook would probably know how to get around them. It is interesting how the government used the information from the company’s computers to track how the system was accessed, showing again that even in cyberspace it is very hard to hide. (ph)
Category: Prosecutions
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A press release of the U.S. Attorney for the Northern District of California tells of the indictment of a track and field Olympic coach -Trevor Graham. It states in part:
"The indictment charges Graham with three counts of making false statements to special agents of IRS-Criminal Investigation (IRS-CI) in connection with an investigation into the distribution of performance-enhancing drugs and related money laundering. During the criminal investigation, Graham was a witness in determining the ultimate source for illegal performance-enhancing drugs taken by many athletes who were connected with Balco. The prosecution is the result of an investigation by IRS-CI."
The Indictment can be found here.
(esp)
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Peter Lattman at the Wall Street Jrl blog reports here that a former United States Attorney has plead guilty to money laundering and obstruction. The News & Observer reports here that Sam "Currin was a protege of former U.S. Senator Jesse Helms, who helped Currin be appointed as the top federal prosecutor in eastern North Carolina."
(esp)
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Discussed here are some of the pre-trial matters being presented in the case against I. Lewis "Scooter" Libby. One matter has now been ruled upon by the court. In a memorandum order, the court denied the defense permission to present a witness, Dr. Robert A. Bjock, at his trial. The court concludes:
"In Daubert, the Supreme Court designated the trial judge as a gatekeeper on the question of the admissibility of expert testimony. Daubert, 509 U.S. at 589. To permit the introduction of the testimony proposed by the defendant would be an abdication of that responsibility and would therefore leave the gate this Court is obligated to protect unguarded and without a sentry. This the Court cannot do, in light of the mandate given to it by the highest Court in the land. As noted above, this Court has concluded that the defendant has failed to satisfy his burden of establishing that the testimony of Dr. Bjork would be helpful to the jury and thus, he has failed to satisfy the second prong of Daubert. Moreover, even if this Court could conclude that the defendant satisfied his burden under Daubert, Dr. Bjork’s testimony would nonetheless have to be excluded under Federal Rule of Evidence 403, as the probative value of the proposed testimony is outweighed not only by the delay and waste of time that would be occasioned by the introduction of the testimony, but also by the risk that the jury will be misled and confused by the testimony
Order here.
(esp)
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Professor J. Kelly Strader (Southwestern Law School) – Guest Blogging on the White Collar Crime Prof Blog writes-
The current issue of Fortune magazine provides a detailed history of the events leading to May 2006 indictment of the country’s leading plaintiff’s class action law firm, Milberg Weiss, and others. Entitled “The Law Firm of Hubris, Hypocrisy, and Greed,” the article paints a portrait of the firm and its principals that is, to say the least, unflattering. The article also notes that the government has advised the judge in the case that there is “a significant chance” of a new indictment naming other defendants, apparently the firm’s principal founders, Mel Weiss and Bill Lerach. According to the article, both have received target letters.
The indictment contains 20 counts, but fundamentally rests on mail and wire fraud charges. The essence of the charges is that for over two decades the defendants arranged for $11.3 million in kickbacks to be paid to named plaintiffs in suits for which the firm acted as lead plaintiffs’ counsel, defrauding the unnamed class members. The government alleges that this arrangement also enabled the firm to have named plaintiffs at the firm’s disposal so that the firm could be first to the courthouse.
What the article does not mention is that, as previously discussed here, the mail and wire fraud theories are open to serious challenge. All this raises the age-old question about the proper exercise of prosecutorial discretion – should the government target the individual or the crime?
The article also cites the law firm’s assertion of the attorney-client privilege during the investigation as a lack of cooperation that justified the firm’s indictment. This once again raises issues arising from the Thompson Memorandum, now under attack in the KPGM case. (see here) .
(jks)
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International shipping company Stolt-Nielsen S.A. lost out on its bid to have the Supreme Court review a Third Circuit decision overturning an injunction against the Department of Justice that prohibited it from seeking an indictment of the company for antitrust violations. Stolt-Nielsen had participated in the Antitrust Division’s amnesty program that rewards the first company to report a violation with immunity from prosecution, but after it provided documents the DoJ decided that the firm had not been cooperative and began the process of seeking an indictment. A district court granted an injunction prohibiting an indictment, but the Third Circuit reversed on the ground that a federal court does not have the authority to stop the Executive Branch from pursuing a criminal prosecution. A grand jury then handed up an indictment in August 2006. The Supreme Court denied Stolt-Nielsen’s petition for certiorari (here) without comment. With the case now on the road to trial, the company will pursue a motion to dismiss the indictment on the grounds that the decision to revoke the immunity was improper. A press release (available here) states:"The Company plans to file its motion to dismiss the indictment on November 22nd in accordance with the scheduling order issued by the United States District Court for the Eastern District of Pennsylvania. As we have said previously, it is critical for the Justice Department to honor the solemn promises it makes." (ph)
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Michael Pickens, the son of famed corporate raider T. Boone Pickens, entered a guilty plea to three counts of securities fraud. The government brought the charges in July 2005 (see earlier post here) related to a scheme to send out hundreds of thousands of faxes containing purported inside information about small companies, and the faxes were made to appear to be misdirected to the wrong number. Gullible recipients who thought they’d stumbled on the next big investment opportunity bought the shares that allowed Pickens and his cohorts dump their stock in the companies at inflated prices. Pickens was also involved in a bizarre case in Connecticut in June 2006 when he was charged with burglarizing a fly fishing store (see earlier post here). In the securities case, he is looking at a sentence around five years. An AP story (here) discusses the guilty plea. (ph)
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The prosecution of I. Lewis Libby, former chief of staff to Vice-President Dick Cheney, has been in an extend quiet period but reemerged at a hearing in U.S. District Court on October 26. One of the defenses to the perjury and false statement charges has been the "honest-but-overworked-civil-servant" claim, that Libby’s misstatements to the grand jury and federal agents were the result of his having wide-ranging responsibilities so that he simply forgot what he said. The defense is premised on the fact that former CIA agent Valerie Plame’s identity was of no real interest to him, and therefore he misspoke but did not intend to mislead.
In furtherance of that position, the defense is seeking to use an expert on memory, Dr. Elizabeth F. Loftus from the University of California-Irvine. The government challenged the defense effort to call Dr. Loftus as a scientific expert who would testify that jurors do not understand the limits of memory and that she can explain how a busy person like Libby could have simply forgotten what he said to reporters about Plame. Special Counsel Patrick Fitzgerald apparently had a field day cross-examining Dr. Loftus, according to a Washington Post story (here).
Among other things, Fitzgerald got Dr. Loftus to admit that her methods are not particularly scientific, which may well be the kiss of death for calling her as an expert under Daubert. In a backhanded way, she may have established the point about faulty memory. Fitzgerald asked her whether they had ever met, to which Dr. Loftus stated they had not. At that point, Fitzgerald asked about a case in New York in which she testified for the defense, when he was an assistant U.S. Attorney and cross-examined her. Rather than simply not remembering, perhaps Dr. Loftus wiped that memory clean.
It certainly does not help an expert on memory to be unable to recall someone who cross-examined her once before and to admit that her conclusions are not the result of a rigorous scientific analysis. Whether that keeps her from testifying is another matter. It may be that U.S. District Judge Reggie Walton will permit Dr. Loftus to give limited testimony on memory issues so that there is not a complete denial of evidence on the question that can be raised on appeal if there is a conviction. I’m hopeful Dr. Loftus remembers to submit her bill for the time spent in Washington D.C. at the hands of the Special Counsel. (ph)
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The fallout from the collapse of futures-trading firm Refco in October 2005 has hit in Austria, where prosecutors in Vienna charged nine individuals for their role in transactions between Refco and Austrian bank Bank Fuer Arbeit und Wirtschaft AG (BAWAG) that led to large losses at the bank. BAWAG lent former Refco CEO Phillip Bennett over $400 million right before Refco’s collapse, which he used to repay debts owed to Refco that were not properly accounted for by the firm. It turns out BAWAG had significant losses on trading by Wolfgang Floettl, son of a former CEO of BAWAG, in Refco accounts. The charges include embezzlement, fraud, and false entries in the bank’s books, and the defendants include Floettl, two former chief executives, and an auditor from KPMG’s Austrian branch. An AP story (here) discusses the charges.
Back in the U.S., federal prosecutors said in court that a new indictment will be filed in the next two weeks in prosecution of Refco executives, which comes on top of a new indictment on October 24. Bennett and former Refco CFO Robert Trosten both entered not guilty pleas to the most recent indictment, and it’s not clear whether the new indictment will include additional defendants. Given the speed with which Refco collapsed, less than a week, it is not surprising that the investigation has taken time to sort out how it’s demise occurred so quickly. The quick filing of charges against Bennett in November 2005 has meant that prosecutors will have to deal with an increasingly exasperated judge who wants the case pushed along, according to a New York Post story (here). (ph)
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As expected (here), Comverse CFO David Kreinberg plead guilty. He plead guilty to "a two-count felony information charging one count of conspiracy to commit securities fraud, mail fraud, and wire fraud, and one count of securities fraud." In addition to the guilty plea, he also settled civil matters the SEC. The DOJ press release states here that the agreement
"provides for a permanent injunction enjoining him from violating or aiding and abetting violations of the antifraud, reporting, record-keeping, internal-controls, false-statements-to auditors, Sarbanes-Oxley certification, and ownership-reporting provisions of the federal securities laws; a permanent officer-and-director bar; the payment of $2,394,917.68 in disgorgement and prejudgment interest; and a permanent suspension from appearing or practicing before the Commission as an accountant."
This stresses the importance of thinking globally in settling white collar cases. One cannot just think in terms of the criminal action, but also it is necessary to think about the civil ramifications and collateral consequences that can accrue to the individual.
The Wall Street Journal here has a list of companies, and here a list if individuals who have come under scrutiny related to stock options.
(esp)
MattBray.net 