Walter Anderson has been in jail since his indictment in 2005 for failing to pay what the government alleged were taxes on hundreds of millions of dollars he made on investments in the telecommunications industry. As discussed in an AP story (here), Anderson entered a guilty plea to two tax evasion charges and one count of tax fraud for avoiding paying over $200 million in taxes. Blog Emperor Paul Caron, who describes the case as the "largest personal tax-evasion case in U.S. history," has a number of links on the TaxProfBlog (here) to various stories about Anderson and, even better, the website www.justiceforwalt.com. The banner at the top states that it is "a call for reason and fairness in the case of U.S. vs. Walter Anderson," and states that "[h]e has committed no fraud against customers, business associates or employees. He has made substantial contributions to local, national and international communities. The charges against him do not appear realistic, and his continued incarceration seems to be designed to prevent him from preparing for a defense against those charges. Walter Anderson’s fundamental rights are being violated by the US Justice department, in their zeal to get a conviction, any way they can. He is being held without bond, on a charge that virtually everyone else ever so charged was allowed to post bond, or in many cases, were released on recognizance." The guilty plea will not prevent him for continuing to assert the unfairness shown by the federal government in prosecuting him, but the agreement means that he will be looking at up to ten years in jail. Because he was held without bail based on a finding that he was a flight risk — Anderson admitted that he moved hundreds of millions of dollars to off-shore trusts, so the denial of bail was plausible — the sentence should include credit for that time. (ph)
Category: Prosecutions
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U.S. District Judge Lewis Kaplan rejected KPMG’s argument that its sixteen former partners, who have been indicted for their roles in the firm’s peddling of questionable tax shelters, should be required to arbitrate their claims to have the firm pay their attorney’s fees. The judge’s opinion (available below) is, as usual, lengthy — 68 pages — and heavily footnoted — 180 of them — although it’s not nearly as long as his earlier decision holding that the Department of Justice’s Thompson Memo was unconstitutional. While the rejection of KPMG’s request is hardly surprising, given the judge’s apparent exasperation with both the federal prosecutors from the Southern District and KPMG, this decision may be subject to challenge by the firm on the arbitration issue. While the court determined that one group of former partners was not subject to KPMG’s 2003 partnership agreement requiring arbitration of disputes involving former partners, the rest of them appear to be parties to that agreement. For those partners, however, Judge Kaplan decided that requiring arbitration would be against public policy, which may be a tough position to sustain given the strong federal policy in favor of arbitration.
Regardless of how the arbitration issue is ultimately resolved, the judge has set a trial date of October 17 to decide whether KPMG must pay the attorney’s fees of the defendants. Given how the firm has fared to this point, the outcome of that proceeding is likely a foregone conclusion, which means that the costs to the firm will mount rather quickly when it must pay for the phalanx of lawyers defending the sixteen defendants. Once KPMG lose that round, at that point it can appeal to the Second Circuit, which may well weigh in on the various matters that have arisen in the case regarding the application of the Thompson Memo. (ph)
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Tracy Costin, the former owner of polling company DataUSA Inc., entered a guilty plea to conspiracy to commit mail fraud for fabricating the results of polls the company conduct on behalf of, among others, President Bush in 2004. Costin was indicted along with a DataUSA manager in March 2005 on fraud and conspiracy charges, and the indictment (here) alleged that they instructed "DataUSA employees to alter survey data and to fabricate surveys and otherwise falsify their contents in order to meet job quotas and deadlines. The term ‘talk to cats and dogs’ was one of the terms used by the defendants to instruct employees to fabricate surveys." It’s not clear if any of the alleged feline or canine poll respondents would have been witnesses at the trial. An AP story (here) discusses Costin’s guilty plea. (ph)
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An article in the Washington Post (here) makes the provocative point that lawyers have largely avoided the fallout from the recent rounds of corporate and accounting scandals, asserting that "lawyers serving fraud-ridden companies have emerged relatively unscathed." The article contrasts lawyers with the two large accounting firms, Arthur Andersen and KPMG, that have been involved in criminal cases, with Andersen forced out of business even though the conviction was later reversed by the Supreme Court. That may not be the best comparison, however. Andersen was prosecuted for obstruction of justice for shredding documents, not for its audit of Enron, and KPMG’s deferred prosecution agreement involved the firm’s direct work selling tax shelters to clients, a product much like any other, and not for its professional advisory role. The Milberg Weiss case is somewhat analogous to these accounting firm prosecutions, in that the subject of that prosecution is not work on behalf of clients but how the firm went about doing its business.
The recent options-timing cases may well put lawyers squarely in the sights of prosecutors, particularly in-house counsel at the companies involved in the questionable — although perhaps not necessarily illegal — transactions. William Sorin, former general counsel at Comverse Technologies, was charged along with two other executives for his role in the options back-dating, and the charges recite how he used his position to facilitate the awards and make them look legal. McAfee Inc. fired its general counsel, Kent Roberts, because of his involvement in an instance of options back-dating, and federal prosecutors subpoenaed the company for information related to his termination. At some companies being investigated, outside law firms drafted the compensation policies while partners at the firms served as directors of the corporations, even being involved in the now-scrutinized option grants. These lawyers are sure to be questioned by civil and criminal authorities, and are likely targets of those investigations.
Although lawyers were not caught up in the criminal prosecutions generated by some of the spectacular corporate collapses of recent years, the options-timing investigations will put the acts of legal counsel under a microscope. It will not be surprising to see more than a few lawyers involved as defendants in the various cases in the future. (ph)
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We passed along last week the report that former Comverse Technologies CEO Kobi Alexander, a fugitive from a Brooklyn indictment charging him in connection with stock options backdating at the company, had been located by a private detective, Moshe Buller, hiding out in Sri Lanka. A report in the Israeli newspaper Ha’aretz (here) raises some interesting questions about the veracity of the private detective’s claim to have located Alexander by tracing an Internet telephone call. The story points out inconsistencies in the private detective’s accounts to the media of how he located Alexander, when he saw him, and even how far he traveled after seeing him. As the story notes, the U.S. has an up-to-date extradition treaty with Sri Lanka (see earlier post here) that most likely would allow for his extradition, so it’s unlikely Alexander would pick that place to be a fugitive. Moreover, since the reported sighting of Alexander last week, no news has emerged from the government of either country regarding an extradition request. Maybe the earlier question "Where the Heck is Kobi Alexander?" is still quite pertinent. (ph)
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An earlier post (here) discusses the settlement between federal prosecutors and Schering-Plough related to Medicare and Medicaid fraud in the pricing of certain drugs produced by the company and possible kickbacks paid to doctors. Rather than enter a deferred prosecution agreement, which is more the norm these days, a subsidiary, Schering Sales Corporation, entered a guilty plea to conspiracy to make a false statement to the FDA and will be barred from participating in federal health care programs, a virtual death penalty for a drug provider. While that sounds like a rather draconian collateral consequence from the conviction, I think looks are a bit deceiving here. Only the subsidiary entered the guilty plea, not the parent, and so only Schering Sales will "suffer" the debarment from federal programs. A Wall Street Journal story (here) quotes a spokesman for Schering-Plough stating that the subsidiary "is an entity whose sole purpose is to plead guilty in these matters" — a good thing to have lying around in case you get in trouble, just throw a subsidiary on to the fire. If that’s the case, and Schering-Plough can forge ahead by creating a new sub — a remarkably easy process that can be done in a few minutes over the Internet — to take over Schering Sales’ functions, then the guilty plea and program bar are much less than they appear.
While the government gets to count the guilty plea when it compiles statistics regarding corporate and health care prosecutions, and can tout the bar as proof that it will take drastic action against offenders, Schering-Plough is largely unaffected by settlement, except of course for paying out $435 million, including $180 million as a criminal fine. The fine doesn’t help the bottom line, but then that seems to be the least of the company’s worries because its press release noted that it had already set up a reserve for the costs of the settlement. At the end of basketball games when one team is way ahead, some players will take advantage of "garbage time" to pad their stats. Is the government doing the same thing here, making the settlement with Schering-Plough look tougher than it really is? (ph)
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A judge of the Ontario Superior Court of Justice issued an order freezing the Canadian assets of Lord Conrad Black, former CEO of Hollinger International and a defendant (along with three other former Hollinger executives) in a federal court indictment charging fraud, conspiracy, and RICO related to transactions with the company. Black is out on a $20 million bond secured by a home in Florida and, more recently, $1 million in cash because of certain disclosure "problems" in his orignial bail application (see earlier post here). The order in the Ontario court arises from a civil suit in which Hollinger seeks repayment of approximately $700 million that it accuses Black of looting from the company, involving many of the same issues charged in the U.S. prosecution.
The judge’s order, called a "Mareva injunction" in Commonwealth jurisdictions, allows Black and his wife up to $20,000 per month in living expenses, a mere pittance for the jet-set couple. According to an article in the Globe and Mail (here), while Mareva injunctions are usually granted ex parte with no involvement by the defendant, the court will allow Black’s attorney to challenge the freeze order in a hearing, which they will no doubt contest vigorously. An earlier agreement between Hollinger and Black requires the company to pay 75% of his attorney’s fees in the federal prosecution, but it’s unlikely the company will have to pay the lawyer’s bills in this action, unless perhaps Black prevails. (ph)
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State Department officer Michael O’Keefe has been for accepting jewelry and trips to Las Vegas and New York for himself and two "exotic dancers" from Sunil Agrawal to facilitate the issuance of visas to workers at Agrawal’s business, STS Jewels (website here). O’Keefe and Agrawal are both charged with violating Sec. 201(b), the bribery provision that covers federal employees, and with conspiracy. O’Keefe was the Deputy Nonimmigrant Visa Chief in the U.S. Embassy in Toronto, and he authorized the issuance of 21 work visas for employees of STS Jewels. The indictment (here) lists four pieces of jewelry provided to O’Keefe for which the government seeks forfeiture, and the two trips included accommodations and car service along with expensive meals.
As if the exotic dancers weren’t enough, the indictment recounts a number of e-mails between O’Keefe and Agrawal describing how O’Keefe would short-circuit the visa review process. Others are more person, so that In one, O’Keefe complains about having to pay Canadian customs — over $250 — on a ring that Agrawal sent to him, while another whines that the gift basket Agrawal said was sent to the New York hotel room for O’Keefe and his two "friends" never arrived. Gee, it’s hard to accept bribes and gratuities when you have to pay taxes on them and those wonderful fruit baskets never even arrive for the exotic dancers! The case shows once again that people will write things in e-mails that they would never repeat if they thought the government were listening. E-mail lasts forever, unlike water-cooler conversations, and can lead to jail. (ph)
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Kentucky Governor Ernie Fletcher reached an agreement with Attorney General Greg Stumbo to have the misdemeanor charges of violating state personnel laws dismissed. Governor Fletcher was accused of violating the state’s merit hiring policies by making political affiliation a key to retaining one’s position with the state, and he earlier pardoned everyone in his administration except himself for any acts they did in relation to hiring. The agreement is a bit odd because it does not require Governor Fletcher to do anything, and four members of the state’s Personnel Board will resign their positions. Highlighting the political nature of the fight, Attorney General Stumbo, a Democrat, will submit three names for each of the Personnel Board positions to Governor Fletcher, a Republican, who will then appoint the new members from the suggested names. The Board will hear appeals from former state employees who claim to have been discharged based on their politics.
The agreement (available below) contains a number of carefully worded admissions that will allow Governor Fletcher to deny any direct illegal acts, which will be important in case he faces Attorney General Stumbo in next year’s gubernatorial election. For example, while the Governor "acknowledges that the evidence strongly indicates wrongdoing by his administration" and "that he regrets their occurrence, and accepts responsibility for them as the head of the executive branch," nevertheless "[t]his sincere expression of ultimate responsibility, however, is not an admission in any way of criminal wrongdoing by the Governor nor directly on behalf of the Governor." In other words, it was wrong, I know it was wrong, but don’t blame me for doing anything wrong — that sounds sincere. These "admisstions" could be the start of an effective stump speech for Attorney General Stumbo, except that the order concedes that acts by the administration "were without malice," thus making it harder to argue that any crime even occurred. Attorney General Stumbo had asserted that so long as his office — he was barred from participating in the case by a state judge due to the potential conflict — was prosecuting Governor Fletcher he would not run for Governor. Talk about a win-win situation, at least for the two elected officials: the Governor is off the hook while the Attorney General can pursue his political career. For the public, the criminal charges are swept under the rug, at least until the campaign takes a nasty turn. A Lexington Herald-Leader article (here) discusses the case. (ph)
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After asking "Where the heck is Kobi Alexander?" (earlier post here) the answer is:
Sri Lanka— Namibia. Check an updated blog post here. The rest is what was written on August 24: Israeli newspaper Ma’ariv reports (Marketwatch story here) that a private investigator tracked Alexander through an internet telephone call he recently placed to his daughter in Israel. Assuming he has not left the jurisdiction, the United States and Sri Lanka have an extradition treaty so there is a chance that he will be detained and then returned to the United States to face the conspiracy and securities fraud charges filed against him in Brooklyn related to options-timing at the company he founded and served as CEO, Comverse Technologies.One issue in an extradition proceeding against Alexander will be whether the crimes charged are covered by the treaty (here), which provides in Article 2: "An offense shall be an extraditable offense if it is punishable under the laws in both Contracting States by deprivation of liberty for a period of more than one year or by a more severe penalty." The treaty entered into force in 2001, and is fairly flexible on determining whether there is dual criminality, providing in Article 2(3) that it is an extraditable offense
(a) whether or not the laws in the Contracting States place the offense within the same category of offenses or describe the offense by the same terminology; or
(b) whether or not the offense is one for which United States federal law requires the showing of such matters as interstate transportation, or use of the malls or of other facilities affecting interstate or foreign commerce, such matters being merely for the purpose of establishing jurisdiction in a United States federal court.
(ph)
Addendum –
It is very typical for countries to incorporate a dual criminality provision within a treaty. The rationale for the dual criminality rule is "to make certain that extraditable crimes are serious offenses. Having the conduct as criminal in both countries helps to assure that it is a crime that both countries consider sufficiently wrongful." Podgor, Understanding International Criminal Law 99 (2004) In determining whether the crime is the same in both countries, the name of the crime is not determinative. Courts also will defer to the surrendering country in its "reasonable determination that the offense in question is extraditable." United States v. Saccoccia, 58 F.3d 754, 766 (1st Cir. 1995).
(esp)
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