Tuesday, November 17, 2009

"Cusenbary Takes Out Trash Without Being Asked by Wife"


It always seems funny to me that the government has its own press releases. This was the most entertaining back when labs all over the country were investigated by the Office of Inspector General (OIG) billing for labs that weren't actually done. "Lab Scam" was in the news due to the many press releases by the OIG, which bragged with abandon about the millions of dollars recouped for the Medicare Trust. One laboratory paid the largest Medicare settlement in history, and it took on a permanent place in my slide deck that was part of my regulatory talk I did for hospitals, labs and doctor groups before working at Mission Pharmacal. Joking aside, the press releases raise awareness of what is illegal in the area of billing the federal government and raised awareness of why the correct billing codes must be used and audited internally to avoid liability.

It would be cool if we all did press releases when we thought we did a good job, like "Cusenbary Daughter Has Awesome Volleyball Game," or "Cusenbary Takes out Trash Without Being Asked by Wife." This time, it's the SEC who is tooting it's horn about the computer programmers who kept the fraud looking real for Bernie Madoff. I'm glad the SEC has found yet more criminals who were enticed by Bernie's scheme to defraud innocent investors. I just wish they had caught them years ago before people, companies and charities lost everything they had saved. The SEC's press release follows:

Washington, D.C., Nov. 13, 2009 -- The Securities and Exchange Commission today charged two computer programmers for their role in helping convicted Ponzi schemer Bernard L. Madoff cover up the fraud at Bernard L. Madoff Investment Securities LLC (BMIS) for more than 15 years.

The SEC alleges that Jerome O'Hara of Malverne, N.Y., and George Perez of East Brunswick, N.J., provided the technical support necessary to produce false documents and trading records, and took hush money to help keep the scheme going.

"Without the help of O'Hara and Perez, the Madoff fraud would not have been possible," said George S. Canellos, Director of the SEC's New York Regional Office. "They used their special computer skills to create sophisticated, credible and entirely phony trading records that were critical to the success of Madoff's scheme for so many years."

According to the SEC's complaint, filed in U.S. District Court for the Southern District of New York, Madoff and his lieutenant Frank DiPascali, Jr., routinely asked O'Hara and Perez for their help in creating records that, among other things, combined actual positions and activity from BMIS' market-making and proprietary trading businesses with the fictional balances maintained in investor accounts. O'Hara and Perez wrote programs that generated many thousands of pages of fake trade blotters, stock records, Depository Trust Corporation (DTC) reports and other phantom books and records to substantiate nonexistent trading. They assigned file names to many of these programs that began with "SPCL," which is short for "special."

A separate computer internally known as "House 17" was used to process BMIS investment advisory account data at the direction of Madoff, DiPascali and others. The SEC alleges that O'Hara and Perez knew that the House 17 computer was missing a host of functioning programs necessary for actual securities trading and reporting. According to the SEC's complaint, they recognized that the trades being entered into House 17 and the account statements and trade confirmations being sent to investors did not reflect actual trades.

The SEC alleges that O'Hara and Perez had a crisis of conscience in 2006 and tried to cover their tracks by attempting to delete approximately 218 of the 225 special programs from the House 17 computer. But they did not delete the monthly backup tapes. O'Hara and Perez then cashed out hundreds of thousands of dollars each from their personal BMIS accounts before confronting Madoff and refusing to generate any more fabricated books and records.

According to O'Hara's handwritten notes from the encounter, one of them told Madoff, "I won't lie any longer. Next time, I say 'ask Frank,'" meaning that Madoff should rely on DiPascali alone to create the false data and reports.

The SEC's complaint alleges that Madoff responded by telling DiPascali to offer O'Hara and Perez as much money as necessary to keep quiet and not expose the misrepresentations. O'Hara and Perez considered the offer and demanded a salary increase of nearly 25 percent along with one-time bonuses in late 2006 of more than $60,000 each. They stated to DiPascali at the time that they did not ask for more because a greater amount might appear too suspicious. DiPascali then managed to convince O'Hara and Perez to modify computer programs so that he and other 17th floor employees could create the necessary reports themselves.

This is the SEC's latest enforcement action concerning the Madoff fraud since the scheme collapsed last December. The Commission previously charged Madoff and BMIS, DiPascali, and auditors David G. Friehling and Friehling & Horowitz CPAs, P.C.. The SEC also charged certain feeders with committing securities fraud through a Ponzi scheme perpetrated on advisory and brokerage customers of BMIS. Madoff, DiPascali and Friehling have all pleaded guilty to criminal charges related to their conduct.

The SEC's complaint specifically alleges that O'Hara and Perez aided and abetted violations of Sections 10(b), 15(c) and 17(a) of the Exchange Act and Rules 10b-3, 10b-5 and 17a-3 thereunder, and Sections 204, 206(1) and 206(2) of the Advisers Act and Rule 204-2 thereunder. Among other things, the SEC's complaint seeks financial penalties and a court order requiring O'Hara and Perez to disgorge their ill-gotten gains.

The Commission acknowledges the assistance of the U.S. Attorney's Office for the Southern District of New York and the Federal Bureau of Investigation, with which the Commission has coordinated its investigation. The Commission's investigation is continuing.

Sunday, October 18, 2009

Ethics Follies 2009: A Seriously Fun Ethics Conference

More than sixty San Antonio judges, attorneys, doctors, managers, actors and other professionals rehearsed for months to prepare for Ethics Follies 2009. The "Follies" is a city-wide musical ethics conference held at the Charline McCombs Empire Theatre last week on Oct. 14th at 2 p.m. and Oct. 15th at 7 p.m. The conference is in it's twelfth year, and is organized by the award-winning local chapter of the Association of Corporate Counsel. The goal is to raise ethics awareness of San Antonians in hopes of preserving the trusting and honest nature of business and legal transactions in our city. It is also a major funding source for The Community Justice Program, which provides free legal services to those who can't afford them. Formerly attended by only in-house attorneys, the original musical parodies are now enjoyed by judges, corporate management, lawyers in private practice and the general public. What makes the show fun from a theatrical perspective is the "cream of the crop" cast and crew. Talented performers like Rick Cavender, Heloise, Anna Gangai, Sherry Houston, Steven Bull, Valarie Miller and Jillian Cox make the show fun to see even if you have never heard of theTexas Ethics Rules or Sarbanes Oxley.

Mayor Julian Castro awarded USAA The Ethical Life Award for it's commitment to ethical business and legal practices. San Antonio Bar Association President, Robin Teague and Bar Foundation Chair, Jenny Durbin, presented The Ethical Life Award to attorney George Kampmann.

Attorneys, accountants, and HR professionals received three hours of continuing education credit for attending.



San Antonio is a great place to live and work. The cast and crew of the Follies believe that keeping the courtrooms and boardrooms honest and accountable is a worthy investing of time and talents. USAA, Valero, and Cox Smith are the Community Leader sponsors of the event this year, providing $10,000 each towards the production. Many companies use the Follies to help train their executives since awareness of risk is key to avoiding corporate fraud or theft. Attorneys can also attend the annual event with their clients to get on the same page regarding ethics issues in business and why a code of ethics for an organization can actually be good for profitability due to the reduced risk of litigation and regulatory enforcement actions.
If you'd like to attend and be part of this city-wide ethics conference in 2010, you can register online at www.ethicsfollies.com. Everyone is welcome to attend.

Monday, September 7, 2009

Watching the Watchman & Media Accountability


Agenda For Hope By Agustin Martin G. Rodriguez

By now, after the Watchmen film has made its theatrical and DVD rounds, Juvenal’s haunting question, "Who watches the Watchmen," should be back in currency. It is a question that can be posed to the institutions of Philippine journalism as much as it can be posed to costumed vigilantes.
Those of us who lived through the last days of martial law know how guerrilla journalism was an essential element in the corrosion of Marcos’s grip over Philippine society. Because journalists were able to leak the truth regarding the war in Mindanao, the terrible violations of the basic rights of the people, the (under)mining of the Philippine economy by his family and cronies, the upsurge of anger and the growing resistance awakened by the assassination of Ninoy and the subversion of the snap elections, the general populace was able to cultivate its indignation, gather its courage, and take part in the events the led to EDSA. These same but freer institutions of journalism investigated the unaccounted riches, the jueteng connections, the midnight cabinet decisions, and the unabashed cronyism of another corrupt president, and led to his downfall. It continues to expose the follies and misdemeanors of this present administration and its allies.
I doubt if anyone who values our beleaguered democracy does not value the role of the press as one of the primary watchdogs of our democracy. Without it, the predatory elite who rule our country will go their merry way with full impunity. At least with the press hounding them, they have to give a thought to trying to cover their tracks. Even the present set of politicians, with all their sense of impunity, must show a semblance of accountability for their acts of corruption and abuses of power. This is the reason why so many journalists have been killed in the last 10 years.
However, despite their vital role in our democracy, we are also aware that they too need to be held accountable for their practices. One only need look at the yellow journalism that adorns our sidewalks to realize how journalists could destroy reputations and violate people’s privacy with the kind of reporting that aims to cheaply titillate the public’s imagination. Or one can tune in to a random AM station and hear commentators ranting freely against some government agency regarding some issue on which they have not done their full investigation. Television too is replete with such careless journalism. There are TV investigation shows where, without any apology for the violation of people’s rights to a fair hearing, they barge into alleged abusive officials’ offices or criminals’ homes to present a hasty conclusion about their guilt. People’s lives could be destroyed in an hour’s showing based on less than a week’s worth of sloppy snooping.
When the media behave badly, who reports on them? In a recent paper written for the Loyola Schools’ Agenda for Hope project entitled "Exacting Accountability from the Media: Positive Signs," academic and journalist Chay Florentino Hofileña noted that there is a growing awareness among the news outlets that their credibility is dropping. She notes a Pulse Asia Survey of 2004 where television had a 67%, radio 20%, and newspapers 5% credibility rating. She attributes the higher TV rating to the perception that TV interviewees are "aired as they speak, with little or no editing or misinterpretation," unlike in newspapers where they are misquoted and misinterpreted. Radio suffers from its low ratings because of its sensationalist reporting and because its reporters are perceived to be corruptible. Becoming aware of these issues regarding their credibility, media have made some steps toward self-regulation.
One major step is the formulation of a code of ethics by some major media organizations like GMA-7, ABS-CBN, and thePhilippine Daily Inquirer (PDI). These codes of ethics, notes Hofileña, "reflect a desire to uphold journalistic standards even in tough situations." They are still considered works in progress, and have not been made public, but they have already been used to sanction media personnel who have violated the most basic principles of these codes. For instance, Ces Drilon was suspended for her Abu Sayaf fiasco.
Hofileña also notes that PDI has set up a reader’s advocate position "to provide readers a venue for voicing complaints and dissatisfaction with the paper’s stories or coverage." The advocate is like the reader’s voice in the newsroom to be the "counter-weight to the otherwise exclusive powers of editors and reporters to define the news agenda." Lorna Kalaw Tirol, the first and so far only reader’s advocate, was able to bring cases against writers who used their columns to make money or as platforms to air their homophobia. Unfortunately, she has resigned from her position and it remains unfilled to this day.
Perhaps, an even more significant sign of hope for increasing media accountability is the engagement of citizen journalists in reporting the news and the practice of civic journalism by local newspapers. With citizen journalists, media outlets open avenues for the input of ordinary citizens in important events such as the elections when ABS-CBN opened its newsrooms to citizen reports. The local press also practices a different kind of journalism in which they dialogue with communities to surface their concerns and help them define solutions to their issues. For instance, journalists in Palawan and Mindanao act as facilitators for public reflections and write as advocates for these communities’ concerns. Hofileña says, "Because citizens are involved in the coverage of events that matter in public life through citizen journalism, they feel a stronger connection with the media. And because journalists, through their practice of public or civic journalism, become more involved in issues and problems that concern communities and ordinary citizens, their stories resonate more with their readers."
Finally, there are the examples of the Philippine Center for Investigative Journalism and Newsbreak, which are news groups put up by journalists who wish to practice journalism according to its highest standards. These groups have been able to raise funding independently, which allows them to genuinely pursue stories without having to prioritize sales or the concerns of their patrons. In these days of 24-hour news TV and Internet journalism, where journalists are pressured to keep feeding their news outlets with breaking stories and newspapers have to compete with the Internet to break interesting and sensational news, we are seeing less of the carefully thought-out story and more of the quick flow of images and sound bites that are not framed by deep background research or rounded out by a fuller reflection on the unfolding of events. These independent groups are able to serve the public by offering well-researched and well thought-out pieces because they are not beholden to commercial or vested interests.
These are only tentative beginnings at self-regulation and greater accountability of the media. These attempts must be further pursued because only if the media govern themselves well will they have the integrity to credibly advocate for good governance and expose the ills of those who govern us. Our Watchmen must strengthen these structures that keep them true to their watch. But just as importantly, we the people must find effective ways to remind them constantly of this vocation they have embraced.


Dr. Agustin Martin G. Rodriguez is associate professor and chair of the Philosophy Department at the Ateneo de Manila University

Wednesday, September 2, 2009

Pfizer to pay record $2.3B penalty over promotions

Why does big pharma think it can get away with bribing doctors to prescribe their drugs? Equally amazing is the doctors who put their hands out to accept the goodies. The American Medical Association and the PhRMA Code of Sale Reps Ethics prohibit such behavior and it's thriving according to the article below by Devlin Barrett.

Repeat offender Pfizer paying record $2.3B settlement for illegal drug promotions
By Devlin Barrett, Associated Press Writer
On Wednesday September 2, 2009,


WASHINGTON (AP) -- Federal prosecutors hit Pfizer Inc. with a record-breaking $2.3 billion in fines Wednesday and called the world's largest drug maker a repeating corporate cheat for illegal drug promotions that plied doctors with free golf, massages, and resort junkets.



Announcing the penalty as a warning to all drug manufacturers, Justice Department officials said the overall settlement is the largest ever paid by a drug company for alleged violations of federal drug rules, and the $1.2 billion criminal fine is the largest ever in any U.S. criminal case. The total includes $1 billion in civil penalties and a $100 million criminal forfeiture.
Authorities called Pfizer a repeat offender, noting it is the company's fourth such settlement of government charges in the last decade. The allegations surround the marketing of 13 different drugs, including big sellers such as Viagra, Zoloft, and Lipitor.
As part of its illegal marketing, Pfizer invited doctors to consultant meetings at resort locations, paying their expenses and providing perks, prosecutors said.
"They were entertained with golf, massages, and other activities," said Mike Loucks, the U.S. attorney in Massachusetts.





Loucks said that even as Pfizer was negotiating deals on past misconduct, they were continuing to violate the very same laws with other drugs.
To prevent backsliding this time, Pfizer's conduct will be specially monitored by the Health and Human Service Department inspector general for five years.
In an unusual twist, the head of the Justice Department, Attorney General Eric Holder, did not participate in the record settlement, because he had represented Pfizer on these issues while in private practice.



Associate Attorney General Thomas Perrelli said the settlement illustrates ways the Justice Department "can help the American public at a time when budgets are tight and health care costs are rising."



Perrelli announced the settlement terms at a news conference with federal prosecutors and FBI, and Health and Human Services Department officials.
The settlement ends an investigation that also resulted in guilty pleas from two former Pfizer sales managers.



Officials said the U.S. industry has paid out more than $11 billion in such settlements over the past decade, but one consumer advocate voiced hope that Wednesday's penalty was so big it would curb the abuses.



"There's so much money in selling pills, that there's a tremendous temptation to cheat," said Bill Vaughan, an analyst at Consumers Union, the nonprofit publisher of Consumer Reports.
"There's a kind of mentality in this sector that (settlements) are the cost of doing business and we can cheat. This penalty is so huge I think consumers can have some hope that maybe these guys will tighten up and run a better ship."



The government said the company promoted four prescription drugs, including the pain killer Bextra, as treatments for medical conditions different from those the drugs had been approved for by federal regulators. Authorities said Pfizer's salesmen and women created phony doctor requests for medical information in order to send unsolicited information to doctors about unapproved uses and dosages.



Use of drugs for so-called "off-label" medical conditions is not uncommon, but drug manufacturers are prohibited from marketing drugs for uses that have not been approved by the Food and Drug Administration. They said the junkets and other company-paid perks were designed to promote Bextra and other drugs, to doctors for unapproved uses and dosages, backed by false and misleading claims about safety and effectiveness.
Bextra, for instance, was approved for arthritis, but Pfizer promoted it for acute pain and surgical pain, and in dosages above the approved maximum. In 2005, Bextra, one of a class of painkillers known as Cox-2 inhibitors, was pulled from the U.S. market amid mounting evidence it raised the risk of heart attack, stroke and death. A Pfizer subsidiary, Pharmacia and Upjohn Inc., which was acquired in 2003, has entered an agreement to plead guilty to one count of felony misbranding. The criminal case applied only to Bextra. The $1 billion in civil penalties was related to Bextra and a number of other medicines. A portion of the civil penalty will be distributed to 49 states and the District of Columbia, according to agreements with each state's Medicaid program. Pfizer's top lawyer, Amy Schulman, said the settlements "bring final closure to significant legal matters and help to enhance our focus on what we do best -- discovering, developing and delivering innovative medicines." In her statement, Schulman said: "We regret certain actions taken in the past, but are proud of the action we've taken to strengthen our internal controls and pioneer new procedures." In financial filings in January, the company had indicated that it would pay $2.3 billion over the allegations. The civil settlement announced Wednesday covered Pfizer's promotions of Bextra, blockbuster nerve pain and epilepsy treatment Lyrica, schizophrenia medicine Geodon, antibiotic Zyvox and nine other medicines. The agreement with the Justice Department resolves the investigation into promotion of all those drugs, Pfizer said.



The government said Pfizer also paid kickbacks to market a host of big-name drugs: Aricept, Celebrex, Lipitor, Norvasc, Relpax, Viagra, Zithromax, Zoloft, and Zyrtec.
The allegations came to light thanks largely to five Pfizer employees and one Pennsylvania doctor, who will now share $102 million of the settlement money.
FBI Assistant Director Kevin Perkins praised the whistleblowers who decided to "speak out against a corporate giant that was blatantly violating the law and misleading the public through false marketing claims."



To rein in the abuses, the government's five-year monitoring will force Pfizer to notify doctors about Wednesday's agreement, encourage them to report any similar behavior, and publicly post any payments or perks it gives to doctors.
Under terms of the settlement, Pfizer must pay $1 billion to compensate Medicaid, Medicare, and other federal health care programs. Some of that money will be shared among the states: New York, for example, will receive $66 million, according to the state's attorney general, Andrew Cuomo.



When Pfizer originally disclosed the settlement figure, it also announced plans to acquire rival Wyeth for $68 billion. That deal, which would bolster Pfizer's position as the world's top drug maker by revenue, is expected to close before year's end. Shares of Pfizer dropped 14 cents to $16.24 in midday trading.



AP Business Writer Linda A. Johnson in Trenton, N.J. contributed to this report.

Tuesday, September 1, 2009

Broadcom Settles Backdating Case For $118 Million; Lawyers' Fees Exceed Amount


Susan Beck writes an insightful piece on the Broadcome settlement and how the attorneys for both sides are likely to end up the only winners in this derivative suit alleging backdating which settled for $118M:


We're still scratching our heads over this one. Last week, Broadcom announced in an 8K filing https://webmail.missionpharmacal.net/owa/redir.aspx?C=c80dfef620334df18482a43003766fc6&URL=http%3a%2f%2feditorial.incisivemedia.com%2fc%2f12eTn3MHrjolUOU5Y4 that it had settled a stock option backdating derivative suit for $118 million. If approved by Los Angeles federal district court judge Manuel Real, it would be the second-largest backdating settlement for a derivative suit (behind UnitedHealthcare), and one of the biggest derivative settlements ever, according to Kevin LaCroix of The D & O Diaryhttps://webmail.missionpharmacal.net/owa/redir.aspx?C=c80dfef620334df18482a43003766fc6&URL=http%3a%2f%2feditorial.incisivemedia.com%2fc%2f12eTnt12n7cJbZEoKR.Depending on how you look at it, it could appear that all the money will be used to pay lawyers, on the plaintiffs and defense side. You see, Broadcom is liable for a whopping $130 million in attorneys' fees racked up by the 19 officers and directors caught up in backdating charges, including two who face criminal counts. The $118 million that Broadcom will receive--which is coming from its D&O insurers under a settlement--will be eaten up by the $11.5 million fee for the plaintiffs' lawyers and this $130 million-plus defense tab. Broadcom is obligated to pay these defense fees under the indemnification agreements it signed with these officers and directors.You can find the derivative settlement herehttps://webmail.missionpharmacal.net/owa/redir.aspx?C=c80dfef620334df18482a43003766fc6&URL=http%3a%2f%2feditorial.incisivemedia.com%2fc%2f12eTnSfniV16taoHxE. A copy of Broadcom's settlement with its insurers (which mentions the $130 million legal tab) can be found herehttps://webmail.missionpharmacal.net/owa/redir.aspx?C=c80dfef620334df18482a43003766fc6&URL=http%3a%2f%2feditorial.incisivemedia.com%2fc%2f12eTohtIeIPtKl90kr.David Siegel of Irell & Manella, who represents Broadcom, offers a different take on this settlement. "The $118 million represents a payment to Broadcom for its benefit, and the attorneys' fees incurred and yet to be incurred are just one part of the alleged damages the plaintiffs were seeking in this case." He adds that the insurers had disputed their obligation to cover these fees, so it wasn't certain that, absent this settlement, Broadcom could have recovered from its insurers anything close to the full amount it has paid to these defendants' lawyers. "[The insurers] disputed whether they owed anything," he said. Before the settlement, the insurers had paid just $43.3 million of the more than $130 million sought by Broadcom. (This $43.3 million is included in the $118 million settlement amount.)The plaintiffs lawyers who brought the derivative suit--led by Lieff, Cabraser, Heimann & Bernstein--have dropped or released claims against 16 individuals as part of their settlement. The settling defendants deny any wrongdoing. The plaintiffs still have claims against three defendants, including Broadcom cofounders Henry Nicholas III and William Ruehle, who both face criminal charges.Broadcom used David Steuber of Howrey to negotiate with its insurers. Broadcom's special litigation committee was represented by Kaye Scholer.We briefly reached Richard Heimann at Lieff Cabraser as he was about to board a flight, but his cell phone connection ended before we could discuss the settlement in any detail. We left messages for other lawyers at his firm but have not heard back.--Susan Beck

Tuesday, August 4, 2009

Bank of America Settles SEC Charge for $33 Million

I have a few bank accounts with Bank of America (BofA), so it's disturbing to see wasteful regulatory penalites paid to the government by BofA while I worry that my money is less than safe and secure in a bank that lost it's shirt last year in the mortgage loan crisis. Here's the rest of the story by my favorite emailed newsletter, Am Law Litigation daily:

Bank of America Pays $33 Million to Settle SEC Charges That It Failed to Disclose Merrill Bonuses to Investors

On Monday, August 3, 2009, Bank of America agreed to pay $33 million to settle SEC allegations that it lied to investors by failing to disclose the $5.8 billion it had agreed to pay to Merrill Lynch & Co. executives before it bought Merrill in September 2008. The settlement came within moments of the SEC's filing of its complaint against BofA http://editorial.incisivemedia.com/c/11XpVJEt09sT5m4pLI in Manhattan federal district court. The SEC's press release on the settlement is here http://editorial.incisivemedia.com/c/11XpW8SNVXhgmwOIyv.
SEC enforcement division director Robert Khuzami called the settlement "significant." So let's take a look at how "significant" $33 million is to Bank of America, which lost $26.8 billion in 2008. For instance, what percentage of the $5.8 billion that BofA secretly agreed to pay to Merrill execs does $33 million represent? Here's the "significant" answer: .57 percent. Or perhaps you'd like to know what percentage of Bank of America's 2008 bonus pool $33 million was. According to the July 30 report on executive bonuses http://editorial.incisivemedia.com/c/11XpWy78RL5DDHz1li issued by New York State attorney general Andrew Cuomo, BofA paid out $3.3 billion in bonuses last year. The bank, in other words, coughed up exactly 1 percent of its bonus pool to the SEC. Ouch--that must really hurt the 172 Bank of America employees who received bonuses of more than $1 million last year, not to mention the 696 Merrill Lynch execs who got more than $1 million.
As part of the settlement, Bank of America did not admit guilt but consented to a judgment enjoining it from violating proxy solicitation rules. The bank was represented in SEC negotiations by Lewis Liman of Cleary Gottlieb Steen & Hamilton, whose office referred our call for comment to Bank of America.
In its complaint, the SEC alleged that Bank of America had already authorized Merrill Lynch to pay up to $5.8 billion in discretionary bonuses for 2008 when it announced its acquisition of Merrill Lynch in 2008, even though proxy materials soliciting shareholder votes on the merger stated that Merrill Lynch had agreed not to pay year-end bonuses or other discretionary compensation to executives without Bank of America's consent. The complaint asserted that the proxy statements were materially false and misleading.


Wachtell, Lipton, Rosen & Katz represented Bank of America in preparing the proxy statement, while Cravath, Swain & Moore served as Merrill Lynch's counsel for the deal. The firms did not return calls seeking comment.


In a statement announcing the complaint and settlement, the SEC's Khuzami said, "Failing to disclose that a struggling company will pay out billions of dollars in performance bonuses obviously violates that duty and warrants significant financial penalty."
The bank released a statement describing the settlement as "an important step forward for Bank of America [that] allows us to focus our energies on enhancing stockholder value." Additionally, the statement says, "Bank of America believes that the settlement...represents a constructive conclusion of this issue."


But not everyone is willing to let go so quickly of the bonus issue that fueled populist rage this spring. Andrew Cuomo put out his own statement http://editorial.incisivemedia.com/c/11XpWXltNyU0USjk85, saying he was "pleased" that the SEC had taken action, but warning that "we want to be clear that our investigation...will continue." (You remember: That's the investigation in which Cuomo forced BofA to cough up the names of Merrill Lynch's bonus recipients http://editorial.incisivemedia.com/c/11XpXmzOJmIoc33CUS, despite BofA's strenuous objections.) We're also guessing that the plaintiffs lawyers who fought to be named lead counsel http://editorial.incisivemedia.com/c/11XpXLO9FawLtdNVHF in the shareholder class action against Bank of America aren't going to go away anytime soon. We called Frederic Fox of Kaplan, Kilsheimer & Fox and Max Berger of Bernstein Litowitz Berger & Grossmann to ask, but we didn't hear back. Peter Hein of Wachtell, who's defending BofA in the class action, told us he "wasn't in a position to comment at this point" on the SEC settlement.


--Drew Combs and Alison Frankel (both rock!)

Monday, July 20, 2009

Mavericks owner Mark Cuban is to sports team ownership what Paris Hilton is to the entertainment industry. Oddly, we all know their names, but no one knows why! Cuban continues his ego driven rants while in legal trouble for insider trading. The wonderful Am Law Litigation Daily reports below.


The Am Law Litigation Daily
Edited by Susan Beck and Ben Hallman
July 20, 2009
SECURITIES / WHITE-COLLAR
Dewey Dunks SEC in Mark Cuban Insider Trading Case
We're not sure how Dallas Mavericks owner Mark Cuban achieved celebrity status (quick, name another NBA owner), but we do find ourselves curiously drawn to his antics, especially his public fight with the SEC. (We particularly enjoyed the e-mail exchange http://editorial.incisivemedia.com/c/11MZPRPIBmUT2ODKxO between Cuban and an SEC lawyer, reported by The Wall Street Journal's Law Blog.) As you may recall, in November the agency charged Cuban with insider trading of the stock for Mamma.com. On Friday, Dallas federal district court judge Sidney Fitzwater awarded the feisty owner and his lawyers at Dewey & LeBoeuf a big "W." In tossing the suit, Judge Fitzwater agreed with the defense argument that Cuban violated no law when he traded 600,000 shares of his stock. "Trading on the basis of material, nonpublic information cannot be deceptive unless the trader is under a legal duty to refrain from trading on or otherwise using it for personal benefit," Judge Fitzwater wrote. Read the decision here http://editorial.incisivemedia.com/c/11MZV9Q6IOtLE4lGM5.
According to the SEC’s complaint, in 2004 Cuban bought a 6.3 percent stake in Mamma.com, a Canadian company that operated an Internet search engine. In the spring of 2004, Mamma.com decided to raise capital through an offering that would dilute the value of its stock, and it invited Cuban, then its largest known shareholder, to participate in the offering. The CEO of Mamma.com, Guy Faure, claims Cuban promised to keep this information confidential. Soon after learning this news, Cuban sold all of his Mamma.com shares, thus avoiding losses in excess of $750,000. After the sale, Cuban filed the required SEC disclosure statement.
The SEC accused Cuban of insider trading, based on his promise to keep the information confidential. But Cuban's lawyers argued that a confidentiality agreement alone is insufficient to establish misappropriation theory liability. Instead, the government must show that the agreement arises in the context of a preexisting fiduciary relationship, or creates a relationship that bears all the hallmarks of a fiduciary relationship. "There is no general prohibition on the trading of securities based on material, nonpublic information," they wrote in their motion to dismiss http://editorial.incisivemedia.com/c/11MZVz4rECi8Vf5ZyS. "Although the SEC has often argued that any recipient of material, nonpublic information has potential insider trading liability, the U.S. Supreme Court has repeatedly rejected the SEC's view. Instead, the Court has insisted that insider trading liability requires a showing of fraud."
Judge Fitzwater agreed. But the ruling wasn't a total loss for the SEC: The agency can amend its complaint and file again.
Cuban's defense team includes Dewey & LeBoeuf lawyers Lyle Roberts (who writes the 10b-5 Daily blog), Ralph Ferrara, Stephen Best, Henry Asbill, and Christopher Clark. "In the end, the court held that any attempt by the SEC, by rule or enforcement action, to impose insider trading liability on someone who does not agree to both preserve confidences and not use the confidential information for his own benefit must fail," the firm said in a statement.
--Ben Hallman

Thursday, July 16, 2009

Cyber Security Settlement: $9.75 million Settlement for Alleged Data Breach


Speechly Bircham LLP reports on The Association of Corporate Counsel's webpage that TJX, the parent company of TK Maxx, has paid settlement monies of $9.75m to 41 US states following a data breach disclosed in January 2007 which reportedly exposed at least 45.7 million credit and debit cardholders to possible fraud in the computer systems. The breach began in July 2005.
TJX stress, however, that they did not breach any consumer or data security laws and that this pay-out is not an admission of liability. Instead, TJX have stated that "the decision to enter into this settlement reflects TJX's desire to concentrate on its core business without distraction and to promote cyber security measures that will benefit all consumers".
The settlement monies will create a data security fund for states and cover expenses incurred in relation to the states' investigations. TJX agreed to increase their security measures to prevent anything like this happening again...


Not that anything happened... LOL

Monday, June 29, 2009

Lessons Learned from Michael Jackson

After the saddness over Michael Jackson's passing fades a bit, and Bernie Madoff was sentenced for the biggest ever ponzi scheme, I can more clearly see a lesson for corporate America in the life and demise of Michael Jackson. Like Elvis Presley and other famous people, Mr. Jackson appears to have surrounded himself with "yes men" and "yes women," including health care providers, who didn't use their influence to break him from his prescription drug addictions, if any. Although we'll all know more when the toxicology studies come back from the lab in a few weeks, it appeared that Mr. Jackson was barely over 100 pounds at 5' 10" tall. His children's nanny has made public statements that she had to assist in pumping Mr. Jackson's stomach on many occasions because he had taken too many narcotics and was ill. He appears to have sedated himself into permanent unconsiousness with prescription medications obtained from his own doctor, who reportedly received $150,000 a month. Being an unethical doctor isn't a crime in and of itself. He has a duty, however, to take note of addictive behavior and change medications or therapies if it is in the best interest of the patient. Again, awaiting the lab results, it should be noted that the only thing that keeps a doctor from being a drug dealer is a medical license and a fiduciary duty to "do no harm." As an attorney who used to successfully defend doctors in front of their hospital peer review committees and their state licensing boards, I am very confident telling you that doctors are slow to pull someone's medical license. Self-policing doesn't work in the US. Period. Unless a doctor has a long history of severely injuring patients, he or she will get a "second chance." Sometimes a third chance. It's a shame Mr. Jackson didn't get a "second opinion" about his daily use of painkillers. Anna Nicole Smith appeared to have prescribed drugs in her possession that killed her due to addictive abuse. To claim this was "news" is sort of ridiculous when Ms. Smith appeared on many talk and award shows higher than a kite. Did anyone ever hear what happened to the doctors who kept her in supply? I didn't read a word about it in the media after the dust cleared.

Mr. Jackson is not that different from some powerful corporate CEOs or Presidents in the fact that he could fire people who tried to redirect him and was driven by a strong sense of self confidence. He also experienced some fantastic results with the choices he made. The irony is that this strong drive and lack of the ability to listen to other people's ideas and warnings can be dangerous, or in Mr. Jackson's case, deadly. In a company, confronting the CEO with what an executive believes is illegal or unethical could result in an ugly confrontation that takes weeks to recover from or result in a termination. When this behavior by a leader is evident, it "chills" communication and the leader starts to work in a vacuum, lacking support and direction from those who surround him or her.

Whether you are discussing the bad decisions by Kenneth Lay at Enron or Mr. Jackson's possible decision to surround himself with a physician who would prescribe drugs that he has a history of not being able to use in moderation, the result is the same. Everyone around them sees a disaster coming, but no one wants to walk into the line of fire and do what might be considered "right" because the risk is too high. The result is also disturbing. Whether its the demise of 14,000 people's jobs and 401ks at Enron despite many people in the company knowing about the fraud before it was discovered by the SEC or the death of a cultural icon when friends and family fail to intervene, it shouldn't have to happen. It wouldn't have happened if people who knew said something.

We should also take a lesson from the loss of Michael Jackson and say what we need to say, now, before it's too late.

Thursday, June 25, 2009

Tears, Sex and Opportunism

If South Carolina Governor Mark Sanford wants to sleep with a woman in Argentina, it is none of our business as US citizens. However, if Mark Sanford lies, and drag his staff into it, he forces the issue. From what I've read, Governor Sanford's staffers first said Governor Sanford is "off being alone, which is just sort of how he is..." Then they say, "oops, no, actually he decided to do something exotic, so he flew to Argentina. Yeah, that's the ticket, but he went there because he loves their political history!" Wow. At least the staffers are creative. Then, to make this really memorable, the Governor gives a tearful speech about how he is cheating on his wife in Argentina. And, wait for it... has been doing this for years! The new ethical twist I'd like to add to the already obvious lies that were told is the comments made by readers following the online news stories . Many of them lunge onto the opportunity to attack the Republican Party, as if Governor Sanford is the only member. Have we already forgotten John Edwards and Bill Clinton's affair with a cigar?! Intellectual honesty must be as tough to come by as a politician who has the decency to divorce his wife before sleeping with another woman. It's not about political parties, its about lack of accountability, lack of commitment and lack of ethics. It makes America look weak. Dana Milbank says it best in his article below.

Sanford's Tearful Stream of Consciousness
By Dana Millbanks

South Carolina Gov. Mark Sanford cried in Argentina -- and back at home during a news conference. (Davis Turner - Getty Images) Yesterday, Sanford finally returned from his mysterious absence hiking the Appalachian Trail -- no, wait, visiting his girlfriend in Argentina! -- to the well-charted location of the statehouse. But as he stood in front of the cameras for 20 minutes, it became obvious that even Mark Sanford doesn't know where in the world Mark Sanford is.
"Oddly enough, I spent the last five days of my life crying in Argentina so I could repeat it when I got here," the tearful Republican governor said with the pathos of Eva Perón.
As he rambled his way through his confession of adultery, he stumbled upon incoherence: "The biggest self of self is indeed self." He meandered into the trivial: "We called it Jurassic Park because of the kids' dinosaur sheets." And, just off the plane from his last tango in Buenos Aires, he confessed the dark details: "I have seen her three times since then, during that whole sparking thing, and it was discovered."
By the standards of the PR textbook, it was a disaster: Sanford had no focus as he stuttered his way through apologies before finally saying what he was apologizing for. One moment he was talking about getting the "soccer coach or football coach to act as chaperone" for hiking trips during high school; the next moment he was philosophizing about God's law: "It's not a moral, rigid list of do's and don'ts just for the heck of do's and don'ts."
But what became clear is that he was working these issues out in front of the microphones before he had worked them out in his head. A reporter asked if he was separating from his wife. He didn't have an answer. "I -- I don't know how you want to define that," he said. "I mean, I'm here, and she's there."
In that sense, however rotten Sanford's behavior was, there was something compelling in the raw and messy nature of his confession. Politicians' acknowledgments of infidelity have become set pieces of late, the most recent coming just a week ago when Republican Sen. John Ensign of Nevada made a terse statement that he takes "full responsibility for my actions" -- then refused to take questions. Others, such as former Democratic New York governor Eliot Spitzer and Republican Sen. David Vitter of Louisiana, hauled in their wives to share the shame. Still others, such as Bill Clinton and former GOP senator Larry Craig, substituted accusations for confessions.

But this was something entirely different. At a time when every last bit of political life is scripted, here was a powerful man wiping tears from his cheeks and talking about the intimate details of his shameful behavior. His wife wasn't at his side -- she'd kicked him out and told him not to call. "The bottom line is this: I -- I've been unfaithful to my wife," the governor said. "I developed a relationship which started out as a dear, dear friend from Argentina. It began very innocently, as I suspect many of these things do, in just a casual e-mail. . . . But here recently over this last year it developed into something much more than that."

The disgraced politician unwisely admitted that "from a heart level, there was something real" with his mistress, and that when their affair was discovered five months ago, "we went into serious overdrive in trying to say: Where do you go from here?"

When the cameras started rolling, Sanford looked down at his notes. "Umm," he said. He scratched his head. "I won't begin in any particular spot," he said, accurately as it turns out. He began with his high school hiking trips, when he'd "get folks to give me 60 bucks each, or whatever it was, to take the trip."

The nationally televised stream of consciousness went from travel adventures to state budget politics, until Sanford finally said this was "not the whole story," and offered to "lay it out." But before laying it out, he first went on an extensive round of apologies. He apologized to his wife. He apologized to his sons. He apologized to his staff for making them believe, and tell the world, the fiction that he was hiking the Appalachian Trail.

"I want to apologize to anybody who lives in South Carolina," he continued, and "I want to apologize to good friends." He particularly wanted to apologize to a friend named Tom Davis, whose name Sanford invoked five times. The governor moved on to a moral discussion of God's law, before stopping to "throw one more apology out there" -- to his fellow religious faithful who are disappointed in him. "So one more apology in there," he offered. Check.

After much wandering, the itinerant Sanford arrived at his destination: He was an adulterer. He detailed the "innocent" beginnings ("we swapped e-mails, whatever") up to the time it "sparked into something more than that," and even the "surreal" conversation with his father-in-law.
"When you live in the zone of politics, you can't ever let your guard down," he explained, because "it could be a front-page story." But with his Argentine lover, "there was this zone of protectiveness," because "she lives thousands of miles away and I was up here."

Within hours, the little that Sanford had left to the imagination had been filled in by e-mails from the relationship that were obtained by the State newspaper in Columbia, S.C.: "You have the ability to give magnificent gentle kisses. . . . I love the curve of your hips, the erotic beauty of you holding yourself."

Sounds like a good time on the Appalachian Trail.

Tuesday, June 2, 2009

Ethics are Part of Future Business Leaders' Goals


It takes some very smart young people to appreciate the need for ethics in business at an early age. Some established leaders in corporate America are realizing the financial stability caused by a firm commitment to ethics in law and business. The following interesting story is from the New York Times. Enjoy.


When a new crop of future business leaders graduates from the Harvard Business School next week, many of them will be taking a new oath that says, in effect, greed is not good.

Nearly 20 percent of the graduating class have signed “The M.B.A. Oath,” a voluntary student-led pledge that the goal of a business manager is to “serve the greater good.” It promises that Harvard M.B.A.’s will act responsibly, ethically and refrain from advancing their “own narrow ambitions” at the expense of others.
What happened to making money?
That, of course, is still at the heart of the Harvard curriculum. But at Harvard and other top business schools, there has been an explosion of interest in ethics courses and in student activities — clubs, lectures, conferences — about personal and corporate responsibility and on how to view business as more than a money-making enterprise, but part of a large social community.
“We want to stand up and recite something out loud with our class,” said Teal Carlock, who is graduating from Harvard and has accepted a job at Genentech. “Fingers are now pointed at M.B.A.’s and we, as a class, have a real opportunity to come together and set a standard as business leaders.”
At Columbia Business School, all students must pledge to an honor code: “As a lifelong member of the Columbia Business School community, I adhere to the principles of truth, integrity, and respect. I will not lie, cheat, steal, or tolerate those who do.” The code has been in place for about three years and came about after discussions between students and faculty.
In the post-Enron and post-Madoff era, the issue of ethics and corporate social responsibility has taken on greater urgency among students about to graduate. While this might easily be dismissed as a passing fancy — or simply a defensive reaction to the current business environment — business school professors say that is not the case. Rather, they say, they are seeing a generational shift away from viewing an M.B.A. as simply an on-ramp to the road to riches.
Those graduating today, they say, are far more concerned about how corporations affect the community, the lives of its workers and the environment. And business schools are responding with more courses, new centers specializing in business ethics and, in the case of Harvard, student-lead efforts to bring about a professional code of conduct for M.B.A.’s, not unlike oaths that are taken by lawyers and doctors.
“I don’t see this as something that will fade away,” said Diana C. Robertson, a professor of business ethics at the Wharton School of the University of Pennsylvania. “It’s coming from the students. I don’t know that we’ve seen such a surge in this activism since the 1960s. This activism is different, but, like that time, it is student-driven.”
A decade ago, Wharton had one or two professors who taught a required ethics class. Today there are seven teaching an array of ethics classes that Ms. Robertson said were among the most popular at the school. Since 1997, it has had the Zicklin Center for Business Ethics Research. In addition, over the last five years, students have formed clubs around the issues of ethics that sponsor conferences, work on microfinance projects in Philadelphia or engage in social impact consulting.
“It’s been a dramatic change,” Ms. Robertson added. “This generation was raised learning about the environment and raised with the idea of a social conscience. That does not apply to every student. But this year’s financial crisis and the downturn have brought about a greater emphasis on social ethics and responsibility.”
At Harvard, about 160 from a graduating class of about 800 have signed “The M.B.A. Oath,” which its student advocates contend is the first step in trying to develop a professional code not unlike the Hippocratic Oath for physicians or the pledge taken by lawyers to uphold the law and Constitution.
Part of this has emerged by the beating that Wall Street and financiers have taken in the current economic crisis, which can set the stage for reform, Harvard students say.
“There is the feeling that we want our lives to mean something more and to run organizations for the greater good,” said Max Anderson, one of the pledge’s organizers who is about to leave Harvard and take a job at Bridgewater Associates, a money management firm.
“No one wants to have their future criticized as a place filled with unethical behaviors,” he added. “We want to learn from those mistakes, do things differently and accept our duty to lead responsibly. Realistically, we have tremendous potential to affect society for better or worse. Let’s humbly step up. We are looking out for our own interest, but also for the interest of our employees and the broader public.”
Bruce Kogut, director of the Sanford C. Bernstein & Company Center for Leadership and Ethics at Columbia, said that this emphasis did not mean that students were necessarily going to shun jobs that paid well. Rather, they will think about how they earn their income, not just how much.
At Columbia, an ethics course is required, but students have also formed a popular “Leadership and Ethics Board,” that sponsors lectures with topics like “The Marie Antoinettes of Corporate America.”
“The courses make people aware that the financial crisis is not a technical blip,” Mr. Kogut said. “We’re seeing a generational change that understands that poverty is not just about Africa and India. They see inequities and the role of business to address them.”
Dalia Rahman, who is about to leave Harvard for a job with Goldman Sachs in London, said she signed the pledge because “it takes what we learned in class and makes it more concrete. When you have to make a public vow, it’s a way to commit to uphold principles.”

Tuesday, May 19, 2009

Woody Allen sues American Apparel for using his likeness in advertising

Last year in Ethics Follies, our good friend Heloise acted in a scene where an air freshner ad misappropriated her likeness to increase sales. American Apparel takes a page right out of last year's Follies script and uses another famous face without permission.

March 31st, 2008 by Scott Marks

"Woody Allen was in federal court today looking to put a dent in American Apparel’s profit margin to the tune of $10 million claiming the clothing manufacturer illegally used his image in an internet and billboard advertising campaign.
According to Variety, the lawsuit contended Allen was not contacted by the company and did not give permission for them to the use his likeness and accuses American Apparel of “blatant misappropriation and commercial use of Allen’s image.” It goes on to say the billboard falsely implied that Allen sponsored, endorsed or was associated with American Apparel, said the lawsuit, which seeks at least $10 million in compensatory damages and unspecified punitive damages.
The picture of Rebbe Woody is a frame blow up from Annie Hall. In the film Woody fantasizes how he must look in the eyes of his girlfriend’s Jew-hating Grammy. The Yiddish text on the billboard translates into “the Holy Rebbe.”
The lawsuit describes Woody as among the most influential figures in the history of American film and a man who has maintained strict control over the projects with which he is associated. Woody appeared in a lot of American advertising campaigns in the 60s, most notably a series of Smirnoff vodka ads, but hasn’t been a pitchman for products or services in the United States in decades."

Saturday, May 2, 2009

Did Merck Make Phony Peer-Review Journal for Marketing?

Summer Johnson, PhD reports on blog.bioethics.net about questionable peer reviewed journal that seems to be an automatic "stamp of approval" for Merck products. The journal doesn't mention that the stamp is held by Merck itself. If Dr. Johnson is correct, this is probably the clearest example of unethical drug marketing you will come across. Read her story below and let me know what you think:

It's a safe guess that somewhere at Merck today someone is going through the meeting minutes of the day that the hair-brained scheme for the Australasian Journal of Bone and Joint Medicine was launched, and that everyone who was in the room is now going to be fired.

The Scientist has reported that, yes, it's true, Merck cooked up a phony, but
real sounding, peer reviewed journal and published favorably looking data for
its products in them. Merck paid Elsevier to publish such a tome, which neither
appears in MEDLINE or has a website, according to The Scientist.

What's wrong with this is so obvious it doesn't have to be argued for. What's sad is that I'm sure many a primary care physician was given literature from Merck that said, "As published in Australasian Journal of Bone and Joint Medicine, Fosamax outperforms all other medications...." Said doctor, or even the average researcher wouldn't know that the journal is bogus. In fact, knowing that the journal is published by Elsevier gives it credibility!

These kinds of endeavors are not possible without help. One of The Scientist's most notable finds is a Australian rheumatologist named Peter Brooks who served on the "honorary advisory board" of this "journal". His take: "I don't think it's fair to say it was totally a marketing journal", apparently on the grounds that it had excerpts from peer-reviewed papers. However, in his entire time on the board he never received a single paper for peer-review, but because he apparently knew the journal did not receive original submissions of research. This didn't seem to bother him one bit. Such "throwaways" of non-peer reviewed publications and semi-marketing materials are commonplace in medicine.

But wouldn't that seem odd for an academic journal? Apparently not. Moreover,
Peter Brooks had a pretty lax sense of academic ethics any way: he admitted to
having his name put on a "advertorial" for pharma within the last ten years,
says The Scientist. An "advertorial"? Again, language unfamiliar to us in the
academic publishing world, but apparently quite familiar to the pharmaceutical
publishing scene.

It is this attitude within companies like Merck and among doctors that allows scandals precisely like this to happen. While the scandals with Merck and Vioxx are particularly egregious, we know they are not isolated incidents. This one is just particularly so. If physicians would not lend their names or pens to these efforts, and publishers would not offer their presses, these publications could not exist. What doctors would have as available data would be peer-reviewed research and what pharmaceutical companies produce from their marketing departments--actual advertisements.

Summer Johnson, PhD

Tuesday, April 28, 2009

Bernie Madoff Would be Proud- More Fraudsters Afoot


Lawyers Line Up for New Investor Fraud Cases in Fla., Pa.
by Brian Baxter, AmLaw Daily


Bernie Madoff and Allen Stanford aren't the only accused fraudsters giving Am Law 200 lawyers business these days. This week the SEC charged two investment advisers with orchestrating multimillion-dollar frauds. Dechert, Mayer Brown, Carlton Fields, and Pepper Hamilton are among the firms queuing up to represent the defendants and aggrieved investors. The week began with the SEC unveiling a 22-page complaint against Donald Anthony Walker Young, accusing him of running a Ponzi scheme and misappropriating more than $23 million from investors. On Tuesday the SEC froze the assets of Acorn Capital Management, based in Kennett Square, Pennsylvania (Young was principal at the firm). The SEC has stated that most of those who invested with Young are from the Philadelphia area. The charges have shocked the residents of idyllic Chester County, Pa., where the 38-year-old Young lived and enjoyed horseback riding and foxhunting. (Ironically, Young also lived part-time in Palm Beach, Fla., where he was a close neighbor of Madoff's, the Palm Beach Daily News reports.) Dechert partner Paul Huey-Burns in Washington, D.C., a former attorney with the SEC's Division of Enforcement, reportedly was representing Young. But when reached on his cell phone on Friday, Huey-Burns told us that while he's represented Young in the past, he's no longer involved in this case as it pertains to the SEC charges.


Pepper Hamilton partner Cuyler Walker in Berwyn, Pa., is representing several investors claiming to be victims of Young's alleged Ponzi scheme. He declined to disclose the names of those investors but said they were cooperating with investigators. "There is a process the SEC is following, and we are seeing how that could play out," Walker told The Delaware County Daily Times. Prosecutors have yet to file criminal charges against Young. Nearly 1,200 miles to the south, the SEC charged Naples, Fla., investment adviser William Gunlicks and his firm, Founding Partners Capital Management, with defrauding investors by misrepresenting the nature of their $550 million in investments. The agency requested and received an emergency asset freeze from U.S. district court judge John Steele in Fort Myers, Fla., who appointed Gray Robinson partner Leyza Blanco in Miami to be receiver for Founding Capital and several subsidiary funds.
Founding Capital has retained Mayer Brown's Sean Casey, former deputy chief of the business and securities fraud unit at the U.S. attorney's office in Brooklyn, for the SEC case. Casey, who joined the firm in February, also previously served as senior counsel in the SEC's enforcement division. (Casey declined to comment.)


The SEC claims that Gunlicks and Founding Partners maintained that their funds had audited financial statements for 2007 when they did not. Gunlicks, whom the SEC accuses of using investor funds to pay personal expenses, has tapped Carlton Fields partner Michael Pasano in Miami for counsel.

Friday, April 3, 2009

Blagojevich Charged With 16 Corruption Felonies

The New York Times has an update on the Blago the Clown story:

By MONICA DAVEY and SUSAN SAULNY. Published: April 2, 2009
CHICAGO — Rod R. Blagojevich, the ousted governor of Illinois, used his chance to fill the Senate seat vacated by Barack Obama as one more money-making plan in a vast racketeering scheme, federal prosecutors said Thursday, an operation they portrayed as the “Blagojevich Enterprise.” In a 19-count indictment, prosecutors said the “primary purpose of the Blagojevich Enterprise was to exercise and preserve power over the government of the State of Illinois for the financial and political benefit of” Mr. Blagojevich, his family and his friends.
Running 75 pages, the indictment had been expected for nearly four months, since Mr. Blagojevich was arrested. The former governor, a second-term Democrat whose political career has come apart, was charged with 16 felonies, including racketeering conspiracy, wire fraud, extortion conspiracy, attempted extortion and making false statements to federal agents. Five of his closest advisers — his brother, one of his top fund-raisers, two of his former chiefs of staff and a Springfield businessman — were also charged with crimes.
Mr. Blagojevich, who was believed to be vacationing with his family near Walt Disney World in Florida when the indictment was announced here late Thursday, issued a statement through his publicist. “I’m saddened and hurt, but I am not surprised by the indictment,” he said. “I am innocent. I now will fight in the courts to clear my name.”
The indictment lays out a broad pattern of corruption spanning from before Mr. Blagojevich was elected governor in 2002 to the day of his arrest, Dec. 9. He used his official position, the indictment suggested, to seek financial gain in nearly every element of government work, from picking members of state commissions to signing legislation.
Mr. Blagojevich sought a return on deals to give money to a hospital, to approve legislation helpful to racetrack owners, to pick a particular candidate to fill the Senate seat and, according to the indictment, from a United States representative who was pressing for a $2 million grant for a publicly supported school.
The indictment describes the member of Congress as United States Congressman A, one of a series of unidentified public officials listed throughout the document only by letters of the alphabet. White House officials confirmed that Rahm Emanuel, a former House member who is President Obama’s chief of staff, was Congressman A.
In 2006, when Congressman A was making inquiries about the status of state grant money intended for the school, Mr. Blagojevich sent a message that a brother of the representative (apparently, officials said, Ari Emanuel, an agent in Hollywood) needed to have a fund-raiser for Mr. Blagojevich, the indictment says. Mr. Blagojevich told an employee not to release the grant money, already in the state’s budget, until the governor gave further notice. According to the indictment, the fund-raiser never occurred.
Then last year, the indictment says, Mr. Blagojevich seemed to envision multiple, varying plans for how he might secure money or win a high-paying job through his choice of who would fill Mr. Obama’s seat. Among them, the documents say, Mr. Blagojevich believed he might get $1.5 million in campaign contributions from an associate of one person, identified only as Senate Candidate A, who hoped to receive the appointment.
In December, at the time of Mr. Blagojevich’s arrest at his home on the North Side of Chicago, Patrick J. Fitzgerald, the United States attorney for the Northern District of Illinois, said he had gone forward with a criminal complaint — not a formal indictment after a review of the case by a grand jury — because telephone calls intercepted by agents had forced the authorities to move quickly to stop what Mr. Fitzgerald described as a crime spree in progress. At that point, the Senate seat, now held by Roland W. Burris, was still vacant.
Some legal experts had suggested that Mr. Fitzgerald’s choice might signal that he did not yet have a prosecutable case in hand; some raised broader questions about the strength of his case and the difficult legal distinction between illegal acts and simply unseemly political talk.
But legal experts said that the scope of the indictment on Thursday showed no signs that prosecutors were backing away from their case.
“It weaves together all the series of acts we’ve all been hearing about,” said Leonard L. Cavise, a professor at the DePaul University College of Law who has expertise in criminal defense. “It’s broad ranging. It will be a very complex trial.”
Some of the most serious counts against Mr. Blagojevich carry prison sentences of as long as 20 years.

Ethical Attorney Comes out on Top in Ted Stevens Case

The American Law Litigation Daily reported on April 3, 2009 that Brendan Sullivan, Jr. of Williams & Connolly is their Litigator of the Week. Alison Frankel reports:
"Every two years, when The American Lawyer conducts its Best Litigation Department contest, we talk to lots of opposing counsel--the lawyers who've appeared on the other side of cases our finalists tell us they've won. You might be surprised at what we hear. Opposing counsel occasionally have pretty nasty things to say, accusing the other side of exaggeration, misstatement, overaggression, and, sometimes, outright misconduct.

Except when Williams & Connolly is the firm on the other side. We have never heard a lawyer on the other side of a case from Williams & Connolly criticize the firm that's led by our Litigator of the Week, Brendan Sullivan, Jr. W&C has adopted Sullivan's rigorous standard of behavior, which demands that lawyers fight hard but always within the bounds of the rules of procedure. Sullivan and the other firm leaders train their lawyers to litigate honorably.

That's why Sullivan's outrage at the prosecution's missteps in the political corruption case against former Alaska senator Ted Stevens was so genuine. As we noted the last time we named him Litigator of the Week
http://editorial.incisivemedia.com/c/1LzOi4H5vKcHyEnAN , Sullivan was deeply aggrieved by the government's lapses, and after the trial, he sent a 16-page letter to then-Attorney General Michael Mukasey, calling for the Justice Department to investigate its own team. "His zealous advocacy," we predicted, "may yet get Stevens off the hook."

On Wednesday, it did: Attorney General Eric Holder announced his decision to drop charges against Stevens
http://editorial.incisivemedia.com/c/1LzOHj21jyzYJoGnA , citing additional evidence that prosecutors hid exculpatory material from Stevens and Williams & Connolly.

Sullivan, who is notoriously reluctant to talk to reporters, didn't respond to our request for an interview. But he did send us his press release on Holder's announcement
http://editorial.incisivemedia.com/c/1LzP6xmX7mXfU8Zan . It's unlike any other press release we've received, and it's well worth reading. Not only does Sullivan mince no words in criticizing the government, which he accuses of "stunning" misconduct, he also identifies "heroes in this story": the trial judge, Emmet Sullivan, the Justice Department lawyers who investigated the conduct of the Stevens prosecution team, and Eric Holder, whom Sullivan calls "a pillar of integrity in the legal community."

But he doesn't stop there: "[Holder] has demonstrated the kind of leadership that we defense lawyers seek and that the Department of Justice desperately needs. Ineffective leadership permits this type of prosecutorial misconduct to flourish."

The same can be said of leadership on the private side. And through his conduct in the Stevens case, Sullivan leads by example.

Wednesday, April 1, 2009

Ballad of Timothy Geithner

Attorney Anne McKinney sings a funny parody about Mr. Geithner's tax woes and poor ethical decisions. Over half a million youtube.com viewers have had a chuckle at this creative parody. Follies fan's are sure to enjoy it as well.

Sunday, March 22, 2009

It Takes a Team to Commit Billion Dollar Fraud

Prosecutors Charge Madoff's Accountant With Fraud
NEW YORK (AP) ―

David Friehling, accountant to Bernard Madoff, leaves Federal Court in New York after arrest on fraud charges. (File) AP

Bernard Madoff's longtime accountant was arrested on fraud charges Wednesday as authorities blamed him for failing to make the most basic auditing checks that would have exposed an epic fraud that cost investors billions of dollars.David Friehling is the first person to be arrested in the scandal since Madoff turned himself in, and his prosecution signals that the government is intent on bringing Madoff's associates to justice as they try to figure out who helped him carry out the fraud.Prosecutors say the 49-year-old Friehling essentially rubber-stamped Madoff's books for 17 years, serving as Madoff's auditor from 1991 through 2008 while operating from a discreet building in suburban New York. Authorities said that if Friehling had done his job, Madoff's financial statements would have shown his company owed tens of billions of dollars to his customers and was insolvent."Mr. Friehling's deception helped foster the illusion that Mr. Madoff legitimately invested his clients' money," said acting U.S. Attorney Lev L. Dassin. The relationship between the accountant and Madoff was so cozy that Friehling and his family pulled $5.5 million from accounts with Madoff since 2000 and had a balance of more than $14 million as recently as November. Prosecutors said:

"...it's a conflict for accountants to have such large sums invested with clients."

Friehling did not comment as he left the courthouse after being released on bail, and his lawyer, Andrew Lankler, also declined comment.Madoff, 70, confessed to his sons in early December that his investment empire was actually a giant Ponzi scheme in which he paid off old investors with money from new ones. Though he reported to 4,800 investors that they had $65 billion in November, investigators have found only about $1 billion.He pleaded guilty last week and could spend the rest of his life in prison after he is sentenced in June.Prosecutors now believe that Madoff received help from Friehling as he carried out his fraud, although Friehling is not charged with knowing about his Ponzi scheme.The government says Friehling did not meaningfully audit Madoff's business or confirm that securities purportedly held by Madoff's company on behalf of its customers even existed.The Securities and Exchange Commission said Friehling instead...

"pretended to conduct minimal audit procedures"

...of certain accounts to make it seem he was conducting an audit and then failed to document his purported findings and conclusions as he was required to do.Prosecutors said he even failed to examine a bank account through which billions of dollars flowed."He did little or no testing, no verification of the `facts' he certified," said Joseph M. Demarest, head of New York's FBI office. "His job was not merely to rubber-stamp statements he didn't verify. "The SEC said Friehling took steps to hide his personal investment with Madoff, including replacing his own name on his Madoff account with his wife's name and later naming the account the "Friehling Investment Fund" to conceal the conflict of interest.The SEC also accused Friehling of lying to the American Institute of Certified Public Accountants for years, denying he conducted any audit work, because he was afraid that his work for Madoff would be subject to peer review.He was paid a tidy sum by Madoff: Prosecutors said he made between $12,000 and $14,500 a month from 2004 to 2007, amounting to $144,000 to $174,000 annually. If convicted, Friehling faces up to 105 years in prison.

He is charged with securities fraud, aiding and abetting investment adviser fraud and four counts of filing false audit reports with the SEC.The fraud charges against Friehling come just days after the founder of his auditing firm, Jerome Horowitz, died of cancer last week at the age of 80, a family friend said. Horowitz handled Madoff's books for many years before turning the business over to Friehling, who is his son-in-law. The single glass door in Friehling's Rockland County office bears the name "Friehling & Horowitz."Horowitz's lawyer, Latour "L.T." Lafferty, declined to immediately comment on his death or Friehling's arrest Wednesday, but had previously described the two accountants as victims of the scam who were unaware that fraud was taking place.The strain of the Madoff scandal on Friehling began to show in recent months as he put his luxury home in Rockland County on the market.A listing posted on the Web site of Prudential Rand Real Estate said the family is seeking $995,000 for the five-bedroom Colonial. The home was built in 1990 and has a swimming pool and 4,437 square feet of space.It's unclear how the sale will fare because he had to put up his home to make bail.Madoff pleaded guilty to securities fraud, perjury and other charges on Thursday. During his plea, Madoff said he began a Ponzi scheme in the 1990s in response to the pain of a recession — around the time that Friehling took over his accounting. He said he never recovered, though, and knew prison awaited him.Investigators have said they believe investors may have originally put $17 billion or less into accounts with Madoff but that Madoff falsely told them in their financial statements that it had grown to as much as $65 billion.

(© 2009 The Associated Press. All Rights Reserved. This material may not be published, broadcast, rewritten, or redistributed.)

Related Stories:
S. Fla. Madoff Victims Auctioning Off Belongings (3/18/2009)
Madoff Victims Get Relief From IRS (3/18/2009)
Madoff Probe Turns Focus To Wife, Family (3/16/2009)
Documents: Madoff Had Net Worth Of $823 Million (3/14/2009)
Madoff's Lawyers Appeal Ruling On Bail (3/13/2009)

What You Can't See Can Still Hurt You

Trial attorney's have an obligation to protect confidential and proprietary information of our clients from inadvertent publication. With the communication age in full swing, there is a bit of a learning curve, however, which caused at least one law firm to accidentially give up redacted information. It sounds as though a Sharpie would have been a better idea than digitial black boxes. Reporter Doug Malan's tells the instructive metadata tale...

A Major Redaction Gaffe
GE's sensitive information easy to access behind black veil
By DOUGLAS S. MALAN as published in the Connecticut Law Tribune

Lawyers involved in the class-action sex discrimination case against Fairfield-based General Electric in 2007 would rather you not read passages from various filings. After all, the plaintiffs' firm, Sanford, Wittels & Heisler in Washington, D.C., took the time and effort to black out reams of pages in numerous briefs to make them inaccessible to the public — or so they thought.

But as of late last week, you could download several documents through PACER's federal court filing system, copy the black bars that cover the text on the screen and paste them into a Word document. Voilà. Information about the inner-workings of GE's white, male-dominated management and their alleged discriminatory practices against women, which is supposed to be sealed by court order, appears with little technical savvy required.
"I didn't know that," plaintiffs' lead counsel David W. Sanford said from his office early last week.

Neither did Patrick W. Shea of Paul, Hastings, Janofsky & Walker in New York, which serves as GE's outside counsel in the case. Shea said the two sides are in mediation after Judge Peter C. Dorsey in New Haven denied GE's motion to dismiss on May 8. Now, the game may have changed with revelations that there's a large leak of information in the case, though Shea never said as much. He referred all questions to GE, whose spokesman, Gary Sheffer, wouldn't comment on how the course of the case might be altered. "All parties agreed that the documents would be filed under seal," Sheffer said. "We acted under belief that they were filed under seal, and we're concerned." When asked what GE's legal reaction might be, Sheffer said: "We're considering our options." Shea contacted Sanford to discuss the matter. Sanford, the plaintiff's lawyer, then called the Law Tribune to shed more light on the matter. "I wasn't aware of the severity of this problem," he said. "Certain documents have been filed improperly by us. If this redacted material is in the public domain, it becomes a problem for GE and for us.

"We're going to try to take steps to correct that error. We're doing everything we can today (last Thursday)" to make emergency, corrected filings with federal court clerks who are aware of the problem, Sanford said.
PACER account representative Shawn Robledo, who works in PACER's service center in San Antonio, also was unaware of the problem until she was guided through the process of downloading, copying and pasting.
"We need to report this to the court," she said. "We've never had this problem come up. I've been here for years and have never seen [a redaction] done like this." The PACER service center is operated by the Administrative Office of the U.S. Courts in Washington, D.C. Spokesman Richard Carelli said PACER employees do not check filings to make certain that redacted information actually is inaccessible. "The total responsibility rests with the lawyers" to redact properly, he said. Lorene F. Schaefer, a lawyer in the company's Erie, Pa.-based GE Transportation, accused company officials in her lawsuit of giving unfair preference to men in promotions to top-paying legal jobs.

The class-action lawsuit potentially seeks damages of $500 million. It also seeks an injunction to halt GE's pay and promotion policies and practices, and names Chairman and Chief Executive Officer Jeffrey R. Immelt, General Counsel Brackett B. Denniston III and numerous other executives as defendants. Schaefer filed the lawsuit last April after learning that she was to be demoted from her job as GE Transportation's top legal officer. She was placed on paid administrative leave last May after complaining about her demotion. Schaefer had been an entry-level executive since 1997, and a GE employee since 1994. In 2007, she was paid $380,000, including bonuses.

The security breach in her case underscores a hot issue in the legal profession involving uncovered trails of electronic data, known as metadata. Where once a black marker strike on a piece of paper was sufficient, redaction in the digital world requires special software and the know-how to delete the words behind the shield.
Sloppy information management "has been a huge problem" for lawyers ...
said Connecticut Chief Disciplinary Counsel Mark Dubois. "Metadata is a fascinating area of developing law. It is much discussed in the fields of risk aversion and risk management." Dubois said a lawyer or law firm who has insufficiently redacted information in a case could be in violation of a host of ethical rules and an easy target for a malpractice lawsuit. Redaction problems often arise when people use old versions of Adobe software, which turns paper documents into an easy-to-read electronic Portable Document Format (PDF), the format of choice for PACER and many other web sites with multiple documents.
There are ways to hide the text in older versions of Adobe, but the process is "cumbersome" and requires multiple programming steps, said Glastonbury attorney N. Kane Bennett, a member of the Connecticut Bar Association's Legal Technology Committee. "With the newest version of Adobe, it is pretty simple to hide the text with a black box and then scrub the hidden text behind it," said Bennett, who was unfamiliar with problems in the Schaefer case. “This prevents people from copying and pasting into a Word document.” There’s also a popular software program called Redax, manufactured by Appligent Inc., which is a plug-in application for Adobe Acrobat Standard or Professional 6, 7 and 8, according to its web site. It promises to “permanently” remove sensitive information from PDF documents at a starting price of $249. In 2005, the Department of Defense suffered through a similar dispersion of classified information. Redacted segments of an investigative report on the shooting death of an Italian journalist by U.S. soldiers in Iraq could be copied and pasted from a PDF into a Word document. Plaintiff’s attorney Sanford couldn’t say what process or software his law firm used to redact the information in the Schaefer case. “Quite frankly, I’m not involved in the mechanics,” he said.
Paralegals were responsible for redacting the information properly before filing the briefs electronically, but they were out of the office and unavailable for comment last Thursday, Sanford said. He said the firm is not considering any disciplinary action against them. “Anything that happened here was an innocent mistake,” he noted. In terms of electronic filing, “people are learning as they go.”

Tuesday, February 17, 2009

Alleged $8 Billion Dollar Fraud by Texas Financier Stanford

(AP Writer Monica Rhor in Houston)
On Feb. 17th, AP reported that federal regulators charged Texas financier R. Allen Stanford and three of his firms with a "massive" fraud that centered around high-interest-rate certificates of deposit, and raided some of the companies' offices. Probably most shocking is that the guy's a Baylor grad! Fraud just doesn't seem very...you know... Baptist.

Watch CNBC video report by clicking here

In a complaint filed in federal court in Dallas, the Securities and Exchange Commission alleged Stanford orchestrated a fraudulent investment scheme centered on an $8 billion CD program that promised "improbable and unsubstantiated high interest rates."

Stanford's assets, along with those of the three companies, were frozen. Stanford's firms include Antigua-based Stanford International Bank, broker-dealer Stanford Group Co. and investment adviser Stanford Capital Management, which are both based in Houston.

The bank's chief financial officer, James Davis, and Stanford Financial Group's chief investment officer, Laura Pendergest-Holt, were also charged in the complaint.

Alfredo Perez, a spokesman for the U.S. Marshal's Service in Houston, confirmed that agents raided Stanford's office in Houston Tuesday morning, but he did not have any other immediate comment.

The SEC alleged Stanford and his businesses misrepresented the safety of the deposits, claiming the bank reinvested client funds in liquid financial instruments to help return profits on investments sharply higher than average rates of similar products.
"Stanford and the close circle of family and friends with whom he runs his businesses perpetrated a massive fraud based on false promises, and fabricated historical return data to prey on investors," Linda Chatman Thomsen, director of the SEC's division of enforcement, said in a statement.

The SEC also accuses Stanford of running a second scheme tied to sales of a mutual fund product, which allegedly used false historical performance data to grow the program from less than $10 million in 2004 to more than $1 billion. The alleged fraud helped generate $25 million in fees for Stanford Group in 2007 and 2008, according to the SEC.
Stanford, 58, is one of the most prominent businessmen in the Caribbean, with investment advisers around the world helping him grow a personal fortune estimated at $2.2 billion by Forbes magazine.

His Stanford International Bank Ltd. said deposits surged from $624 million in 1999 to $8.4 billion in December. The bank is based in the twin-island Caribbean nation of Antigua and Barbuda, which has carved out a niche as a tax haven and offshore base for Internet gambling.
Stanford has deep roots in Texas, where he graduated from Baylor University, and still speaks with a slight twang. But he travels in different circles now — knighted in 2006 by the islands' government, Stanford is known there as "Sir Allen." And last year he shook up the staid world of professional cricket by bankrolling the purse in a $20 million winner-take-all match in Antigua between England and a West Indies select team.