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.

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.

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.

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.”

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.