Saturday, May 20, 2006

FANNIE MAE TRIES TO TURN THE PAGE -- "The board of Fannie Mae has replaced the head of its audit committee as federal regulators prepare to release a report on the company's $10.8 billion accounting scandal."

Friday, May 19, 2006

LAW FIRM INDICTED -- "The nation's leading class-action securities law firm, Milberg Weiss Bershad & Schulman, and two of its partners were charged yesterday with making more than $11 million in secret payments to three individuals who served as plaintiffs in more than 150 lawsuits."
Just minutes after he had cross-examined Enron's former chief financial officer two months ago, Michael W. Ramsey, the lead lawyer for Kenneth L. Lay, turned to one of Mr. Lay's daughters. "I think I just had a heart attack," he half-jokingly told the daughter, Elizabeth Vittor, looking her in the eye across the defense table.

Mr. Ramsey said he thought the discomfort would subside in an hour. It did not.

Within days Mr. Ramsey was forced into surgery to clear an arterial blockage. For the 66-year-old, who describes himself as a hard-drinking, chain-smoking legal warhorse, it was the beginning of the most challenging personal odyssey of his career and an event that may turn out to play a crucial role in the outcome of Mr. Lay's case.
BRIBERY PROBE ENSARES MORE MEMBERS -- The expanding Cunningham bribery probe may soon be rechristened the "Congressional" bribery probe.

More from WaPo -- There's nothing quite like healthy investigative competition.
NOT TO BE OUTDONE -- "In the wake of several major lobbying scandals, the Senate Select Committee on Ethics announced Tuesday that it will hold a special series of intensive sessions inside its recently completed 200-room Ethics Mansion."
IDENTITY THEFT ALERT -- Am. Inst. Cert. Pub. Accountants announces it has lost the personal information of some of its members.
BRASS UNDER INVESTIGATION -- "The U.S. Air Force's highest-ranking officer and his predecessor are the subjects of an FBI investigation into the handling of a $49.9 million dollar contract for the Thunderbirds, an air demonstration squadron, ABC News reported on Thursday."
WHITE HOUSE KNEW RNC PAID CONVICTED OPERATIVE'S LEGAL BILLS -- "The former chairman of the Republican National Committee remembers telling someone at the White House that he had decided to have the RNC pay the legal defense bills for convicted phone-jamming conspirator James Tobin, but he can’t remember who."

This issue of an entity paying the legal bills of its criminal defendant employees, has also surfaced in the KPMG case pending in New York. There the judge wonders whether the DOJ's tactics in discouraging the payment of legal fees is constitutional.

Obviously the PR is different in the political, rather than corporate, context. But should it be?
DOJ JOINS HEALTH FRAUD SUIT -- "The Justice Department announced yesterday that it joined a whistleblower lawsuit against Abbott Laboratories and its spinoff Hospira, alleging that the companies conspired to inflate Medicare and Medicaid reimbursements on some drugs from 1991 to 2001."
SEC PERSONNEL MOVES -- WSJ Law Blog has them here.

Thursday, May 18, 2006

THE WOMAN BEHIND THE DEFENDANT -- In anticipation of Richard Scrushy's second trial related to his management of HealthSouth, WaPo profiles Mrs. Scrucshy:
As Richard, 53, stands trial again, this time on corruption charges, Leslie's image as diamond-studded trophy wife is much misunderstood, friends and associates say. In the first trial, the 37-year-old former Junior Miss from Florida with sweeping brown hair and green eyes not only offered spiritual advice, but much, much more.

"Leslie was a key adviser, a morale booster, a commentator on proposed strategy and a co-decision maker," said one of Scrushy's defense lawyers, Donald V. Watkins.
After 16 months of inactivity and partisan infighting, the House ethics committee launched investigations last night into bribery allegations against Reps. Robert W. Ney (R-Ohio) and William Jefferson (D-La.) and a separate inquiry into the widening scandal surrounding former congressman Randy "Duke" Cunningham (R-Calif.).

The committee said it would have ordered another investigation, into the overseas trips of former House majority leader Tom DeLay (R-Tex.), had the once-powerful lawmaker not announced that he will resign from the House on June 9.
NYT also reports.
PROTECTING ACADEMIC INTEGRITY FROM TECHNOLOGY -- "With their arsenal of electronic gadgets, students these days find it easier to cheat. And so, faced with an array of inventive techniques in recent years, college officials find themselves in a new game of cat and mouse, trying to outwit would-be cheats this exam season with a range of strategies — cutting off Internet access from laptops, demanding the surrender of cellphones before tests or simply requiring that exams be taken the old-fashioned way, with pens and paper."
INVESTIGATING JUDGES' ETHICS -- NYT editorial: "Congress is considering a bill to establish an inspector general who would have the power to investigate federal judges. It's not surprising that lawmakers don't have faith in the judiciary's ability to police its own ethics. But Justice Ruth Bader Ginsburg has called the idea 'scary,' and she is right because an inquisitor of this kind would pose a threat to the independence of the judiciary. The best way to deal with the underlying problem of judges' behavior, and to keep Congress from intruding on their autonomy, is for judges to finally get serious about holding themselves to high ethical standards."
GOP OPERATIVE SENTENCED -- "James Tobin, the biggest fish in the New Hampshire phone jamming scandal so far, sentenced to 10 months in prison (minimum security recommended); 2 years probation, and a $10,000 fine."
SEEKING LOWEST BIDDER -- "Lockheed Martin, Raytheon and Northrop Grumman, three of the largest [military contractors], are among the companies that said they would submit bids within two weeks for a multibillion-dollar federal contract to build what the administration calls a 'virtual fence' along the nation's land borders."

Is border security really the sort of thing contractors should be doing? Are there any purely government functions left?

Wednesday, May 17, 2006

CONGRESSMAN'S CONDO DEAL at the center of corruption probe -- NYT reports that Rep. Mollohan formed a partnership with a bankrupt relative, Joseph Jarvis to purchase condo units in a D.C. building:
The Remington is one of three of Mr. Mollohan's real estate deals under scrutiny. The others are $2 million in beach property in North Carolina that he bought with the director of another earmark-dependent nonprofit he created, and a $900,000 farm purchased with a friend whose company got several federal contracts based on his earmarks.

Mr. Mollohan refused repeated requests to discuss the Remington and Mr. Jarvis, with a spokesman saying he was still compiling "documents necessary to answer questions" about his real estate transactions. Among the issues are why Mr. Mollohan and his wife borrowed $2.3 million from a bank on the same day in 1999 that they and the Jarvises loaned the partnership the same amount — both using the condominiums as collateral — and why these loans were not listed on the congressman's financial disclosure forms.
LAW FIRM FACES indictment -- Following a 6-year probe into illegal payments to clients by class-action giant Milberg Weiss: "Negotiations to avert an indictment of the firm have stepped up in recent weeks. But by this week, hopes for a settlement were quickly fading as both sides remain far apart on several crucial points surrounding any so-called deferred prosecution agreement, including the waiver of client-attorney privileges; new compliance and monitoring systems and personnel the firm would be required to put in place; and the size of any potential payments, according to several lawyers involved in the talks."
BUSH TAX HIKE on ex-pats -- "Under the bill, which the Senate approved last week, Americans working abroad will be exempted from paying U.S. taxes on the first $82,400 of their foreign earned income, up from $80,000. But the tax exemption on foreign housing expenses will be significantly reduced, and investment income will be taxed at a higher rate."
BLOWBACK AGAINST TELCOS -- Nashvillian files suit against BellSouth -- "The complaint, filed by Nashville attorney and Metro Councilman David Briley, along with a Chicago law firm that specializes in class-action cases, asks for 'actual and/or statutory damages and profits made by BellSouth as a result of its violations of the Stored Communications Act.'"
PRISON FOR SURVIVOR winner Hatch -- Failure to pay taxes on his $1M prize.
SOUTH KOREAN FRAUD probe heats up -- "Yesterday wasn’t exactly a banner day for South Korean businessmen. First, news broke that the government indicted the chairman of Hyundai, one of South Korea’s most respected industrialists. The government charged Chung Mong Koo with embezzlement and misappropriation of corporate funds. Chung’s accused of creating a $110 million “slush fund” to bribe government and industry officials."

Tuesday, May 16, 2006

ENRON CLOSING ARGUMENT -- The government presents its argument after 54 days of trial. As does the defense.
CLEANING UP CREDIT-COUNSELING -- WaPo reports, "The Internal Revenue Service said yesterday it plans to revoke the tax-exempt status of every one of the 41 credit-counseling organizations on which it has completed an audit, saying many of these firms appeared to be primarily motivated by profit, not by helping debt-burdened consumers."
LOCAL LARGESSE -- Congress isn't the only legislative body that knows something about bacon:
It's a little-known tradition of Prince William County politics: Members of the Board of County Supervisors get $47,500 a year in public money to put into individual "discretionary funds."

The eight board members can spend the money on anything from furnishing their offices to hiring part-time workers to donating to charities and nonprofit groups.

But the supervisors rarely spend all the money during the first three years of their terms. Instead, records show, supervisors roll over much of the money until they are nearing their reelection campaigns. Many of them then write checks to favorite charities or pet projects, a 14-year-old practice that critics say could be seen as an attempt to influence votes.
This kind of thing probably goes on in more than a few communities.
ITALIAN SOCCER PROBE -- "In a country where soccer is one of the central components of the national identity and an unending source of pride and conversation, the run-up to the 2006 World Cup has been marred by a game-fixing and corruption investigation that continues to spread through the sport."
MISSED YESTERDAY -- "Boeing Co. has reached a tentative $615 million settlement to end federal investigations into its illegal hiring of a high-ranking Air Force official and the use of a rival's proprietary documents to win government work, the Justice Department said yesterday." The company will not have to admit wrongdoing.
CHARGE IT TO the campaign -- "Child care, most any parent knows, can be a huge expense. Some members of Congress, though, have found an innovative -- and brazen -- way to defray the cost: Their campaign funds pick up the tab when child care is needed because the candidate is out campaigning."
FEDS SEEK PHONE records from journalists too -- Brian Ross reportedly confirmed that the FBI is actively seeking journalists' phone records in ongoing leak investigations. Money quote: "'It used to be very hard and complicated to do this, but it no longer is in the Bush administration,' said a senior federal official."
RUMORS RUIN BBQs -- WSJ Law Blog reports that an unconfirmed internet rumor suggesting White House advisor Karl Rove was indicted for perjury and false statements in the Plame leak probe ruined Rove lawyer Robert Luskin's Saturday. Bummer.
OVERLOOKED BUT IMPORTANT -- Posner discussing corruption: "Since public corruption seems on balance inefficient, the question arises why it is so common. The answer is that corruption flourishes where the economy is heavily regulated but the legal framework is weak."

And Becker's response: "Posner points out that corruption flourishes with a weak legal system, and with larger government. Obviously, if governments strongly regulate many activities, then companies, unions, and other groups that are regulated can do better if they can "bribe" officials to overlook or relax these regulations. So the wider is the reach of governments, the greater is the corruption potential. There was relatively little corruption in the Federal government of the US in the early 19th century primarily because the government did so little then."

It seems a feat of strength to suggest that the answer to public corruption is to reduce the scope of government regulation. Obviously, if the government did not regulate a particular area, it would reduce the necessity for corruption. Carried to its logical conclusion, it seems that we could eliminate crime entirely by deregulating all conduct.

Perhaps the corruption question should be viewed through a different economic paradigm. Perhaps corruption could be viewed as imposing a transaction cost on law-abiding citizens. Perhaps the reduction of corruption promotes efficiency by reducing a transaction cost. Perhaps there is some economic value associated with trust, and that value is realized more efficiently when we reduce fraud and corruption in business and government. Perhaps?
FCC CHIEF CALLS for investigation in wake of telephone records disclosure --
Reacting to reports that the companies complied with NSA requests to look at the records, [FCC Chairman Michael J.] Copps said that "protecting the security of the American people is our government's number one responsibility" and that a probe was necessary to determine whether a violation of Section 222 or any other provisions of the Telecommunications Act of 1996 occurred. On Thursday, US Sen. Arlen Specter (R-PA), chairman of the Senate Judiciary Committee, said that he would call on the phone companies [Reuters report] implicated in the USA Today report to provide information to the committee on the allegations, while President Bush defended domestic surveillance activities.
HOLLINGER WILL COOPERATE -- "Under its agreement Monday with the US Attorney's office, Hollinger acknowledged that 'its officers, directors or employees acted illegally in connection with Inc.'s receipt of approximately $16.55 million in non-compete payments and that it is responsible for the repayment of such money.' Hollinger also agreed to assist the Justice Department's investigation and federal prosecutors will not pursue Hollinger 'for any crimes committed by its officers, directors or employees relating to the sale of various International newspaper publishing groups in the United States between 1998 and 2000.'"
USE OF PROFFERS -- Prof. Podgor warns that proffers might be more risky to corporate employees and their employers than defense attorneys once thought.
IN GOOD TIMES and bad -- Securities Litigation Watch notes some more "egregious, flat-out betrayals" in insider trading cases.
FTC OFFERS TESTIMONY to Congress on its efforts to address identity theft and consumer data security.
MILITARY CHAPLAIN'S SECRETARY admits embezzlement of more than $130,000 over three year period.
JEFFERSON RESPONDS to allegations --
U.S. Rep. William Jefferson said Monday he will not resign in the face of a federal investigation that has netted two guilty pleas from people who implicated him in a bribery scheme.

Jefferson, a Democrat in his eighth congressional term, declared his innocence during an afternoon news conference outside the federal building in New Orleans.

"I would take full responsibility for any crime that I committed, if that were the case. But I will not plead guilty to something I did not do, no matter how things are made to look and no matter the risk," Jefferson said, reading from a statement.
FEDS HEAVY-HANDED? (sub. req.) -- "Some House Republicans are growing uneasy with the increasingly aggressive tactics being employed by the Justice Department in its burgeoning corruption probe of Congress, questioning whether federal investigators have gone too far in their techniques," Roll Call reports (sub. req.). "While Congress has virtually no recourse, some Members said last week that the Justice Department's probe had begun to irk them because of reports of wiretaps, searches on Congressional grounds, open-ended document requests and demands to interview committee aides."

Update -- Prosecutors are encountering resistance:
The United States attorney's office in San Diego has asked for copies of "tens of thousands" of documents from the House Appropriations and Intelligence Committees, the official said, as part of its inquiry into whether Mr. Cunningham illegally influenced the process the committees use to designate money for military projects.

But lawyers for the Republican-controlled House rebuffed the request as unreasonably broad, the official said, and asked the United States attorney's office for a shorter list.

Monday, May 15, 2006

Instead, the road to delivering this critical antiterrorism tool has taken detours to locations, companies and groups often linked to Representative Harold Rogers, a Kentucky Republican who is the powerful chairman of the House subcommittee that controls the Homeland Security budget.

It is a route that has benefited Mr. Rogers, creating jobs in his home district and profits for companies that are donors to his political causes. The congressman has also taken 11 trips — including six to Hawaii — on the tab of an organization that until this week was to profit from a no-bid contract Mr. Rogers helped arrange. Work has even been set aside for a tiny start-up company in Kentucky that employs John Rogers, the congressman's son.
UNUSUALLY GOOD DEAL -- "Rep. Ken Calvert (R-Corona) is an experienced investor in Riverside County's booming real estate market, so he's used to seeing prices change quickly. Last year, he and a partner paid $550,000 for a dusty four-acre parcel just south of March Air Reserve Base. Less than a year later, without even cutting the weeds or carting off old septic tank parts that littered the ground, they sold the land for almost $1 million."
HOW MOLLOHAN FUNNELED federal largesse to his district --

Starting in the 1990s, Rep. Alan B. Mollohan (D-W.Va.) chose an unusual way to funnel federal funds into his poverty-ridden district. He set up a network of nonprofit organizations to administer the millions of dollars he directed to such public endeavors as high-tech research and historic preservation.

Over the same period, Mollohan's personal fortunes soared. From 2000 to 2004, his assets grew from no more than $565,000 to at least $6.3 million. The partners in his rapidly expanding real estate empire included the head of one of these nonprofit groups and the owner of a local company for which he arranged substantial federal aid.

Mollohan used his seat on the House Appropriations Committee to secure more than $150 million for five nonprofit groups. One of the groups is headed by a former aide with whom Mollohan bought $2 million worth of property on Bald Head Island, N.C.

Controversy over this blending of commerce and legislation has triggered a federal probe, cost Mollohan his position on the House ethics committee and undermined the Democrats' effort to portray the GOP as the party of corruption because of the Jack Abramoff scandal. As early as today, the 12-term congressman will admit that he misstated some transactions in his congressional filings, according to Mollohan staffers.
Of course, the difficulty here is separating pork barrel spending from classic corruption -- which is an increasing part of the problem. The presumably proper quid pro quo with voters seems to be "vote for me and I'll bring home the bacon." How is that different from the presumably improper quid pro quo with contributors "finance me and I'll bring home the bacon"? It seems to me the only difference here is where "home" really is.

If one is unethical (and probably illegal), shouldn't the other one be viewed the same way? In addition to criminal investigations and procesuctions, maybe we also need a new bargain with our politicians that clarifies the distinction between good government and corruption.

UPDATE -- See another example here. And another here.