Friday, June 09, 2006

AN AMBITIOUS FRAUD --
Twenty-one-year-old Hakan [Yalincak] is the New York University senior the government calls an “economic danger to the community.” The threat, in the government’s view, is that Hakan is intent on getting his hands on other people’s money. To start, there’s the counterfeit $25 million check he tried to cash, which led the U.S. Attorney in Connecticut to charge him with bank fraud. (With transfers, the government says he tried to get $43 million.) The government has also targeted the hedge fund he began as a college junior. There was real money in the hedge fund. Hakan, with [his mother] Jackie’s help, raised $7.4 million from sophisticated investors. Plus, there’s his suspicious $1.25 million gift to NYU—where did that money come from?
Wow. See Dealbreaker; WCC Prof Blog. See also DOJ; AP.
ENRON TASKFORCE SET BACK -- A federal appeals court orders the release of two of Enron's bankers while they appeal their 2004 convictions. "The Fifth Circuit ruled that Daniel Bayly, Merrill’s onetime investment-banking chief, and Robert Furst, the Enron relationship manager for Merrill, could be released on bail while they appeal their fraud convictions in connection with the so-called Nigerian barge transaction. The government argued that Enron had falsely reported income from a bogus sale to Merrill of some electricity-producing barges off the coast of Nigeria. The government argued that because Enron guaranteed Merrill’s profits in the deal, Enron had improperly booked a $12 million gain. Bayly was sentenced to 30 months in prison, while Furst received a 37-month sentence."
PONTIFICAL COUNCIL TACKLES CORRUPTION -- In a sign of the prevalence of corruption issues, the Vatican signals its intent to fight the problem:
[Bishop Giampaolo] Crepaldi [secretary of the Pontifical Council for Justice and Peace] said that while corruption is in part a problem for police, law enforcement and the judicial system, its roots must also be tackled. In that sense, he said, there's also an urgent need for anti-corruption instruction in schools, formation of consciences by churches and other social institutions, and a general sense of solidarity across the various divisions in society.

Speaking to roughly 80 experts who attended the Vatican conference, Cardinal Renato Martino, president of the Pontifical Council for Justice and Peace, said that his office will prepare a document on the best way to fight corruption, drawing upon the social doctrine of the Catholic church.

In the first place, Martino said, the phenomenon of corruption challenges our intelligence, because it must be studied carefully and understood properly before any plan of action will be effective. Second, he said, it challenges our will, because every layer of society has to make its contribution. Third, he said, it challenges the church, and the church must commit itself to the struggle.

"Winning the battle against corruption does not depend solely upon the church, which realistically recognizes that, given the way the 'mystery of evil' works in our history, [this battle] will always be with us," Martino said. "But the church will not give in to resignation; instead, it must continue to increase its commitment."
The Vatican is probably focused on corruption in the developing world, and to get a sense of the complexity of that problem one need only look to the Jefferson bribery scandal, which involved a Nigerian business deal, or perhaps peruse Confessions of an Economic Hitman.
WALTZING TO PRISON -- "The first lawmaker tried in the Tennessee Waltz bribery sting was convicted Thursday of extortion and could face up to 90 years in prison."
ANOTHER OPTIONS TIMING CASE? --
New accusations of corporate stock option abuse were leveled yesterday, this time against Cyberonics, a medical device maker that is no stranger to controversy.

Yesterday, Cyberonics shares plunged nearly 16 percent when trading began, after Amit Hazan, a device industry analyst for SunTrust Robinson Humphrey, published an investor advisory about his concerns over the timing of those stock options, which were granted to Robert P. Cummins, Cyberonics' chairman and chief executive, and two of his lieutenants.
This scenario will be repeated over and over in the days ahead.
MLB STEROID PROBE -- "The lawyer for Kimberly Bell, Barry Bonds's former companion, told George Mitchell yesterday that she has been advised by federal authorities not to cooperate with Mitchell's investigation into steroid use in baseball because of 'the pending criminal proceeding.'"

Storm clouds on the horizon?
A SOLUTION TO EXEC COMPENSATION? -- "Costs are rising everywhere for American corporations, from energy to employee health insurance premiums. Yet in their drive to cut expenses, most notably by moving factories and call centers to other countries, they are overlooking the escalating cost of the executive suite. It's time to apply market logic to this disturbing trend and begin outsourcing chief executives. This measure would unlock tremendous value for shareholders."
REASSURING, NOT SO MUCH -- "Police believe that thieves who stole a laptop and external hard drive from a Department of Veterans Affairs employee were interested in selling the equipment, not harvesting the sensitive personal information it contained, VA Secretary Jim Nicholson said yesterday."
WITHOUT FURTHER DELAY --
Leaving Congress on Friday under indictment in Texas and under a cloud in Washington for his relationships with a lobbyist and two former senior aides who have pleaded guilty to felony corruption, Mr. DeLay, the combative former Republican majority leader, was not about to distance himself from himself.

"I did a good job," said Mr. DeLay, the linchpin of the House Republican majority for the last decade and the mastermind of a formidable political operation that melded legislating, fund-raising, conservatism and business advocacy as never before. "I helped build the largest political coalition in the last 50 years. The K Street project and the K Street strategy I am very proud of."
But: "A former chief of staff to then-House Majority Whip Tom DeLay (R-Tex.) was described yesterday in a nonprofit groups' study as one of the top two recipients of privately financed travel among congressional staff from 2000 to 2005, including some trips paid indirectly by companies with business pending before Congress."

See also WaPo.
A FAMILY AFFAIR? -- "A stepdaughter of Rep. Jerry Lewis (R-Calif.), chairman of the House Appropriations Committee, has been paid more than $40,000 since early last year by a political action committee funded substantially by donations from a lobbyist close to the congressman and from her firm's clients." See TPM; TPMMuckraker has even more.

Thursday, June 08, 2006

HOUSE TAKES DOJ TO COURT -- "House leaders from both parties asked a federal judge Wednesday to declare the late-night search of Rep. William Jefferson's office unconstitutional, a move that could undermine part of a lengthy bribery investigation of the Louisiana Democrat."
SPORT DOPING SCANDALS BEAT ENFORCEMENT EFFORT --
As he was pedaling uphill toward the Portes Pass in the Alps during the Tour de France on July 12, 2003, Jesús Manzano, then a 25-year-old rider with the Kelme team from Spain, fell off his bicycle.

Though that happens all the time in the sport, Manzano did not crash in the usual way. He had been poisoned with illegal drugs and had received transfusions of suspect blood, he later alleged in just one of the bicycle doping cases that have been on recent court dockets in Britain, France, Belgium, Italy, Spain, Switzerland and Germany.

Even though so many countries are dealing with such cases, and even as the European Union is seeking closer member ties in many fields, the use of illicit drugs in sports is still treated as just a national concern. Rarely, if ever, is it confronted across borders. And when it is, the cases fall to the International Cycling Union, which governs the sport.

"There is no EU policy on doping; it is left to national competence," explained Frédéric Vincent, spokesman for the European Union's education and training commissioner, who oversees sports.
CONCERN ABOUT FRAUD AT WORLD CUP -- "Suspected widespread corruption, in the form of betting and match-fixing scandals, has provoked a disturbing question for soccer's World Cup: Can the results of the planet's largest and most important sporting event be trusted?"
PUBLIC TRUST --
The American people right now are not in a mood to trust any political plan, proposal or policy that seems complicated--highly involved, technical, full of phased-in elements and glide paths and Part C's.

They are against complexity not because they don't think life is complex. They know it's complex. They know it because they live it every day. They assume public policy issues are also complicated. They know there are facts they don't know, which probably have to be factored in as policy is developed. But more and more they recoil from complicated, lengthy, abstruse proposals.

Why?

Because they think--they assume, at this point, reflexively--that slithery, slippery professional politicians are using and inventing complications to obfuscate and confuse. They think politicians are using complexity to create great clouds in which they can make their escape, like a cartoon character, like Road Runner.

They think modern politicians hide in complexity. They think politicians evade responsibility with it. We can't do the right thing, it's too complicated! Americans don't trust "comprehensive plans," because they don't trust the comprehensive planners.
STOPPING DOCUMENT FRAUD --
U.S. officials are beefing up efforts to stop immigration fraud partly out of concern that proposals before Congress could create a boon for document forgers.
Immigration and Customs Enforcement has created 10 anti-fraud task forces across the nation in addition to the existing unit in Washington, D.C. The task forces have opened 250 probes since they began work in April, says Special Agent Scott Weber, chief of identity and benefit fraud for ICE.

The rising concern over immigration fraud comes as Congress considers a plan to give many of the estimated 12 million undocumented immigrants a chance to stay legally as guest workers or residents, depending on how long they have lived and worked here. A new law could increase demand for documentation among immigrants seeking to prove their length of residency.

Immigration fraud is "a problem of epidemic proportions," says ICE Assistant Secretary Julie Myers. "There's no question it will be a tremendous increase in workload."
INTERNET TELEPHONY FRAUD -- "Federal authorities yesterday arrested a Miami man who they said made more than $1 million in a hacking scheme involving the resale of Internet telephone service."
WHAT'S UP WITH MINNESOTA THESE DAYS?

Wednesday, June 07, 2006

JUST WHEN YOU THOUGHT IT COULDN'T GET WORSE -- "The department [of Veterans Affairs] announced that personal data for as many as 1.1 million active-duty military personnel, 430,000 National Guard members and 645,000 reserve members may have been included on an electronic file stolen May 3 from a department employee's house in Aspen Hill. The data include names, birth dates and Social Security numbers, VA spokesman Matt Burns said."

So it wasn't just vets. Sounds like a national security breach, in addition to identity theft.
CELLPHONE LICENSE AUCTION FRAUD -- "Mutual fund mogul Mario Gabelli has reached a tentative settlement in a civil lawsuit charging him with defrauding the federal government of hundreds of millions of dollars in auctions of cellphone licenses, according to the Justice Department."

More: "The lawsuit alleges Gabelli set up about a dozen sham companies in auctions from 1995 to 2000 to snare airwave licenses. The entities were formed a few days before each auction, often were dissolved shortly afterward and never used the licenses, many of which were later sold for huge profits, the lawsuit claims. The lawsuit seeks up to $370 million in damages."
DELAY'S WIFE -- "A registered lobbyist opened a retirement account in the late 1990s for the wife of then-House Whip Tom DeLay (R-Tex.) and contributed thousands of dollars to it while also paying her a salary to work for him from her home in Texas, according to sources, documents and DeLay's attorney, Richard Cullen.

Jeez.
JUDICIAL ETHICS AND SPEAKING UP FOR A JUDICIAL NOMINEE -- When exactly does a judge promote the private interests of others?
A longtime friend of White House counsel Harriet Miers, [Texas Supreme Court Justice] Hecht gave more than 120 media interviews during her failed Supreme Court nomination. Hecht coordinated strategy with White House aides and agreed to take media calls straight from the White House, according to a recent investigation.

He even joked to the Texas Lawyer newspaper that he was acting as "PR for the White House."

But a "'spokesman?' No way," he told the Texas State Commission on Judicial Conduct, which last month admonished Hecht for his activities on behalf of Miers. The Texas Code of Judicial Conduct prohibits judges from doing anything to "advance the private interests of the judge or others."
A group of fed appellate judges testified before Congress on behalf of then-nominee Samuel Alito. But that is probably different because those judges advanced Justice Alito's interests before a branch of government, rather than in the media. But didn't they promote the interests of another? Maybe the rule is too broad?
WHAT MAKES RINGSIDE SEATS UNETHICAL -- Per WaPo editorial:
But commission officials were eager for an opportunity to lobby the senator -- and where better than ringside? This is the point of rules on gifts: It's unseemly for lawmakers to be accepting benefits from those who are trying to influence them on legislation. The Senate Ethics Manual cautions that lawmakers "should be wary of accepting any gift where it appears that the gift is motivated by a desire to reward, influence, or elicit favorable official action."

Tuesday, June 06, 2006

YOU CAN'T MAKE THIS UP --
On July 30, 2005, Jefferson met with Lori Mody, a businesswoman (and FBI informant). Following up on their earlier discussions about bribing the Vice President of Nigeria (now running for president), Atiku Abubakar, to grease a telecom deal in Nigeria, Mody transfered a leather briefcase to Jefferson in the parking lot of the Ritz-Carlton with $100,000 inside.

On July 31st, the FBI intercepted Jefferson's cell phone signal near Abubakar's house, according to the recently released affidavit.

On August 1st, Mody asked Jefferson whether he'd delivered "the package." He replied, "I gave him the African art that you gave me and he was very pleased."

So when the FBI raided Abubakar's home on August 3rd, they were expecting to find the leather briefcase with the $100,000. But instead the money turned up in Jefferson's freezer at his Washington home. And $10,000 of it was gone.
Some nasty business.
WHITE COLLAR SENTENCING -- "As detailed in this article, a corporate president who faced a life sentence under the guidelines after a fraud conviction 'because shareholder value fell by more than $260 million after the fraud scheme was disclosed,' received an extraordinary break yesterday when sentenced to less than four years' imprisonment...." WSJ Law Blog also has this story.
THE FADING NOTION OF HONOR -- "In our culture of therapy, self-absorption and celebrity, 'honor' has very little cachet. An abuse of honor--say, by perpetrating a public fraud or acting duplicitously in private life--is but the occasion for the administration of comforting words of understanding, the application of medicines to assuage lingering anxieties and the invitation to appear on 'Oprah,' the better to explain the forces that, overwhelming meager resources of conscience and character, impelled a dishonorable act. Next may come an invitation to undertake the labor of a book, more fully to explore and expiate the fall from grace. Closure (as it is called) will then, at last, be obtained."
REFORMING THE LINEUP -- "For some time now, scientists, criminologists and defense lawyers have advocated ending the tradition of having the witness view potential suspects all at once and going instead to a sequential method, in which the witness views suspects (or photographs of them) one at a time. Better still is the 'double-blind' sequential test, in which the law-enforcement official administering the lineup does not know who is the suspect and who are 'fillers.'"
PAULSON CONFLICTED OUT OF CHINA ISSUES? -- A big part of Treasury nominee Hank Paulson's record is his interest in -- and ties to -- China. Some see this as a selling point, but others decidedly do not:

But the U.S. Business and Industry Council, a group with a history of agitating for tough policies toward Beijing, is arguing that Paulson's associations pose a conflict of interest. Although Paulson is expected to sever his links to Goldman by disposing of his stock in the firm -- presumably by putting the shares in a blind trust, which would then sell them -- he would still feel obligated to Chinese officials, in the view of Kevin L. Kearns, the president of the group, which represents about 1,500 small and medium-size companies.


Without more, this seems like pretty thin soup.
FIELD TRIP! -- "Over 5 1/2 years, Republican and Democratic lawmakers accepted nearly $50 million in trips, often to resorts and exclusive locales, from corporations and groups seeking legislative favors, according to the most comprehensive study to date on the subject of congressional travel."

Here's the study.
SAFAVIAN CROSS FINISHES -- "Former General Services Administration chief of staff David H. Safavian testified at his criminal trial yesterday that information he gave lobbyist Jack Abramoff about a federal action affecting Tyco International Inc. was publicly available."

Both sides rested. Closing arguments are set for June 12.
JAPAN TIGHTENS INVESTMENT OVERSIGHT -- "Japan is preparing to pass a bill this month to tighten checks on investment funds following an arrest of a star fund manager who made his fame as a proponent of U.S.-style shareholder rights."
ANATOMY OF A FRAUDULENT SECURITIES CLASS ACTION --
When it came to investing, Howard J. Vogel seemed to possess a perverse kind of Midas touch.

In early October 1997, he bought 50 shares of Oxford Health Plans. Three weeks later, the stock nose-dived, and Mr. Vogel lost about $3,000 of his investment. Still, Mr. Vogel reaped $1.1 million.

How was that possible?

Mr. Vogel was a plaintiff in a shareholder lawsuit filed by the New York securities litigation powerhouse Milberg Weiss Bershad Hynes & Lerach against Oxford Health. In 2003, the company, along with other parties that were sued, paid $300 million to settle.

Most of the investors received pennies on the dollar for their losses. But Mr. Vogel, then a real estate mortgage broker in Englewood, N.J., was not just a hapless investor who bought the wrong stock at the wrong time.

Mr. Vogel now says, according to a plea agreement with federal prosecutors, that he and members of his family were actually linchpins in a long-running arrangement that helped Milberg Weiss snare the lucrative lead counsel position in the Oxford Health and many other securities lawsuits, reaping hundreds of millions of dollars in legal fees.
BEN TALKS, MARKET DROPS --
Federal Reserve Chairman Ben S. Bernanke expressed more concern about rising inflation than the cooling U.S. economy yesterday, sending his strongest signal yet that interest rates are probably headed higher.

Stocks plunged after Bernanke vowed to combat the recent "unwelcome" pickup in inflation, even as he told an international bankers' conference that an economic slowdown "seems now to be underway."


More:
Speaking to a conference here on international monetary issues with other central bankers, Mr. Bernanke said inflation had climbed to the upper limits of his acceptability.

"Core inflation, measured over the past three to six months, has reached a level that, if sustained, would be at or above the upper range that many economists, including myself, would consider consistent with price stability," Mr. Bernanke said.

Core inflation refers to the increase in prices for consumer goods and services other than food and energy, whose prices are more volatile and are considered not as important as others in determining whether inflation becomes embedded in the economy.

Mr. Bernanke has previously said that core inflation should ideally remain between 1 and 2 percent a year. In his speech, he noted that it had been running at 3 percent over the last six months and 2.3 percent over the last 12 months.

"These are unwelcome developments," the Fed chairman said.
More interest rate increases ahead.
ACLU WEIGHS IN AGAINST BELL MERGER -- "The American Civil Liberties Union asked the Federal Communications Commission yesterday to withhold approval of AT&T's acquisition of BellSouth until it reviews allegations that the companies gave customer records to the government without warrants."

Monday, June 05, 2006

CASHING IN -- High profile prosecutors go private and rake in the bucks.
ENFORCING HEALTH PRIVACY LAW -- "In the three years since Americans gained federal protection for their private medical information, the Bush administration has received thousands of complaints alleging violations but has not imposed a single civil fine and has prosecuted just two criminal cases."

More:
The highly touted Health Insurance Portability and Accountability Act -- known as HIPAA -- guaranteed for the first time beginning in 2003 that medical information be protected by a uniform national standard instead of a hodgepodge of state laws.

The law gave the job of enforcement to HHS, including the authority to impose fines of $100 for each civil violation, up to a maximum of $25,000. HHS can also refer possible criminal violations to the Justice Department, which could seek penalties of up to $250,000 in fines and 10 years in jail.

Wilkinson would not discuss any specific complaints but said his office has "been able to work out the problems . . . by going in and doing technical assistance and education to resolve the situation. We try to exhaust that before making a finding of a technical violation and moving to the enforcement stage. We've been able to do that."

About 5,000 cases remain open, and some could result in fines, Wilkinson said. "There might be a need to use a penalty. We don't know that at this stage."

His office has referred at least 309 possible criminal violations to the Justice Department. Officials there would not comment on the status of those cases other than to say they would have been sent to offices of U.S. attorneys or the FBI for investigation. Two cases have resulted in criminal charges: A Seattle man was sentenced to 16 months in prison in 2004 for stealing credit card information from a cancer patient, and a Texas woman was convicted in March of selling an FBI agent's medical records.
HOW A DEAL WITH A REP. WORKS --
On May 12, 2005, over dinner with business partner and FBI informant Lori Mody, Rep. William J. Jefferson (D-La.) furtively scrawled the letter "c" on a sheet of paper, and next to it wrote some numbers indicating that he was demanding a much larger personal stake in an African business deal than previously agreed to.

"The 'c' is like for 'children,' " the congressman told Mody, as an FBI tape recorder rolled. "I make a deal for my children. It wouldn't be for me."
IRS GETS VICTORY AGAINST EASEMENT ABUSE --
With no fanfare, an Alexandria real estate company in 1999 gave Fairfax County what the company would later describe as a tax-deductible $3.1 million donation: a promise not to overdevelop scenic land once owned by George Washington. The wooded tract, down the road from the first president's home at Mount Vernon, was the largest undeveloped plot in the southern part of the county.

But developers then clear-cut acres of trees on the property and erected 29 sprawling homes that preservationists today deride as "McMansions." The towering houses, though not in violation of the terms of the easement, border Washington Grist Mill state park and are visible from the Woodlawn Plantation historic site.

The U.S. Tax Court ruled last month that the company's donation had no value as a tax deduction because it "did not protect open space or a historically important land area." Chief Judge Joel Gerber rejected $342,000 in initial deductions claimed by company manager and local lawyer James D. Turner and his wife. The judge also assessed the couple $56,000 in penalties.

Tax specialists said it appeared to be the first time a court had thrown out such a write-off, known as a conservation easement deduction. The action has broad national implications for both the conservation movement and for wealthy investors, who are increasingly pursuing such deductions.
THE POLITICS OF CORRUPTION -- A look at the impact, or lack thereof, of corruption as a political theme in California's 11th Congressional District:
Enraged by what he saw as corruption in his own party, a 78-year-old legend of Republican politics emerged from retirement this year to challenge House Resources Committee Chairman Richard W. Pombo for California's 11th Congressional District seat.

But as former congressman Pete McCloskey traverses Pombo's district hammering the incumbent for ties to former lobbyist Jack Abramoff and indicted former House majority leader Tom DeLay (R-Tex.), one response has been dominant, he conceded: shrugs of indifference.

With California's Tuesday primary approaching, McCloskey's experience may have broader significance for the larger contests in November. The "culture of corruption" theme featured so prominently in Democratic campaign literature may not be so potent, after all.

"When I talk about ethics, the response quite often is, 'Yeah, he's a crook, but he's our crook, and isn't everybody a crook out there?' " McCloskey said in an interview last week. "I'm not sure it makes much of a dent on anyone in [California's] San Joaquin Valley who's worried about water, the traffic and air that has become some of the worst in California."
INSIDE EBAY'S LOBBYING OPERATION -- "EBay's lobbying activities are not confined to Louisiana. As the company has spread its innovative and influential wings across the Internet, it has also woven together a muscular and wily lobbying apparatus that spans 25 states. 'It is a fast-moving train, and if you get in front of it you'll get flattened,' said Sherrie Wilks, an official with Louisiana's licensing agency, who is concerned that eBay flouts regulatory oversight by persuading state legislators to take the company's side."
MORE ENRON POST-GAME --
But the journey from the collapse of Enron to Mr. Lay's conviction was anything but predictable. Instead, it was a long and arduous legal journey for federal prosecutors, filled with false leads and evidentiary dry holes. The public widely perceived the criminal case against Mr. Lay to have been a "can't lose" proposition, similar to the parallel case assembled against Enron's former chief executive, Jeffrey K. Skilling. But the legal hurdles on the path to Mr. Lay's conviction were so daunting that some prosecutors privately worried that they would never even be able to charge Mr. Lay with any crimes.

Prosecutors eventually defined and pinned down Mr. Lay's misdeeds by focusing on what amounted to the most basic of childhood transgressions. After analyzing millions of pages of documents, deconstructing complex accounting mechanisms, unwinding complex trading transactions and interviewing scores of witnesses, they found a theme that carried the day: Mr. Lay chose to lie — to his shareholders, his employees and his banks — and those lies were his crimes.
REP. LEWIS IN PROSECUTORS GAZE -- Key Lewis staffer may have been link between Rep. Lewis, earmarks, and illicit payments:
Letitia Hoadley White arrived on Capitol Hill 25 years ago as a 22-year-old receptionist with a bachelor's degree in fashion design, fresh from a job at Women's Wear Daily.

When her boss, Representative Jerry Lewis, Republican of California, assigned her to work with the appropriations committee in 1986, Ms. White found her calling: cramming spending bills with narrow provisions to finance lawmakers' pet projects. When she left the Hill three years ago, she quickly became K Street's queen of earmarks, as those provisions are known, landing tens of millions of federal dollars lobbying for her clients.