Thursday, August 03, 2006

TALK AMONGST YOURSELVES -- I'll be tied up with other matters over the next week, so blogging will be very light.
QUICK BITS --

Pump & Dump indictments -- "This just in: eight brokers have been indicted in an alleged 'pump-and-dump' scheme to artificially inflate the stock of Stratus Services Group Inc., a New Jersey temporary-staffing company. Manhattan District Attorney Robert M. Morgenthau announced the news at a press conference this afternoon."

WSJ Law Blog Backdating Roundup. Speaking of which, "A judge on Wednesday ordered $2 million bail for former Brocade Communications Systems Inc. (BRCD.O) Chief Executive Gregory Reyes in the first criminal hearing arising from investigations into alleged stock-option manipulations."

Federal Judges Tax Break -- "The massive bill, which would cut estate taxes and raise the minimum wage, would also extend to federal judges a tax benefit now available only to members of the executive branch: a tax-free rollover of capital gains on holdings sold to avoid conflicts of interest while in office."

Wednesday, August 02, 2006

DOJ UNDER PRESSURE -- "The Justice Department is coming under intense pressure to soften some of the tactics it embraced in the early half of the decade, when a spate of corporate fraud put the conviction of white collar criminals at the top of the Bush administration's law enforcement agenda."
AND YOU THOUGHT YOU HAD A BAD DAY -- "Yesterday was a scorching day around the country (100 degrees in NYC!), but it was a chilly one for federal white-collar prosecutors. First, an appeals court largely overturned the convictions of several ex-Merrill employees connected with Enron. And for the first time, the government lost a New York Stock Exchange trading case."
LANDIS DOPING UPDATE -- "After spending several days in New York, Floyd Landis has returned home to Southern California, where he will await his fate as Tour de France champion. But antidoping officials working on his case already have evidence that some experts say is convincing enough to show that Landis cheated to win the Tour, regardless of further testing or appeals." See also In the Pipeline (discussing chemistry of testosterone doping).
MUCH TO LOVE & HATE IN HOUSE PENSION BILL --
The bill's main focus is defined-benefit retirement plans. Employers are not putting enough money into these plans to fund the pension promises they've made: The gap is estimated to be $450 billion. When firms go into bankruptcy, they often terminate their underfunded pension plans and hand the wreckage over to the federal Pension Benefit Guaranty Corp. This agency is supposed to keep paying the pensions with the insurance premiums that it collects from healthy pension plans. But these premiums are inadequate, and one day the pension guarantor may require a taxpayer bailout.

The House bill offers some remedies. It tells companies to close their pension funding gaps, though it gives them seven years to do so. It lays down that underfunded pension plans should pay extra premiums to the PBGC to reflect the extra risk that they pose to the system. It also requires companies to make realistic assumptions about the life expectancy of their workers and the investment returns on pension-fund assets, thus making it harder for corporations to dream up scenarios that minimize the amount of money they must put into their pension plans.

Unfortunately, the House phases these reforms in slowly, and it has been especially lenient toward airlines. Northwest and Delta are getting an astonishing 17 years in which to fund their pension promises, and they are allowed to assume that the investment returns on their pension assets will be 8.85 percent -- about a third higher than other companies are permitted to assume. American and Continental are being treated less generously, though they still get away with looser provisions than companies in other industries.
COX ANNIVERSARY AS S.E.C. CHAIR --
In an hour-long interview yesterday, Cox continued that tradition, speaking in measured tones on some of the most hotly contested issues before the SEC, including whether the agency should oversee investment pools known as hedge funds and how it should respond to complaints from trade groups about the expense of accounting rules.

"We're trying to go right down the center lane," Cox said yesterday of the SEC's ongoing drive to consider the costs of new audit regulations as well as their benefits. To that end, the agency is expected to announce as early as this week that it is granting foreign businesses another delay in complying with the Sarbanes-Oxley Act, a 2002 corporate-accountability law.

That move demonstrates the careful approach Cox has taken in cultivating his multiple constituencies: from visits to state regulators and the Consumer Federation of America, where he delivered an emotional speech in December, to the executive suites of businesses in the United States and abroad.
IRAQ AUDIT MIXED --
The United States has completed 82 percent of its planned projects, having spent $15 billion. Those funds have brought oil and electricity production above prewar levels. They have given 5 million more people access to sanitized water. And they have paid for more than 1,200 security facilities such as fire and police stations.

The reconstruction program, though, is also littered with notable failures. A project to create more than 140 primary health-care centers resulted in 20 so far. Baghdad residents still have about eight hours of electricity per day, less than they did before the war, even as power supplies improve in other parts of the country. And a crucial oil pipeline that could have brought the fledgling Iraqi government nearly $15 billion in badly needed revenue remains more than two years behind schedule.

With more than two-thirds of reconstruction funds spent and more than 90 percent already directed to specific projects, reconstruction officials are reckoning with the fact that they will not accomplish all they had hoped. Security costs are a major reason why, but Bowen's office has reported that mismanagement and poor planning also played a role.
PENTAGON DECEPTION IN 9/11 PROBE? -- "Some staff members and commissioners of the Sept. 11 panel concluded that the Pentagon's initial story of how it reacted to the 2001 terrorist attacks may have been part of a deliberate effort to mislead the commission and the public rather than a reflection of the fog of events on that day, according to sources involved in the debate."

Tuesday, August 01, 2006

FRIST DISCLOSURES PROBED --
Frist and his wife are the sole trustees in charge of a family foundation bearing the senator's name, according to Internal Revenue Service forms. However, he has not been listing that position on his Senate disclosure forms, which are made public every year.

Annual forms detailing lawmakers' personal finances are supposed to list all positions members of Congress hold outside government. Those include unpaid posts such as serving as a director or trustee of a nonprofit.
Sen. Frist has also been the subject of a federal probe looking into his sale of HCA stock at a time when insiders were selling at a 52-week high.
LANDIS DOPING ALLEGATIONS -- "Tests performed on the cyclist Floyd Landis’s initial urine sample showed that some of the testosterone in his body had come from an external source and was not produced by his system, according to a person at the International Cycling Union with knowledge of the results." See also WaPo.

Similarly, "In the wake of Justin Gatlin’s positive drug test, some in track and field have begun to call for sanctions against athletes’ coaches or agents, and many are wondering why such penalties were not meted out after the Bay Area Laboratory Co-Operative scandal cast suspicion on several coaches in 2004."
MORE CUNNINGHAM SCANDAL FALLOUT -- "The Pentagon has decided not to renew a contract with a company caught up in the scandal involving former House member Randy 'Duke' Cunningham (R-Calif.), forcing the closure of an intelligence center in Virginia that grew out of a 2003 'earmark' in legislation by Rep. Virgil H. Goode Jr. (R-Va.)."
MASSIVE TAX CHEATING -- "Wealthy Americans avoid paying $40 billion a year in U.S. taxes through illegal offshore havens that could be tamed with mandatory financial reporting and stronger penalties, according to a Senate investigative report to be issued Tuesday." See also NYT; WaPo.

Monday, July 31, 2006

EBBERS CONVICTION UPHELD -- "A federal appeals court upheld the fraud conviction of WorldCom Inc. founder Bernard J. Ebbers yesterday, rejecting defense arguments that he was deprived of a fair trial and paving the way for the once-brash mogul to spend the rest of his life in prison." See also WSJ Law Blog.
CAPTIOL HILL RAID UPDATE -- "A federal appeals court ruled yesterday that prosecutors may not examine documents seized from Rep. William J. Jefferson's Capitol Hill office until the congressman has a chance to review them for privileged legislative materials."
HOMELAND SECURITY FUNDS MISSPENT -- "Virginia distributed federal homeland security grants to local governments sloppily in the months after the Sept. 11 attacks, and a few of them, including Fairfax County, misspent the funds, according to an investigation by the Department of Homeland Security's inspector general."
SILICON VALLEY'S LAWYER --
Powerful, but discreet. Powerful, but rarely center stage. While Mr. [Larry] Sonsini is hardly a shrinking violet, he cultivates the image of Silicon Valley’s most ubiquitous supporting player, often preferring to say his lines behind the scenes. “It’s not my job to be in the newspapers,” he said in a telephone interview Wednesday. “I think my clients like me to be a trusted adviser with a high degree of integrity and stay out of the limelight.”

BUT many of Mr. Sonsini’s clients are currently in the limelight because of a growing scandal involving possible improprieties or illegalities relating to the backdating of lucrative stock options. Mr. Sonsini and his firm, Wilson Sonsini Goodrich & Rosati, based in Palo Alto, Calif., represents or represented “just under 50 percent” of Silicon Valley companies implicated in the scandal, according to a spokeswoman for the firm. That representation included offering advice on corporate governance issues like the proper handling of stock options.

Mr. Sonsini has not been accused of any wrongdoing in the scandal, nor is it even clear that he will be swept up in the investigation of questionable options policies that his clients adopted. But at least one former client that federal prosecutors have charged with criminal wrongdoing, the chief executive of Brocade Communications Systems, noted earlier this year that Mr. Sonsini advised the company on its stock options policies. The executive, Gregory L. Reyes, has declined to comment more recently; Brocade’s attorney described Mr. Sonsini as a “giant” and “brilliant lawyer.”
ACCOUNTING FRAUD IN IRAQ RECONSTRUCTION -- "The State Department agency in charge of $1.4 billion in reconstruction money in Iraq used an accounting shell game to hide ballooning cost overruns on its projects there and knowingly withheld information on schedule delays from Congress, a federal audit released late Friday has found."
DOPING AT TOUR DE FRANCE --
Before setting out on the Alpine stage that became the high point, then the nadir of this year’s Tour de France, Floyd Landis went through his usual ritual with his physiologist, Allen Lim.

Sitting in a team bus festooned with sponsors’ logos, the pair took turns reading dark, humorous quotations from a book by Jack Handey while listening to Metallica.

“He told me that morning, ‘I’m going to go on an attack in this stage because I have nothing to lose,’ ” Lim said. “Floyd didn’t have the attitude that the stage must be a success. His attitude was that ‘I have to try,’ not that ‘I have to win.’ ”

Later that day, Landis did indeed win, setting up his victory in the Tour by moving to 3rd place from 11th in Stage 17. In a small trailer near the finish line, he also gave a urine sample that tested positive for an illegally high ratio of testosterone to epitestosterone. The result of a second test and, if it is also positive, a long appeal process will render the final judgment.
WaPo reports Justin Gatlin, the sprinter, has similarly tested positive.

And the analysis: "For some, last week’s news is a sign that doping controls have improved, but it may also be evidence that some athletes remain undeterred, tempted to break the rules by the promise of money and fame."
SPITZER IPO FRAUD SETTLEMENT --
Clark E. McLeod, the former chairman and chief executive of McLeodUSA Inc., agreed to turn over $4.4 million he was accused of earning from the act of "spinning," [New York State] Attorney General Eliot L. Spitzer said. The deal was to be formally announced today.

McLeod was accused of directing more than $77 million of McLeodUSA's investment banking business to Salomon Smith Barney. In exchange, the company "secretly" gave McLeod shares of more than 30 stocks before companies' initial public offerings, according to Spitzer's 2002 civil lawsuit.
See also WSJ Law Blog.