Thursday, November 11, 2010

Ohio prospective Juror cites Dahmer, is excused

Associated Press

An Ohio man was excused from jury service after mentioning he was a childhood friend of cannibalistic serial killer Jeffrey Dahmer.

John Backderf was among prospective jurors being screened last week by a judge in Cleveland.

When asked if he'd known anyone convicted of a crime, Backderf responded: "I had a close friend in high school who killed 17 people."

The Plain Dealer reports Monday the answer caused the judge to freeze and top lawyers to drop their pens. Backderf explained he knew Dahmer, who was raised in northeast Ohio.

Backderf is a graphic novelist about to publish "My Friend Dahmer." He was dismissed from the jury list.

Dahmer confessed to killing and dismembering men and boys in Milwaukee. An inmate killed him in a Wisconsin prison in 1994.

Lawyer for disguised Man on Flight wants Media Ban

Associated Press

The lawyer for a Chinese asylum seeker who boarded a flight from Hong Kong to Canada disguised as an elderly white man requested Monday that the media be banned from covering his client's immigration hearings to protect his identity.

Lawyer Dan McLeod told Canada's Immigration and Refugee Board that the man from mainland China is very concerned that information disclosed at the hearing might become available to Chinese authorities.

"This is an extremely unusual case in that there has been an extremely serious and potentially dangerous leak about a refugee claimant by an unknown Canada Border Services official," McLeod told the adjudicator, referring to an intelligence alert about the man that was leaked to the media last week.

The man's name has not been released and McLeod said it should remain that way because disclosure could result in persecution or retribution from China.

Authorities have not suggested any terrorist link to the man who boarded the Air Canada flight in Hong Kong on Oct. 29 wearing a remarkably detailed silicone mask disguising him as an elderly white man. The internal intelligence alert from the Canadian Border Services Agency shows before-and-after photos of the man with and without the mask, saying he removed the disguise in a washroom mid-flight.

A Hong Kong official told the AP that the imposter is a mainland Chinese citizen who was transiting through Hong Kong. The official declined to be named because she is not authorized to release the information.

The official said the Chinese man likely escaped detection because he used his own travel documents and a genuine boarding pass when clearing immigration checkpoints in Hong Kong, and then swapped travel papers with a collaborator in the transit lounge just before boarding the flight to Vancouver, British Columbia.

A Canadian official, who provided the Border Services alert to The Associated Press, said a U.S. passport was involved.

Jim Murray, one of the top lawyers for Canada Border Services Agency, said the refugee claimant identified himself as a member of an organization in China and there is concern for the safety of some of the group's members. He did not specify the group involved.

Murray said the man has given "indications of what has happened to people in China who have been members of that organization."

McLeod argued the hearings should be held in the absence of the media, specifically singling out three Chinese media outlets -- Sing Tao, Ming Pao and World Journal. He expressed concern that even if the court barred publication of his client's name, Chinese media might reveal the information to authorities.

"Many Chinese media have relinquished their professional ethics," McLeod said.

Reporters from the newspapers named denied their news outlets were controlled by Beijing.

McLeod cited Canadian human rights lawyer David Matas as saying that Sing Tao had been sued by members of Falun Gong, a meditation sect that has been banned in China where its members have been labeled as terrorists by the government and risk arrest.

"Sing Tao had published an article saying that Falun Gong had advocated the destruction of the world and identified three Falun Gong practitioners," said McLeod. When reporters asked him outside the hearing room if his client was a member of Falun Gong, he said he couldn't discuss details of the case.

DOJ Charges former Glaxo Lawyer with Obstruction

Associated Press

Federal prosecutors said Tuesday they have charged a former GlaxoSmithKline executive with obstructing justice and making false statements in an effort to conceal illegal promotion of a company drug.

The Department of Justice alleges that in 2002, Lauren Stevens of Durham, N.C., signed several letters to the Food and Drug Administration denying that her company had promoted an antidepressant drug for unapproved uses. But Stevens knew that the company had paid numerous physicians to give talks touting unapproved uses of the drug, including weight loss, according to the indictment filed Monday in the U.S. District Court of Maryland.

A spokeswoman for GlaxoSmithKline PLC confirmed Stevens worked as a vice president in the company's legal department, but has since retired. The spokeswoman also confirmed that the drug - which was not named in the indictment - is Wellbutrin, a former blockbuster-selling product.

Drug companies are prohibited from promoting drugs for uses not approved by the FDA.

In recent years, federal prosecutors have reached multibillion dollar settlements with Pfizer Inc., Eli Lilly & Co. and other drug companies over their marketing practices.

But Stevens' indictment marks a rare case of the Department of Justice targeting a specific executive, rather than an entire company. Some legal experts have stressed that companies will not curb illegal marketing tactics until executives are threatened with prison time, because fines leveled against companies are often just a fraction of their total sales.

"This indictment demonstrates that those who purposely subvert the regulatory functions of the FDA through false statements and misleading information will be held accountable for their deception," said Dara Corrigan, FDA's associate commissioner for regulatory affairs.

Stevens was charged with one count of obstructing an official proceeding, one count of falsifying documents to influence a federal agency and four counts of making false statements to the FDA. Each of the obstruction charges carries a maximum penalty of 20 years in prison. The false statements counts each carry a maximum penalty of five years in prison.

In one instance, prosecutors say Stevens withheld slides used by physicians promoting the company's drug, even though the FDA had asked specifically for the materials. Stevens claimed that the company's response to the FDA was "final" and "complete," according to the indictment.

Stevens also falsely denied that Glaxo had paid doctors to attend special sessions where medical experts discussed unapproved uses of Wellbutrin, according to the Department of Justice.

"Attendees were not paid, reimbursed or otherwise compensated to attend these events," Stevens wrote in a 2003 letter to the FDA. But prosecutors say attendees received gifts, entertainment and other compensation in return for attending the events.

During 2001 and 2002, Glaxo paid two expert physicians to speak about 500 times each about Wellbutrin, including how to use the drug to treat obesity.

A top lawyer representing Stevens called her "an utterly decent and honorable woman," in a statement e-mailed to The Associated Press.

Brien O'Connor, who works with the firm Ropes & Gray, said Stevens simply followed the guidance of an outside law firm that was hired to advise Glaxo in dealing with the FDA.

"She looks forward to the day when a judge and jury can hear the true facts in this case," O'Connor said.

Wednesday, November 10, 2010

Summary Box: Feds close FDA Whistleblower Probe

Associated Press

CASE CLOSED AGAIN: For the second time this year, federal inspectors have dismissed allegations by Food and Drug Administration scientists who say they were pressured into approving medical devices.

WHISTLEBLOWERS: FDA medical device reviewers allege that agency managers improperly overruled their opinions and tried to intimidate them when they went public with their concerns.

WIDER SCOPE: Federal inspectors previously dismissed the whistleblower complaints in February, but agreed to reopen the case after lawmakers and outside groups complained about the limited scope of the investigation.

Oil, Food Groups Challenge EPA on Ethanol

The Wall Street Journal

Major oil and food industry trade groups launched an attack Tuesday on an Obama administration move to allow higher concentrations of ethanol in gasoline.

In a lawsuit filed with an appeals court, the American Petroleum Institute, the oil industry's main lobbying arm in Washington, and a coalition of food and restaurant industry trade groups challenged the Environmental Protection Agency's decision to allow up to 15% ethanol in gasoline, up from 10%.

The EPA last month said it would allow the higher ethanol blend only for vehicles manufactured in the 2007 model year or later. The agency is still considering a proposal to allow the 15% ethanol blend for older vehicles.

The API said in a statement the EPA action "puts consumers at risk" because tests of whether the higher concentrations of ethanol could damage cars aren't complete.

The food-trade groups, including the Grocery Manufacturers Association, the American Meat Institute and the National Council of Chain Restaurants, said increasing the use of ethanol in cars will increase corn prices and make food more expensive.

The lawsuit was filed in the U.S. Court of Appeals for the District of Columbia Circuit.

The EPA defended its action, saying it relied on the testing conducted on 19 cars by the U.S. Energy Department.

"This decision is sound, and the agency is confident that it will withstand legal challenge," said EPA spokeswoman Betsaida Alcantara.

It's possible that still more groups emerge in coming weeks to challenge the 15% ethanol blend.

Auto makers have opposed the decision, saying older could be damaged by the higher concentration of alcohol fuel. Auto makers produce so-called flexible-fuel vehicles capable of using up to 85% ethanol, but that technology is not available in many new cars, and comparatively few older vehicles.

"Our primary concern is still what impact this decision will have on consumers—we want to be sure they have a safe and positive experience with any new fuel," said Wade Newton, a spokesman for the Alliance of Automobile Manufacturers.

Makers of power equipment, such as lawnmowers and chain saws, meanwhile, have expressed concern over the liability they might assume if higher ethanol levels damage their equipment.

Regardless of the outcome of the lawsuits, the decision to offer the higher ethanol blend often rests ultimately with gas stations. And gas stations have balked at the cost of installing new equipment to offer it.

"We don't think many stores will decide to sell E15 based on the initial EPA announcement," said National Association of Convenience Stores spokesman Jeff Lenard.

Oregon drops Foster Kid Lawsuit against Calgary Mom

Calgary Herald

The State of Oregon has withdrawn its lawsuit to collect two years worth of foster care and medical bills against Calgary mother Lisa Kirkman, whose then 10-year-old son was apprehended in 2008.

Provincial family court Judge Ted Carruthers quashed the statement of claim on Tuesday after an Alberta government lawyer, representing the Oregon Attorney General at the hearing, made the request.

"I think it's a huge stepping stone. It goes toward some sort of closure for my family," a smiling Kirkman told reporters outside court after the ruling. "I never expected to be sued for the costs of essentially kidnapping my son and holding him."

So, when I had gotten him back, it (the lawsuit) was like a stab in the back after that point. I feel that I've been vindicated somewhat and the path has been made a little smoother for me to help my family get some closure and move forward.

Court heard the Oregon lawsuit was for $7,500, but that was nowhere near the final figure that would have been sought by the state had it gone further.

Kirkman thanked her previous lawyer Tony Merchant for helping get her son back from Oregon and current lawyer Daniel Mol for getting the latest burden off her back.

Mol said while one phase of the case has ended, he intends to file a statement of claim against Oregon on behalf of his client for her ordeal and costs.

We're glad the state of Oregon has a sense of shame. It's nice to have this obstacle behind us, Mol said outside court. Next, our intention is to continue with the lawsuit against the state of Oregon in the United States.

Finally, the purpose of that lawsuit will be compensation for . . . for Lisa and their family. But, more importantly, to send a message to foreign jurisdictions: Don't mess with Canadians. (Also) there is a network of professionals in Canada so, if you are stranded abroad, we want you to know you are not alone.

There's a network that wants to help you. So, let us know.

The case had been set to be heard on Dec. 14, but was brought forward after the state of Oregon sent Mol a letter of intention to drop its lawsuit.

Kirkman previously told a judge at a hearing on Sept. 14 that she is still legally married to the stepfather, who helped raise the boy and was with him in Oregon on a holiday when he was apprehended.

The boy was discovered riding a bicycle without a helmet and placed in foster care.

She said the now 12-year-old boy's biological father disappeared a month after the child was born and has never been located, despite extensive efforts, and has never had any legal guardian rights.

Kirkman, who got her son back in June and was caught off guard when told of the claim in July, said she was at times frustrated by the court process.

Tuesday, November 9, 2010

2nd Week of Testimony in DeLay Trial Begins

Associated Press

Testimony has resumed in the money laundering trial of former House Majority Leader Tom DeLay.

The second week of the trial in Austin began Monday with prosecutors questioning a former official with liquor distributor Bacardi-Martini USA Inc. about a $20,000 corporate donation his company made to DeLay's political action committee.

Prosecutors allege DeLay used his PAC to illegally funnel $190,000 in corporate donations into Texas legislative races eight years ago. DeLay denies any wrongdoing.

DeLay is charged with money laundering and conspiracy to commit money laundering. The former Houston-area congressman faces up to life in prison if convicted.

Attorneys on both sides remain confident things are going their way in the trial, which is expected to last at least three weeks.

Both the prosecution and defense remained confident things were going their way as testimony in the money laundering trial of former House Majority Leader Tom DeLay was to start its second week on Monday.

Prosecutors were to resume presenting their case, in which they accuse DeLay of using his political action committee to illegally funnel $190,000 in corporate donations into Texas legislative races eight years ago.

DeLay, who has denied any wrongdoing, told reporters last week that prosecutors have yet to show any evidence he broke the law.

"We will prevail," said DeLay, who is charged with money laundering and conspiracy to commit money laundering. He faces up to life in prison if convicted.

None of the 12 witnesses who have testified for prosecutors have directly tied DeLay to the alleged scheme.

Prosecutors allege DeLay and two associates - John Colyandro and Jim Ellis - illegally channeled the corporate donations collected by DeLay's Texas PAC, through the Washington-based Republican National Committee. Under Texas law, corporate money cannot be directly used for political campaigns.

Dick DeGuerin, DeLay's lead attorney, has stressed to jurors that DeLay had little involvement in running the PAC. The money swap the PAC was involved with was common and legal, and no Texas candidate got corporate money, he said.

The presentation of evidence has been methodical and driven by documents, and testimony has gone into great detail about political fundraising and the work of lobbyists.

Travis County Assistant District Attorney Gary Cobb said prosecutors are presenting many pieces of the alleged scheme that will ultimately "give the jury the big picture."

Expected to testify this week were the seven Texas legislative candidates prosecutors allege received laundered corporate donations.

The trial is expected to last at least three weeks.

Prosecutors say the money helped Republicans take control of the Texas House in 2002. That majority allowed the GOP to push through a Delay-engineered congressional redistricting plan that sent more Texas Republicans to Congress in 2004 and strengthened DeLay's political power, prosecutors said.

Prosecutors deny defense claims that the charges are politically motivated.

DeLay's defense team tried moving the trial out of Austin - the most Democratic city in one of the most Republican states.

DeLay has been pressing for a trial since he was indicted five years ago, but the case was slowed by appeals.

The criminal charges in Texas, as well as a separate federal investigation of DeLay's ties to disgraced former lobbyist Jack Abramoff, ended his 22-year political career representing suburban Houston. The Justice Department probe into DeLay's ties to Abramoff ended without any charges filed against DeLay.

Ellis and Colyandro, who face lesser charges, will be tried later.

DeLay, whose nickname was "the Hammer" for his heavy-handed style, now runs a consulting firm based in the Houston suburb of Sugar Land. In 2009, he appeared on ABC's hit television show "Dancing With the Stars."

Lawyers say proving Egg-Related Lawsuits Difficult

Associated Press

Thousands of people likely were sickened by salmonella-contaminated eggs from two Iowa companies last summer, but lawyers said far fewer have the proof needed for a successful lawsuit and most cases filed will be settled out of court.

So far, attorneys in Seattle, Houston, Chicago and Minneapolis have filed at least 10 cases related to recalls by Wright County Egg and Hillandale Farms of Iowa. The companies recalled 550 million eggs in August after a salmonella outbreak was traced to their farms.

The Centers for Disease Control and Prevention linked at least 1,600 illness to the eggs, and CDC spokeswoman Lola Russell said for every case reported there may be up to 30 more.

Lawyers said they know of hundreds of people who claim they became sick after eating eggs, but the challenge for victims is proving they became ill because they ate contaminated eggs.

"Without a positive culture, it's difficult to link egg consumption to the illness," said Bill Marler, a Seattle attorney who has filed six cases in Iowa. "Just because you bought eggs and got sick, it's probably not enough to prove a case."

One of Marler's clients, 30-year-old Sarah Lewis, of Freedom, Calif., said her life hasn't been the same since she ate a custard tart made with contaminated eggs last spring. Since then, she's been hospitalized twice, continues to have chronic diarrhea and vomiting and has developed ulcerative colitis.

She's lost 30 pounds and must take 10 medications a day.

"It's taken its toll," said Lewis, who has two daughters, ages 7 and 5. "You try not to be cranky and have a positive attitude, but it's hard. I just want to be me."

An inspection of the Iowa egg farms after the salmonella outbreak found dead chickens, insects, rodents and mounds of manure. The farms were restricted from selling eggs except to breaker facilities that pasteurized the eggs.

In October, the FDA allowed Hillandale Farms to resume selling eggs but told Wright County Egg it could be closed if it doesn't clean up.

Marler said his office has more than 100 other cases that "are most likely related" to the outbreak.

"Whether we file all of them or most of them, that's a tactical decision," he said.

Ron Simon, whose law firm in Houston has filed one case in Texas, said he has 150 more clients who became ill from the outbreak. He called it the largest food-borne outbreak in U.S. history, topping salmonella outbreaks that resulted in peanut butter recalls in 2007 and 2009.

Attorneys are examining claims and gathering information to verify that people who became ill had the same strain of salmonella that was found at the egg farms, Simon said. He predicted few cases would ever reach a courtroom.

"In these cases, where you have a genetic match to the egg, there is no dispute they're liable," Simon said of the egg companies. "The discussion does not focus on liability. It focuses on damages because you have a DNA match."

He said if a case can't be resolved, attorneys will file a lawsuit.

"But in large-scale litigation like this, it's not very often," Simon said.

Hinda Mitchell, a spokeswoman for Wright County Egg, declined comment.

Sarah Brew, the attorney for Hillandale, said few lawsuits are filed in most food-borne cases, with most complaints being settled out of court.

"But it's a little too early to make that call in this outbreak," Brew said.

Brew said Hillandale has filed responses to some lawsuits, asserting restaurants who used Hillandale eggs are to blame for contamination that led to customers getting sick. She declined further comment.

States generally have a one to three-year statute of limitations to file cases.

"Historically ... people get agreements with the defendants that the statute of limitations is not running on these cases to give them time to negotiate," Simon said.

Ryan Osterholm, an attorney with Minneapolis-based PritzkerOlsen, has filed one lawsuit in Minnesota and said he has received up to five calls a day from people claiming to have become sick from eating tainted eggs. But like the other attorneys, Osterholm said it can be difficult to prove.

"Not until we do more research and find out it's the same strain as what was found in the eggs can we be sure they are part of this outbreak," Osterholm said.

Pamela Sotoodeh, a Chicago attorney who filed a lawsuit in federal court in Illinois on behalf of six plaintiffs, is the only attorney seeking class-action status for the case. She said that process could take two to three years.

Monday, November 8, 2010

Regulators, Banks Grapple With Volcker Rule's Reach

The Wall Street Journal

Interpreting Paul Volcker (left): Treasury's Mary Miller, 
pictured in 2009, and James Brigagliano of the SEC.
When J.P. Morgan Chase & Co. lawyers came to Washington in September to vent about prohibitions in the Volcker rule, they didn't bother stopping at the White House or Congress.

The reason: The power to hammer out exact language in the rule aimed at preventing risky bets belongs to a small army of regulators, including some who were unknown on Wall Street before the financial-overhaul bill passed in July.

Dozens of career regulators at the Federal Reserve, the Securities and Exchange Commission and the Treasury Department are facing off against bankers, lawyers and other officials at financial firms that want to soften the impact of the rule named after former Fed Chairman Paul Volcker, which outlaws trades that aren't designed to meet near-term client demand or as a hedge. The battle could determine how much one of the most profitable businesses on Wall Street is wounded by the looming squeeze on making bets with a firm's own capital.

It isn't looking good for Wall Street, though some Republicans emboldened by last week's takeover of the House are pressing regulators to interpret the rule in a way that minimizes costs and market disruption

At some meetings, federal officials have rattled financial-industry lobbyists by saying they intend to hew closely to the 4,631 words about the Volcker rule contained in the new law. One lobbyist says a Treasury official working to craft the provisions told him: "We take a view that the rule is more inclusive." The lobbyist responded: "Are you trying to scare me?"

At another meeting attended by industry officials, a government official tapped his head and said he needed to get into Mr. Volcker's mind to know for sure how the rule should be implemented, according to one attendee.

As a result, many bank executives have abandoned their hope that trading on client desks will be untouched by the Volcker rule.

Of course, some say that Wall Street will get its way in the end, especially since some of the regulators looking at the rule used to work in finance or are reluctant to take away banks' ability to make money by serving clients.

Regulators say they are working hard to show their minds aren't made up yet. They were inundated with about 8,000 letters about the Volcker rule in a comment period that ended Friday, and the three federal agencies have stayed busy meeting with financial-industry executives and lawyers.

Already, TIAA-CREF, Citigroup Inc. and UBS AG have discussed Volcker-related concerns with Fed officials.

Goldman Sachs Group Inc., Credit Suisse Group AG and Morgan Stanley have argued in meetings with Treasury officials that they should have wide trading flexibility when clients are involved or when the trades are meant to manage risk, according to people familiar with the discussions.

"We've cast the net very widely," says Mary Miller, the Treasury Department's assistant secretary for financial markets. That includes visits to several banks in New York to hear suggestions about how the Volcker rule can be written without disrupting the ability of investors to buy and sell easily.

Ms. Miller is one of the newest officials who will translate the Dodd-Frank law into more than 200 rules touching nearly every corner of the American financial system. Before joining Treasury in February, she was a longtime municipal-bond fund manager and fixed-income executive at T. Rowe Price Group Inc.

The 55-year-old Treasury official was known at the Baltimore asset-management firm as an organized leader who kept her head in the financial markets by running a fund even after moving up the ladder to oversee other portfolio managers. She also is an amateur piano player with a master's degree in city and regional planning.

"I'm trying to use my market experience to listen to the market on this issue and to make sure that we understand the actions that need to be taken," Ms. Miller says.

People who attended a one-hour meeting in late October with Ms. Miller, Treasury's Assistant Secretary for Financial Institutions Michael Barr and the agency's deputy assistant secretary for capital markets, Matthew Kabaker, say the officials asked questions about how firms measure risk. The bank lobbyists came away somewhat relieved, feeling the government would be careful when crafting the rules.

J.P. Morgan's meeting at the Fed was led by Mark Van Der Weide, a senior associate director of banking supervision who joined the central bank in 1998 from law firm Cleary Gottlieb Steen & Hamilton LLP. The bank's big issue: keeping its ability to invest in private-equity and hedge funds under the Volcker rule.

The Sioux City, Iowa, native and runner has wrestled for years with financial regulations and bank-capital rules. Since working with lawmakers on early drafts of the Volcker rule, Mr. Van Der Weide has had discussions with banks worried about the rule's impact and consumer advocates jostling to reduce the likelihood that risky trades will lead to future taxpayer-funded bailouts.

Another Fed official involved in the rule-making process is Kieran Fallon, a 15-year veteran who works in the central bank's legal division. After his daily commute from McLean, Va., to Washington D.C. on his 2004 BMW motorcycle, he, too, attends many meetings with Wall Street representatives and public-interest groups on the Volcker rule. His department will be heavily involved next year in the drafting of the final rule's language, people familiar with the matter say.

Meanwhile, the SEC is wrestling with how to define key terms in the Volcker rule, ranging from when a Wall Street firm is allowed to invest in private equity to drawing the line between when a trade is a market-making move for a client or a naked bet by the firm.

Among the SEC officials with an influential voice is James Brigagliano, a deputy director in the agency's division of trading and markets.

Mr. Brigagliano was a force in the SEC's controversial regulation in recent years of traders who bet against stocks. The Volcker rule, he says, will be "coordinated rule making…among banking, commodities and securities regulators."

The SEC's investment-management division is also scrutinizing the law, as is the new risk division, which includes Richard Bookstaber, a former risk official at Morgan Stanley, Salomon Brothers and several hedge funds.

As part of the rule-making process, 25 to 30 regulators participate in a weekly conference call organized by the Treasury Department, discussing topics such as how trading volatility, volume and overall market patterns affect the Volcker rule.

Treasury officials also are interviewing market participants for a study of the Volker rules being written by the Financial Stability Oversight Council, an umbrella group that includes most major regulators. The study, due in late January, will include recommendations for rules that the SEC and the Fed will take the lead in publishing.

One person involved with the process says SEC and Fed officials are staking out their turf and might disagree about how to interpret the terms. The process has given some Wall Street officials hope that parts of the Volcker rule might be watered down.

On Friday, the Securities Industry and Financial Markets Association asked regulators for a second study of the Volcker rule after the January study is completed. Even if the rule is delayed, though, Wall Street officials don't expect it to be overturned.

Sunday, November 7, 2010

9/11 Workers face Deadline for Health Settlement

Associated Press

Thousands of laborers, police officers and firefighters suing New York City over their exposure to toxic World Trade Center dust have until Monday to decide whether to join a legal settlement that could ultimately pay them as much as $815 million.

More than 10,000 people have sued the city and a long list of companies that handled the massive cleanup of lower Manhattan after the 9/11 attacks.

Many claim to be suffering from illnesses caused by inhaling the pulverized remnants of the twin towers. Their lawsuits blame the government and its contractors for failing to provide proper equipment to protect their lungs.

The vast bulk of the litigation could be over on Monday.

Paul Napoli, a leader of the legal team representing most of the plaintiffs, told The Associated Press on Friday that with Monday's deadline looming on the largest and most important of several related settlements, 90 percent of those eligible had said "yes" to the deal.

An all-out effort was being made to get the rest to join on, he said. He said he and other lawyers in the firm were being besieged with questions from clients still trying to chose between taking the money, or rejecting it and taking their case to trial.

"A lot of people appear to be making a last minute decision," he said. "It's like tax day ... there is going to be a lot of last minute wrangling."

Under the terms of the deal, at least 95 percent of the plaintiffs must opt to participate for the settlement to become effective. Napoli said he was feeling good about hitting the target, although he added that getting the paperwork finished for each claim by midnight on the deadline will be no small feat.

"I'm hopeful there will be a little leeway," he said.

The Monday deadline technically applies only to a settlement negotiated between Napoli's legal team and the city's attorneys in the spring. That deal would distribute as much as $712 million among the workers, based on the severity of their illnesses and the likelihood they could be linked to the 9/11 attacks.

But since that deal was inked, the firm has worked out similar agreements with other defendants in the case, including the agency that owns the World Trade Center site, that will add to the total value of the pot.

An insurance company that represented the operators of barges that carried rubble from Manhattan to Staten Island after the attacks has agreed to settle for $28 million, Napoli said. Other entities, including those involved in the debris-sorting operation at the city's Fresh Kills landfill, have agreed in principle on settlements that will add another $100 million, he said.

Some rescue and recovery workers who had been outspoken critics of the deal early on have decided in the end to sign.

Retired Fire Department Lt. Kenny Specht, who now leads a fraternal group for New York firefighters, was among them.

Like others, he said the payments responders will receive under the deal will never be enough to compensate for their illnesses. But he called the settlement, "the best we were going to do."

Fighting for more money in court, he said, seemed like it could wind up a losing battle, in part because "the shelf life" of sympathy for 9/11 responders is running out.

"I felt in my bones that it was expiring," he said.

He added that he was also concerned about the difficulty of trying to prove that common illnesses like cancer were caused by trade center dust. So far, scientists studying the issue has yet to find any such link.

"We are nine years outside of Sept. 11, and we live in a very technologically advanced time," he said. "If nine years after the fact, they have still not attributed the cancers that are killing us to 9/11, either they have that information, and there is no way they are going to publish it, or there just isn't a correlation."

Friday, November 5, 2010

Google, Facebook, Rivals Face Stricter Data-Privacy Rules in EU


Google Inc., Facebook Inc. and other online companies face stricter privacy-protection rules as the European Union seeks to change a 15-year-old law following the emergence of online advertising and social-networking sites.

The rules would make it easier for people to get personal data corrected, deleted or blocked, the European Commission said in a document on possible changes to data protection law in the 27-nation EU. Stricter sanctions, such as criminal penalties, and the possibility for consumer rights groups to sue are part of the plans, according to the document obtained by Bloomberg News.

“Rapid technological developments and globalization have profoundly changed the world around us, and brought new challenges for the protection of personal data,” the Brussels- based commission, the EU’s executive agency, said in the document, scheduled to be published tomorrow. Online social- networking “presents significant challenges to the individual’s effective control” over personal data.

Google and Facebook, the top social-networking service, are among several Internet companies under scrutiny in the EU for possible privacy-rule breaches over the way they use personal data. Data protection officials from 30 European countries have pushed Google, Microsoft Corp. and Yahoo! Inc. to limit the amount of time they store search records. The same group criticized Facebook in May for policy changes that could have harmed users’ privacy rights.

‘Golden Opportunity’

“Much criticism has been laid at the door of the data protection regime over the years for imposing rules but little assurance that privacy is actually being achieved in practice,” said Nick Graham, head of the information and privacy group at law firm SNR Denton. “The commission now has a golden opportunity to remedy this.”

Ways of collecting data have increased, while at the same time they have become “less easily detectable,” the commission said in the document. Under current rules, the way in which people can access, change, delete or block their data “is not harmonized.”

The planned changes are part of a “shift of focus” triggered by the appearance of social networking sites, Internet-connected mobile phones and targeted online-advertising since the existing data protection law came into being 15 years ago, Viviane Reding, the EU’s justice commissioner, has said.

This week’s document will form the basis or further discussion before draft legislation will be proposed in 2011 which will then need the approval of EU nations and lawmakers.

“We are confident that an effective modern privacy protection framework can support growth in the internet economy and can enable the free services that consumers value,” said Justin B. Weiss, Yahoo’s international director of privacy.

Google spokesman Al Verney said the Mountain View, California-based company had no comment. Microsoft spokesman Jesse Verstraete in Brussels said the company will comment once the EU plans are released. Facebook spokespeople didn’t immediately return an e-mail seeking comment.

Thursday, November 4, 2010

Dick Grasso Says Election May Bring Regulators, Business Closer


Yesterday’s elections may mean the U.S. Securities and Exchange Commission will collaborate more with the financial industry to increase transparency and prevent another financial meltdown, according to Dick Grasso.

Regulators "have to have a real-world sense of how the markets are evolving,’’ Grasso, the former chief executive officer of the New York Stock Exchange, said in an interview on Bloomberg Television’s "In the Loop." “The election says, ‘Enough of the partisanship that we’ve seen. Let’s come to the middle. Let’s get together with the business community.’”

Republicans seized control of the U.S. House and narrowed the Senate’s Democratic majority yesterday, capitalizing on concerns about government spending and delivering a rebuke to the domestic agenda of President Barack Obama. U.S. stocks fell as investors awaited the Federal Reserve’s decision on how it will stimulate the economy.

He said regulators need to consider replacing outdated laws that may no longer suit the changing marketplace, not just making incremental changes to those that already exist.

The country needs “intelligent regulation of derivatives,” Grasso said. Derivatives should be included "into the standardized process of clearing and settlement," he said, "bringing the tools of risk management to a transparency level that investors can understand.’’

In July, the Dodd-Frank financial overhaul was signed into law, which gave the Commodity Futures Trading Commission a year to establish rules governing the $615 trillion over-the-counter derivatives market, including which companies will be categorized as swap dealers or major swap participants. The law aims to stem systemic risk by requiring most interest-rate, credit-default and other swaps be processed by clearinghouses after being traded on exchanges or swap-execution facilities.

“There is so much that you can point to as the cause of the financial meltdown in 2008 that wasn’t subject to regulation -- products that didn’t exist when the regulations were written,” he said.

Republican Election Gains May Stall Business’s Immigration Push


Intel Corp., Hilton Worldwide Inc. and other companies seeking a larger number of legal foreign workers through changes to immigration law likely will find their push thwarted by the Republicans’ sweeping election gains.

Lawmakers who will lead the debate in the new Republican- controlled U.S. House say they want to focus on securing the border and cracking down on illegal immigration, rather than other matters. Only after it is shown that fewer illegal immigrants are coming across the U.S.-Mexico border will they consider the revisions to immigration law sought by businesses, they say.

Representative Steve King, an Iowa Republican slated to head the House Judiciary Committee’s immigration policy subcommittee, said in an interview that he opposes lifting visa caps for lower-skilled foreign workers because doing so would depress U.S. workers’ wages. He said he would support increasing the number of visas for higher-skilled workers only if the potential employees meet criteria to boost the U.S. economy.

That means they should be young, well-educated and be able to speak English, King said. “That’s the indicator of whether they can assimilate into the broader society,” he said.

The business agenda calls for increases in worker visas for skilled and unskilled labor, along with more employment-based “green cards” -- proof of permanent residency in the U.S.

Political Change

Corporate officials and lobbyists must deal with midterm election results, in which the Republicans have won a majority of seats in the House, according to network projections.

“We’re as anxious as anyone else to see how it shakes out and whether this will be on the agenda next year,” said Peter Muller, director of government relations at Intel Corp.

Technology companies such as EBay Inc. and Cognizant Technology Solutions Corp. want Congress to lift the cap on H-1B visas for skilled workers. Since the start of the 2004 fiscal year, when a three-year temporary increase in the cap to 195,000 expired, the annual limit has been at 65,000. In fiscal 2010, the cap was reached in nine months.

Companies also want to lift the limit on employment-based green cards, now set at 140,000.

At Intel, about 6.5 percent of the company’s 40,000 U.S.- based employees hold temporary visas granted foreign workers, and the company helps those workers apply immediately to get green cards. “We want to keep them ideally for their entire career,” Muller said.

Still, the wait often is eight to 10 years, causing uncertainty both for the workers and for their employers.

Lower-Skilled Workers

The agenda for restaurant and hotel industries is focused on seasonal, lower-skilled workers. Jonas Neihardt, a lobbyist for McLean, Virginia-based Hilton, is pushing for a simpler system to verify the legal status of workers and a boost in the number of H-2B visas for non-farm seasonal employees, now capped at 66,000. Neihardt is urging that changes be made before the economy improves.

“We’re anticipating when things get better we’ll need more of those types of workers,” he said.

Senate Democrats in April outlined a rewrite of immigration law that, along with proposing a crackdown on drug trafficking and illegal immigration at the U.S.-Mexico border, sought changes that included a pathway to permanent legal residency for some of the estimated 11 million undocumented people in the U.S. It also called for a new three-year visa for temporary, low- skilled workers with an annual limit that adjusts with the economy, as well as immediate green cards for foreign students who get advanced degrees in engineering or math from a U.S. university.

The effort was hamstrung when Senator Lindsey Graham, a South Carolina Republican, stopped working with Democrats on a compromise, urging them to wait until 2011.

Latino Vote

Corporations are holding out hope that the importance of the Latino vote in the 2012 presidential elections will cause congressional Republican leaders to support a broad bill next year.

“It will be an uphill battle, but it could be that the Republicans would see that it’s to their advantage to get this issue behind them,” said Randy Johnson, vice president for labor policy at the U.S. Chamber of Commerce.

That hope belies the views of some of the Republicans ascending to power.

In the House, King is in line to replace Representative Zoe Lofgren as immigration subcommittee chairman. Lofgren, a California Democrat and one-time immigration lawyer, supports the comprehensive approach to rewriting policy.

King, 61, said he favors a piecemeal approach, with the initial spotlight on border security. He also wants to help draft legislation that would revoke birthright U.S. citizenship for so-called anchor babies of illegal immigrants.

Business Deductions

His priorities for business include a measure that would boost taxes on employers found by the Internal Revenue Service to have hired illegal immigrants. Those companies wouldn’t be able to treat the illegal workers’ wages and benefits as a deductible business expense, and they would also pay a penalty.

“It takes a $10-an-hour illegal and turns them into a $16- an-hour illegal,” King said.

Representative Lamar Smith, a Texas Republican expected to become chairman of the Judiciary Committee, said in an interview that while he would favor holding hearings about foreign worker visas and other immigration issues, next year he wants to draft legislation dealing only with border security.

“I’m still of the mind we have to secure the border first,” he said in an interview.

In 2007 Senator Jon Kyl of Arizona, the chamber’s No. 2 Republican, worked with Democrats on a comprehensive immigration bill that failed. He said in an interview that he won’t support anything beyond border security until the fight against illegal immigration improves in parts of his state.

“There has to be more of an effort to actually secure the border -- not just to spend money, not just to say we have more resources than ever before,” he said.

Kyl also said companies must realize that the recession -- which became the nation’s worst since the Great Depression -- changed the immigration debate.

He said labor unions are more opposed to expanding the pool of foreign labor now than before. “The temporary-worker program has gone backwards in terms of a consensus,” Kyl said.

Wednesday, November 3, 2010

Former Agape World, Inc. President and Owner Pleads Guilty to Mail and Wire Fraud in Ponzi Scheme


Earlier today, Nicholas Cosmo, the former president and owner of Agape World, Inc. (“Agape”) and Agape Merchant Advance, LLC (“AMA”), pleaded guilty to federal mail fraud and wire fraud charges for his role in running a Ponzi scheme that resulted in losses in excess of $195 million dollars. The guilty plea proceeding was held before United States District Judge Denis R. Hurley, at the U.S. Courthouse in Central Islip, New York. When sentenced, Cosmo faces a maximum sentence of 40 years’ imprisonment.

The guilty plea was announced by Loretta E. Lynch, United States Attorney for the Eastern District of New York, Peter Zegarac, Inspector-in-Charge, New York Division, U.S. Postal Inspection Service, and Janice K. Fedarcyk, Assistant Director-in-Charge, Federal Bureau of Investigation, New York Field Office.

Between October 2003 to January 2009, Cosmo executed a scheme to defraud investors of Agape by representing that their money would be used to fund short-term bridge loans to commercial borrowers and loans to other businesses, specifically, commercial business entities that accepted credit cards. He promised the investors unusually high rates of return. Initially, Cosmo paid partial returns to early investors, which were falsely represented to be profits generated from loans, and thereafter persuaded those investors and new victims to invest additional funds in the two companies. In fact, Cosmo lost in excess of $100 million of investor money through unauthorized futures and commodities trading activity and other unauthorized activity. As a result, the government estimates that approximately 3,000 victims suffered losses totaling in excess of $195 million.

“The defendant devised and orchestrated a scheme that highlights the need for vigilance and vigorous enforcement of our laws to prevent this kind criminal activity in the future,” stated United States Attorney Lynch. Ms. Lynch extended her grateful appreciation to the U.S. Postal Inspection Service and the Federal Bureau of Investigation, the agencies that led the government’s investigation.

As part of his guilty plea agreement with the government, Cosmo agreed to forfeit his right in assets seized by the government and to the entry of a restitution order of no less than $195 million to be paid to his victims.

The government’s case is being prosecuted by Assistant United States Attorneys Demetri M. Jones, Grace M. Cucchissi, and Vincent Lipari.

Iowa Real Estate Broker Charged with Fraud, Identity Theft, and Money Laundering


Jean Teresa Hoffert, age 59, from Emmetsburg, Iowa, has been charged with 13 counts of mail fraud, six counts of bank fraud, three counts of aggravated identity theft, and three counts of money laundering. The charges are contained in an Indictment unsealed today in United States District Court in Sioux City.

The Indictment alleges that, between about the spring of 2005 and the summer of 2008, while acting as a real estate settlement agent, Hoffert fraudulently kept portions of sale or mortgage loan proceeds. Rather than using the proceeds to pay off existing mortgage loans on the properties as she was required to do, Hoffert allegedly used the money for her own purposes. In one instance, Hoffert allegedly used over $18,000 in loan proceeds to pay off an automobile loan.

The Indictment alleges that, in order to conceal her fraud, Hoffert caused original mortgage lenders to send statements and other bank correspondence to a post office box under her control. The Indictment also alleges Hoffert attempted to conceal her fraud by making payments on existing mortgage loans. Hoffert allegedly used the account numbers and names of other persons without authority to do so.

If convicted on all charges, Hoffert faces a mandatory minimum sentence of two years’ imprisonment and a possible maximum sentence of 476 years’ imprisonment, a $6,250,000 fine, $2,500 in special assessments, and 81 years of supervised release following any imprisonment.

Hoffert appeared with her lawyers today in federal court in Sioux City and was released on bond. Hoffert’s next appearance for trial is set for January 3, 2011.

As with any criminal case, a charge is merely an accusation and a defendant is presumed innocent until and unless proven guilty.

The case is being prosecuted by Assistant United States Attorney Peter Deegan and was investigated by the Spencer, Iowa Police Department, the Emmetsburg, Iowa Police Department, the Iowa Division of Criminal Investigation, the United States Postal Inspection Service, and the Federal Bureau of Investigation.

Tuesday, November 2, 2010

Wilbur Ross’s Mortgage Company Faces Servicing Suits


Billionaire Wilbur Ross’s American Home Mortgage Servicing Inc., facing lawsuits by attorneys general in two states, was sued by a homeowner who accused the firm of using tactics that lead to improper foreclosures.

The lawsuit, filed Oct. 25 in federal court in Dallas, seeks class-action status on behalf of homeowners with mortgages serviced by American Home going back to 2006. American Home’s “illegal, unfair and deceptive business practices victimize borrowers” across the U.S., according to the complaint.

American Home “routinely and systematically assesses unwarranted fees against consumers, resulting in premature default that often gives rise to unfair and improper foreclosure proceedings,” according to the complaint.

Banks and loan servicers are under scrutiny for their foreclosure practices following accusations they relied on faulty documentation to foreclose on people’s homes. Attorneys general in all 50 states have launched a coordinated investigation into the issue.

The complaint in Dallas, filed by Kay VanHauen of Sanger, Texas, follows lawsuits by Greg Abbott, the state’s attorney general, and Ohio Attorney General Richard Cordray. They separately sued American Home, based in Coppell, Texas, for alleged violations of consumer protection laws.

‘Without Merit’

“While a lawsuit on occasion may identify a legitimate servicing error, most of which are isolated and none of which to our knowledge indicate any systematic process flaws or patterns or unlawful behavior, we believe the majority of them are without merit,” Philippa Brown, a spokeswoman for American Home, said today in a phone interview.

Ross, 72, is chief executive officer of WL Ross & Co., a company that specializes in reorganizing distressed companies. He founded the New York-based company in 2000 after overseeing the bankruptcy practice at Rothschild Inc.

WL Ross bought American Home from its bankrupt lender parent in 2008, and later added operations and servicing contracts from H&R Block Inc., Citigroup Inc. and Taylor, Bean & Whitaker Mortgage Corp. Servicers collect payments from homeowners, negotiate loan modifications and foreclose on properties when borrowers default.

In an Oct. 23, 2008, interview with Bloomberg Radio, Ross said American Home was the second-largest servicer of subprime mortgages in the U.S. and was “eager” to continue expanding. The company has servicing operations in Irvine, California, Jacksonville, Florida, and Pune, India, according to its website.

‘Unconscionably One-Sided’

In his lawsuit, the Ohio Attorney General said American Home required borrowers to sign loan modifications, forbearance agreements and security-retention agreements that contain “illegal and unfair provisions and are unconscionably one- sided” in the company’s favor. American Home also provided “incompetent, inadequate and inefficient customer service,” lost documents and failed to respond to requests by borrowers for assistance, according to the complaint.

“The acts of some mortgage servicers have gone beyond the point of being negligent -- they have become predatory financial practices and in Ohio, they won’t be tolerated,” Cordray said in a statement on Nov. 5, when the lawsuit was filed.

Default Increase

The Texas Attorney General said in his lawsuit that American Home fails to properly credit homeowners for payments made on their mortgages; falsely claims borrowers didn’t make payments in order to justify late fees; and refuses to accept payments allegedly because a borrower is in default, thereby adding more late charges. The result, Abbott said, is to render homeowners in default on their mortgages.

“The cumulative effect of the foregoing acts and practices was to place more homes into foreclosure than there should have been,” Abbott said in the Aug. 30 lawsuit.

American Home is among 30 banks and mortgage companies that Abbott wrote to on Oct. 4, demanding they halt foreclosures in the state until they ensure that foreclosures that relied on faulty documents “will be rectified” and that future foreclosures are done with “legally correct documentation.”

American Home has been reviewing its procedures and is placing “tighter controls” on document signing and notarization, according to the attorney general’s office. The company found “a very limited number of cases” in which a person signing a document may not have done so in the presence of a notary, according to the attorney general.

Misapplied Payments

The lawsuit by VanHauen, the Texas homeowner, mirrors allegations made by the attorney general. American Home, she said, misapplied mortgage payments on two loans in September 2008 and improperly assessed fees and other charges. After notifying American Home about the problem, the company refused to correctly apply the payments. It treated the loan as being in default and initiated foreclosure proceedings, according to the complaint.

American Home also charged her for a homeowner insurance policy she didn’t need and charged her for property taxes she was paying to the county, according to the complaint. VanHauen proposed that her lawsuit cover homeowners who have similar complaints against American Home.

American Home has faced similar allegations in other lawsuits. In an April lawsuit filed in federal court in Baltimore, Michael and Ingrid Landi of Frederick, Maryland, accused American Home of falsely claiming in October 2009 that they had not made mortgage payments. American Home has asked the court to dismiss the complaint.

San Diego Suit

In a complaint filed in May in federal court in San Diego, American Home was accused of foreclosing on a home while it was discussing a loan modification with the owner, Kenneth Coplin. Coplin said in his complaint that American Home assured him it didn’t intend to foreclose or sell the property “in an effort to conceal” its intention to “mislead” him and “steal” the property.

Brown, the American Home spokeswoman, said the lawsuit was dismissed. The most recent entry on the court docket shows the case would be dismissed if Coplin failed by Oct. 25 to file certain documents related to serving the complaint. Coplin couldn’t be reached for comment.

Credit Suisse’s Lead in Consumer M&A Propels Advisory Rebound


Credit Suisse Group AG jumped to No. 1 advising on consumer mergers and acquisitions this year, putting it on pace to return to the top five dealmakers for the first time in eight years.

The Zurich-based bank has advised on 37 consumer transactions in 2010 valued at about $45 billion to become fourth in all M&A this year, according to data compiled by Bloomberg. Those takeovers include Coca-Cola Co.’s $12.3 billion purchase of the North American operations of bottler Coca-Cola Enterprises Inc., the biggest consumer deal of the year.

Consumer companies are making acquisitions to boost earnings growth as they amass cash. Switzerland’s second-largest bank benefited from retailers and consumer-goods makers expanding into new product lines and faster-growing regions. Buyout firms are also beginning to do more deals, such as Apax Partners LLP’s $3 billion sale of Tommy Hilfiger BV.

“We expect the bulk of M&A activity in the consumer sector in 2010 to continue to be dominated by bolt-ons and private equity as well as transactions involving emerging markets,” said Jens Welter, who heads Credit Suisse’s consumer and retail investment banking group for Europe, the Middle East and Africa. Robin Rankin runs the group in the Americas.

Credit Suisse advised Heineken NV on its $7.7 billion purchase of Fomento Economico Mexicano SAB’s beer unit in January, the year’s second-biggest consumer deal, and SSL International Plc on its $3.89 billion takeover by Reckitt Benckiser Group Plc in July. The bank also advised Apax on the sale of Tommy Hilfiger to Phillips-Van Heusen Corp. in March.

Advisory Fees

Those deals helped Credit Suisse earn $116.8 million in consumer M&A fees in the first nine months of 2010, trailing Goldman Sachs Group Inc. by $32 million and Bank of America Corp. by $9 million, according to Freeman & Co., which researches investment banking. The Swiss bank earned $58.6 million on consumer deals for all of 2009 and ranked sixth, according to Freeman.

“Credit Suisse has certainly risen overall,” said Jeffrey Nassof, an associate at New York-based Freeman. “They’ve advanced in the fee-based table in the first three quarters for overall global investment banking and consumer appears to be a key.”

Credit Suisse’s global M&A group is led by Boon Sim, who was appointed to the role in December after a shake-up following a decline in advisory revenue. Andrew Lipsky took over U.S. M&A, and Giuseppe Monarchi became head of European M&A. Credit Suisse ranked eighth in global mergers in 2009.

Recent hires contributed to the bank’s advance this year, Credit Suisse Chief Financial Officer David Mathers said.

New Recruits

Moving to fourth globally “has been a question of some good recruits,” Mathers told journalists on an Oct. 21 conference call. “A lot of people actually wanted to join our franchise and I think that provided us some opportunity.”

The last time Credit Suisse made the top five advisers was 2002, when it finished fifth, data show. In 2004, Credit Suisse was 11th in global M&A following a period when about a third of the investment bank’s workforce was cut.

Chris Young became head of takeover defense in June and Lewis Steinberg later became head of strategic advisory. Vedika Bhandarkar was named head of the investment banking department and Global Markets Solutions Group in India in April. Carl-Georg Bauer-Schlichtegroll was hired as co-head of the investment bank’s financial institutions group for Europe, the Middle East and Africa in May.

The total value of deals in the consumer industry this year rose to $167 billion from about $128 billion through the same period of 2009, according to Bloomberg data. Bloomberg defined the industry as transactions in clothing, appliances, beverages, home and personal care, toys, tobacco, food, sporting goods, home furnishings, housewares, travel and leisure and retail.

Nestle, Mead Johnson

Nestle SA, the world’s largest food company, has disclosed the most acquisitions in the consumer industry, announcing the purchases of seven companies this year, according to Bloomberg data. The biggest was its purchase of Kraft Foods Inc.’s North American frozen pizza business for $3.7 billion in January. Vevey, Switzerland-based Nestle, PepsiCo Inc., Kraft and other top food makers have been stockpiling cash since 2006, setting the stage for more deals.

Mead Johnson Nutrition Co. and juice company Hansen Natural Corp. are top candidates to be acquired, said Goldman Sachs analysts including Judy Hong in an Oct. 19 report. They cited the buyouts of companies including Alberto-Culver Co. and American Safety Razor Co. as evidence that “deal activity in consumer staples has picked up.”

“There really aren’t that many companies left to be acquired, so if any of these companies find the right gem, they’ll buy it,” said David Winters, chief executive officer of Wintergreen Advisers LLC, which held Nestle as one of its top 10 positions at the end of June.

Monday, November 1, 2010

Enron's Skilling to Seek Release

The Wall Street Journal

What will likely be the last, best chance for former Enron Corp. President Jeffrey Skilling to get out of prison soon is scheduled to be heard in a Houston federal court on Monday.

A three-judge panel of the Fifth U.S. Circuit Court of Appeals will hear arguments about how many, if any, of the 19 felony counts on which Mr. Skilling was convicted in 2006 should be overturned as a result of the landmark Supreme Court decision in his case.

The Supreme Court in June found that the Justice Department had been misapplying a crime theory, known as "honest services" fraud, in Mr. Skilling's case and others. The court held that honest-services fraud could only be used when someone failed to live up to his fiduciary duties as a result of taking a bribe or kickback, which wasn't alleged in the Skilling case.

The ruling raised immediate hopes among his defenders that Mr. Skilling, who is incarcerated at a federal facility in Colorado and has served nearly four years of a 24-year sentence, might soon be released.

The Supreme Court's Skilling decision sparked a wave of defense requests to throw out cases that used the honest-services fraud theory, and some have been dropped. At the same time, observers believe that the fate of Mr. Skilling, an emblematic figure of this century's first big wave of corporate scandals, remains in doubt.

The Supreme Court decision "could turn out to be a major victory for the defense bar but a pyrrhic one for Mr. Skilling," says Jacob Frenkel, a former federal prosecutor and enforcement attorney for the Securities and Exchange Commission who is now in private practice in Potomac, Md.

Mr. Frenkel believes the appellate panel could uphold much and possibly all of the case against Mr. Skilling on the theory that prosecutors had proven their case on grounds other than honest-services fraud.

Rather than ruling on the validity of Mr. Skilling's conviction—which included conspiracy, securities fraud and insider trading counts—the Supreme Court sent the matter back to the same Fifth Circuit panel that had previously upheld his conviction with the instruction to determine whether its honest-services decision required the dismissal of any or all of the 19 counts.

One potentially bad sign for Mr. Skilling came when a member of his three-judge panel recently turned down his request for bail following the Supreme Court decision. Legal observers say that decision suggests the panel doesn't yet believe the Supreme Court decision will knock out enough of the case to result in Mr. Skilling's immediate release.

Mr. Skilling's lawyers argue that all 19 counts were tainted by the use of honest-services fraud theory and thus should be overturned and their client given a new trial.

Mr. Skilling's "convictions are presumptively invalid" and there isn't any way for the government to prove that jurors didn't rely on the honest-services fraud theory to reach their verdicts, one defense court filing says. The filing also notes that one Fifth Circuit judge in a 2006 ruling wrote that use of the honest-services fraud theory created "serious frailties" in 14 of the 19 counts. However, that jurist isn't a member of the current three-judge panel.

In a recent interview, Daniel Petrocelli, Mr. Skilling's lead defense attorney, said "the law requiring reversal is extremely favorable to our position given the record of our case."

For Mr. Skilling, he added, the upcoming hearing and subsequent decision are "crucial to the rest of his life."

A government court filing counters that none of the counts needs to be overturned. Prosecutors at the 2006 trial sufficiently proved their case under the still-valid criminal theory of securities fraud and therefore any use of honest-services fraud was a "harmless" error, the filing says.

The 2006 trial, the filing says, "overwhelmingly demonstrated that Skilling participated in a conspiracy to commit securities fraud by manipulating Enron's earnings…and deceiving the investing public."

A Justice Department spokesman declined to comment.

The appellate panel could take several weeks or months to hand down a decision.