Monday, June 6, 2011

John Edwards Offered Misdemeanor Plea Deal Before Indictment

According to multiple sources, including CBS News, Johns Edwards was offered a misdemeanor plea deal before prosecutors indicted him last week for soliciting and spending more than $925,000 to hide his mistress and baby from the public during his 2008 presidential bid.

According to CBS News:

John Edwards was on the verge of accepting a plea deal, according to reports, from federal prosecutors who last week charged him of using more than $900,000 in campaign contributions to keep his pregnant mistress out of sight during his 2008 run for president.

Just before Edwards was indicted Friday, prosecutors gave him a chance to plead guilty to just three misdemeanor charges, the Raleigh News and Observer reports, citing multiple unnamed sources familiar with the investigation. The deal likely would have allowed the former Democratic vice presidential nominee to keep his law license, but he would have had to serve up to six months in prison.

CBS affiliate WRAL News reported the same details of plea deal negotiations. The deal reportedly fell through because Edwards and his team wanted at least a chance to argue before a judge for an alternative to prison time, such as home arrest.

For most of the negotiations, prosecutors reportedly wanted Edwards to admit to at least one felony, which may or may not have included prison time. Edwards, however, reportedly does not believe he committed a felony.
Read the entire CBS News story here.

Friday, June 3, 2011

Administration Focusing Enforcement Efforts on Corporate Officers and Employees

According to Fox News, the Obama administration has decided to take a "cut-the-head-off-the-snake" approach to federal corporate crime. Federal officials has revealed that they will move to punish individual executives and employees more often when crimes occur within corporations. Thus far, this strategy of increased punishment of individuals, instead of just the corporations, has focused on health care fraud and immigration violations.

As for health care, federal investigators have opened the door to go after executives for alleged crimes within their company hierarchies.

In one prominent case, the health department's inspector general in April notified the CEO of Forest Laboratories that it was considering barring him from doing business with federal health programs. The reason? A subsidiary of his pharmaceutical firm had pleaded guilty to charges that it defied federal warnings not to distribute an unapproved drug and improperly promoted another drug to children.

But the company said CEO Howard Solomon had not been personally implicated in that case, and that the only rationale given by the IG was that he was "associated with" Forest. Company officials at the time called the threat "completely unwarranted" and suggested the inspector general's office was "beyond its legal authority." The company described the action as unprecedented.

Reached for comment, a company representative told the firm would formally challenge the inspector general's potential action before a mid-June deadline.

In addition to that case, the Food and Drug Administration has also issued guidance explaining how it can target corporate executives for violations even if they did not personally commit those violations or know about them.

The FDA guidance triggered a flurry of alerts from law firms. And both developments prompted a complaint last fall from the Washington Legal Foundation, which suggested the administration's rationale might not hold up in court.
Read the entire Fox News story here. As mentioned in the Fox News article, the Washington Legal Foundation responded to the new focus from the administration.

The Washington Legal Foundation (WLF) this week called on the Food and Drug Administration to abandon its announced plans to seek increased criminal prosecution of company executives for promotional activities in instances where the executives never participated in, encouraged, or had knowledge of the alleged violations. WLF expressed its concerns in a letter to Eric Blumberg, Deputy Chief for Litigation in the FDA’s Office of Chief Counsel, in response to recent comments Blumberg made calling for increased criminal prosecution of executive officers in pharmaceutical companies.

According to multiple press accounts, Blumberg spoke at the Food and Drug Law Institute (FDLI) Enforcement Conference in Washington, D.C. on October 13, 2010, where he announced the view that large, monetary settlements (such as FDA’s recent record-breaking $2.3 billion settlement with Pfizer) were “not getting the job done” to adequately deter off-label promotion, and that he urged federal prosecutors “to criminally charge individuals at all levels in the company.”

Blumberg’s remarks follow the recent guidance released by the Office of the Inspector General (OIG) of the Department of Health and Human Services (HHS), which expands the basis for excluding individuals, including pharmaceutical executives, from participating in federal health care programs. When an individual is excluded, federal health care programs like Medicare and Medicaid will not pay for any item or service furnished, ordered, or prescribed by that individual. Because entities that employ an excluded individual for providing items or services to federal program beneficiaries are subject to monetary penalties, such exclusion operates as a de facto ban on working in the health care industry.

“Subjecting every manager and executive in the industry to potential criminal liability every time an off-label promotion occurs is extremely shortsighted,” WLF Senior Litigation Counsel Cory Andrews wrote in a letter to Blumberg. “In the wake of such an aggressive use of the FDCA misdemeanor, industry executives will have little incentive to continue working in the pharmaceutical sector.”
Read the entire WLF press release here.

Thursday, June 2, 2011

New York Times Asks Why So Few Have Been Prosecuted After Financial Crisis

The New York Times this week published an interesting article examining the government's response to the financial crisis and those who brought the economy to the brink. Of particular focus, the article examines how it is possible that the only person at Goldman Sachs sued by the Securities and Exchange Commission for selling mortgage-securities investments is a 28 year-old mid-level executive named Fabrice Tourre.

At the height of the housing boom, the 26th floor of Goldman Sachs’s former headquarters on Broad Street in Lower Manhattan was the nerve center of Goldman’s fast-growing mortgage trading business.

Hundreds of employees worked closely in teams, devising mortgage-based securities — billions of dollars’ worth — that were examined by lawyers, approved by management, then sold to investors like hedge funds, commercial banks and insurance companies.

At one trading desk sat Fabrice Tourre, a midlevel 28-year-old Frenchman who was little known not just outside Goldman but even inside the firm. That changed three years later, in 2010, when he achieved the dubious distinction of becoming the only individual at Goldman and across Wall Street sued by the Securities and Exchange Commission for helping to sell a mortgage-securities investment, in one of the hundreds of mortgage deals created during the bubble years.

How Mr. Tourre alone came to be the face of mortgage-securities fraud has raised questions among former prosecutors and Congressional officials about how aggressive and thorough the government’s investigations have been into Wall Street’s role in the mortgage crisis.

Across the industry, “it’s impossible that only one person was involved with fraudulent activities in connection to the sales of these mortgage securities,” said G. Oliver Koppell, a New York attorney general in the 1990s and now a New York City councilman.

In the fall of 2009, when Mr. Tourre learned that he had become a target of investigators for helping to sell a mortgage security called Abacus, he protested that he had not acted alone.

That fall, his lawyers drafted private responses to the S.E.C., maintaining that Mr. Tourre was part of a “collaborative effort” at Goldman, according to documents obtained by The New York Times. The lawyer added that the commission’s view of his role “would have Mr. Tourre engaged in a grand deception of practically everyone” involved in the mortgage deal.

Indeed, numerous other colleagues also worked on that mortgage security. And that deal was just one of nearly two dozen similar deals totaling $10.9 billion that Goldman devised from 2004 to 2007 — which in turn were similar to more than $100 billion of such securities deals created by other Wall Street firms during that period.

While Goldman paid $550 million last year to settle accusations that it had misled investors who bought the Abacus mortgage security, no other individuals at the bank have been named. Now, however, as criticism has grown about the lack of cases brought by regulators, the scope of the inquiries appears to be widening. The United States attorney general, Eric H. Holder Jr., has said publicly that his lawyers were reviewing possible charges against other Goldman officials in the wake of a Senate investigation that produced reams of documents detailing other questionable decisions that were made in the firm’s mortgage unit.

The Senate inquiry was one of several in the past three years. These investigations by Congressional leaders and bankruptcy trustees — into the likes of Washington Mutual, Lehman Brothers and the ratings agencies — were undertaken largely to understand what had gone wrong in the crisis, rather than for law enforcement. Yet they uncovered evidence that could be a road map for federal officials as they decide whether to bring civil and criminal cases.

One person who already has come under investigation is Jonathan M. Egol. A senior trader at Goldman who worked closely with Mr. Tourre, he had a negative view on the housing market early on, and took a lead role in creating mortgage securities like Abacus that enabled Goldman and certain clients to place bets that proved profitable when the housing market collapsed.

Last year the S.E.C. examined Mr. Egol’s role in the Abacus deal in its lawsuit, according to a report by the commission’s inspector general. But Mr. Egol, now a managing director at the bank, was not named in the case, in part because he was more discreet in his e-mails than Mr. Tourre was, so there was less evidence against him, according to a person with knowledge of the S.E.C.’s case.

Though Mr. Tourre was a more junior member of the Goldman team, the S.E.C. case against him was bolstered by colorful e-mails he wrote, calling mortgage securities like those he created monstrosities and joking that he sold them to “widows and orphans.”

The S.E.C. declined to comment about its focus on Goldman and Mr. Tourre, beyond pointing to a section in its complaint that said that Mr. Tourre had been “principally responsible” for the Abacus deal in the case.

A spokesman for Goldman, Lucas van Praag, did not dispute that Mr. Tourre had worked on the Abacus deal as part of a collaborative team. But he said that the bank had disagreed with many of the conclusions about its mortgage unit contained in the recent Senate report. Mr. Egol and his lawyer did not respond to inquiries for comment.

As the government continues to investigate the activities of Goldman and other banks, it is uncertain whether other individuals will be named. Neil M. Barofsky, who as the first inspector general of the Troubled Asset Relief Program, the federal bank bailout program, investigated whether banks had properly obtained and handled the money they received, said prosecutors should look as high up as possible.

“Obviously in any investigation that results in charges against a company,” he said, “you’d like to see the highest-ranking person responsible for the conduct at the company to be held accountable.”
The article also contains an interesting graphic showing that only two criminal prosecutions have been brought as a result of the financial crisis. In the first, two former executives at Bear Stearns were charged with misleading investors in two hedge funds about the quality of mortgage assets. The Bear Stearns defendants were found not guilty in November 2009. In the second, several former executives of a mortgage company and its banking partner were charged with fraud for issuing false mortgages to obtain money from government-related entities. Six of these defendants pleaded guilty.

Read the entire New York Times article here.

Garrido Sentenced to 431 Years to Life in Prison

According to CNN, Phillip Garrido was sentenced Thursday to 431 years to life in prison for the kidnapping and sexual assault of Jaycee Dugard. Dugard was held captive by Garrido and his wife from age 11 to 29. Garrido's wife was sentenced to 36 years to life in prison for her role in the abduction. Both defendants previously pleaded guilty and waived their rights to appeal.

The Garridos, a married couple, pleaded guilty in late April in El Dorado County Superior Court to charges of kidnapping and sexual assault.

Dugard was abducted from the street in front of her home in South Lake Tahoe, California, in 1991. Authorities found her in 2009. During those years, the Garridos held Dugard in a hidden compound on their home's grounds in Antioch, California. She bore two daughters, fathered by Phillip Garrido.

Dugard's written statement, presented during Phillip Garrido's sentencing, was lengthy.

"I chose not to be here today because I refuse to waste another second of my life in your presence. I've chosen to have my mom read this for me," Dugard wrote.

"Phillip Garrido, you are wrong. I could never say that to you before, but I have the freedom now and I am saying you are a liar and all of your so-called theories are wrong. Everything you have ever done to me has been wrong and someday I hope you can see that.

"What you and Nancy did was reprehensible. You always justified everything to suit yourself but the reality is and always has been that to make someone else suffer for your inability to control yourself and for you, Nancy, to facilitate his behavior and trick young girls for his pleasure is evil. There is no God in the universe that would condone your actions," Dugard said.

"To you, Phillip, I say that I have always been a thing for your own amusement. I hated every second of every day of 18 years because of you and the sexual perversion you forced on me," she continued.

"To you, Nancy, I have nothing to say.

"Both of you can save your apologies and empty words. For all the crimes you have both committed I hope you have as many sleepless nights as I did.

"Yes, as I think of all of those years I am angry because you stole my life and that of my family. Thankfully I am doing well now and no longer live in a nightmare. I have wonderful friends and family around me. Something you can never take from me again. You do not matter any more," Dugard wrote...