Labels: auction rate securities, JPMorgan, Morgan Stanley, New York AG, Wachovia

Labels: antitrust, Dell, New York AG

Labels: Amgen, class action, New York AG, securities, subpoena

Labels: Mintz Group, New York AG, Whitman Knapp

Labels: accounting fraud, Delphi, GM, New York AG, SEC

Labels: David K. P. Li, Dow Jones, New York AG

The changes, which could require local U.S. attorneys to obtain input from high-level Justice Department officials before seeking corporate indictments, could be unveiled by Deputy Attorney General Paul J. McNulty next month, according to sources briefed on the issue who spoke on condition of anonymity because the deliberations are not yet complete. The administrative revisions also may forbid government lawyers from forcing companies to stop paying attorney fees to employees ensnared in investigations, a move that was declared unconstitutional in June by a federal judge in New York.

Separately, Senate Judiciary Chairman Arlen Specter (R-Pa.) is drafting legislation that would bar prosecutors from forcing companies to waive their attorney-client privilege over internal documents in order to avoid criminal charges, a key part of the current guidelines. Specter, who has received support from Sen. Patrick J. Leahy (D-Vt.), could release the bill as early as Monday.

Debate about the appropriate use of prosecutorial power over business has simmered for years, reigniting in 2002 when the Justice Department charged Arthur Andersen LLP with obstruction of justice, a move that prompted partners and clients to flee and hastened the death of the audit firm...

For business groups, the biggest concern is waiver of the attorney-client privilege to avoid prosecution, a move that puts sensitive documents and e-mail messages -- often involving communication with company lawyers -- into the hands of prosecutors, securities regulators and, ultimately, plaintiff lawyers who can use the waivers to obtain potentially damaging information in costly class-action lawsuits.

Labels: Department of Justice, New York AG, pre-trial agreements

Labels: Eliot Spitzer, Houston's Clear Thinkers, New York AG

Labels: Eliot Spitzer, New York AG

...Five former Prudential brokers and two branch managers in Boston were sued by the SEC and Massachusetts regulators for securities fraud in November 2003. Brokers used aliases to conduct short-term trades on behalf of seven hedge fund clients, driving up costs for the mutual funds' other shareholders, according to the complaints.

Using 183 accounts under phony names and identification numbers, the brokers made more than $3.2 million in net commissions from the trades between January 2001 and September 2003, according to the SEC. The group's ``success relied significantly on a lack of supervision by Prudential,'' the Massachusetts complaint said.

Martin Druffner, whom the government called the leader of one group, pleaded guilty in federal court last year to four counts each of wire fraud and securities fraud. Ex-broker Skifter Ajro also pleaded guilty last year to two counts each of wire and securities fraud. They haven't been sentenced.

Branch manager Robert Shannon pleaded guilty in May to a criminal charge of aiding and abetting securities fraud and was sentenced to three years of probation and a $5,000 fine...

Labels: Eliot Spitzer, New York AG

Senior Criminal Justice Official for NYC Mayor's Office Joins Kroll

Press Release
August 1, 2006

Richard Plansky, formerly the Deputy Criminal Justice Coordinator for the Office of the Mayor of the City of New York, has joined Kroll, the global risk consulting company, as a managing director in its Business Intelligence & Investigations division.

Based in Kroll's head office in New York, Plansky is responsible for corporate investigations, fraud prevention and detection, and integrity due diligence.

Plansky, a 14-year veteran of the criminal justice system, has led complex investigations involving sex crimes, homicides, police shootings, larcenies, and other serious crimes. Most recently, as Deputy Criminal Justice Coordinator, he oversaw the development of multi-agency criminal justice initiatives, including a comprehensive program targeting the distribution and use of illegal guns. He also developed the John Doe Indictment project, a citywide effort to preserve unsolved sex crimes for later prosecution through the use of DNA technology.

Plansky began his career as an assistant district attorney in New York County where, from 1992 through 2001, he prosecuted 30 Supreme Court trials and conducted more than 150 grand jury presentations and investigations. He subsequently served as assistant general counsel at the City University of New York, where he led extensive investigations involving allegations of organized cheating and identity theft, as well as student and faculty misconduct.

In 2002, Plansky was appointed special counsel to the Mayor's Criminal Justice Coordinator, and was promoted the following year to general counsel and director of the Mayor's Office of Midtown Enforcement. In this role, he oversaw all legal affairs, formulated quality of life enforcement strategies, and developed and coordinated a wide spectrum of criminal justice programs, including an initiative to combat large-scale trademark counterfeiting establishments.

Plansky received his Juris Doctor, magna cum laude, from Harvard University.

Labels: identity theft, Kroll, New York AG

Labels: Eliot Spitzer, New York AG

Labels: Eliot Spitzer, New York AG

Labels: Eliot Spitzer, New York AG

Labels: Eliot Spitzer, New York AG

Labels: Department of Justice, New York AG

Industries Get Quiet Protection From Lawsuits

By Myron Levin and Alan C. Miller
L.A. Times Staff Writers

WASHINGTON — Near sunrise on a summer morning in 2001, Patrick Parker of Childress, Texas, swerved to avoid a deer and rolled his pickup truck. The roof of the Ford F-250 crumpled, and Parker didn't stand a chance. His neck broke and, at 37, he was paralyzed from the chest down. He sued, and Ford Motor Co. settled for an undisclosed amount. "You can imagine what happens when you're belted in and the roof comes down even with the door," Parker said. "Your options are death or quadriplegia."

Parker's case and hundreds like it are behind a beefed-up roof safety standard proposed in August by the National Highway Traffic Safety Administration. But safety regulators tucked into the proposed rule something vehicle makers have long desired: protection from future roof-crush lawsuits like the one Parker filed.

The surprise move seeking legal protection for automakers is one in a series of recent steps by federal agencies to shield leading industries from state regulation and civil lawsuits on the grounds that they conflict with federal authority.

Some of these efforts are already facing court challenges. However, through arcane regulatory actions and legal opinions, the Bush administration is providing industries with an unprecedented degree of protection at the expense of an individual's right to sue and a state's right to regulate.

In other moves by the administration:

• The highway safety agency, a branch of the Department of Transportation, is backing auto industry efforts to stop California and other states from regulating tailpipe emissions they link to global warming. The agency said last summer that any such rule would be a backdoor attempt by states to encroach on federal authority to set mileage standards, and should be preempted.

• The Justice Department helped industry groups overturn a pollution-control rule in Southern California that would have required cleaner-running buses, garbage trucks and other fleet vehicles.

• The U.S. Office of the Comptroller of the Currency has repeatedly sided with national banks to fend off enforcement of consumer protection laws passed by California, New York and other states. The agency argued that it had sole authority to regulate national banks, preempting state restrictions.

• The Food and Drug Administration issued a legal opinion last month asserting that FDA-approved labels should give pharmaceutical firms broad immunity from most types of lawsuits. The agency previously had filed briefs seeking dismissal of various cases against drug companies and medical-device manufacturers.

In a letter to President Bush on Thursday, Rep. Jan Schakowsky (D-Ill.) said, "It appears that there may have been an administration-wide directive for agencies … to limit corporate liability through the rule-making process and without the consent of Congress." Administration officials said the initiatives had not been centrally coordinated.

"Under the constitution, federal laws take priority over inconsistent state laws," said Scott Milburn, spokesman for the White House Office of Management and Budget. "Decisions about … whether particular rules should preempt state laws are made agency by agency and rule by rule."

Preemption initiatives by regulatory agencies have drawn less public attention than controversial legislative moves supported by the White House. With administration support, Congress has restricted class-action suits and banned certain claims against gun makers and vaccine producers.

By embedding similar protections for businesses in regulatory changes, the administration has advanced Bush's repeated pledge to rein in what he calls junk lawsuits. On Thursday, for example, when the Consumer Product Safety Commission adopted a rule to curb mattress fires, it recommended for the first time that courts bar suits against manufacturers that comply with the new standard. Schakowsky called the move "part of an unfortunate and troublesome pattern … to undermine consumer rights."

In addition to trying to bar suits over vehicle roof failures, the highway safety agency in recent months has sought broad legal protection for manufacturers in two other rules on the grounds that lawsuits could undermine its safety goals. One rule related to rear seat belts and the other to visibility requirements for trucks. No similar exemption clauses have been attached to any other highway safety agency rule changes for 35 years.

Industry executives, lobbyists and lawyers have shuttled through jobs in the highway safety agency and other departments over the years, but in the Bush administration, auto industry ties have grown more conspicuous. Before becoming White House chief of staff, Andrew H. Card Jr. served as a General Motors Corp. vice president and as chief executive of the top auto industry trade group. The acting head of the highway safety agency, Jacqueline Glassman, was a senior attorney for DaimlerChrysler Corp. before she became the agency's chief counsel in 2002.

Jeffrey A. Rosen, who became general counsel at the Transportation Department in 2003, was a senior partner at Kirkland & Ellis, a powerhouse law firm that has defended GM in numerous product-liability suits and represents the Alliance of Automobile Manufacturers. Rosen denied using his position to benefit automakers. "We have issued a number of major rules in the two years that I have been here," he said. "Some of them are supported by industry, some are opposed."

Michael S. Greve, a resident scholar at the conservative American Enterprise Institute, has written that preemption is crucial to protect the economy from "trial lawyers, ambitious state attorneys general and parochial state legislatures."

But critics say the preemption push contradicts the conservative ideals of a limited federal government and states' rights — principles espoused by Bush. "This is the most aggressive federal government in the history of the United States," said California Atty. Gen. Bill Lockyer, a Democrat. Some say the election calendar is spurring the moves.

"The message has been clear in the last couple of years that if industries are going to get protection, they need to get it now," because no one knows what will happen in the next election, said Jonathan Turley, a George Washington University law professor.

Rollover accidents kill more than 10,000 people in the U.S. each year, and seriously injure an additional 16,000. Consumer groups say better roofs would have saved thousands of victims over time. Automakers counter with the "roof dive" theory — that rollover victims fall head-first to the roof as it strikes the ground, injuring themselves whether the roof holds or buckles. Thus, they say, the value of stronger roofs is practically nil.

Brian O'Neill, president of the Insurance Institute for Highway Safety, called this argument "patently nonsense." If it were true, he said, people would be "just as well-off in a rollover in a convertible as a hardtop." The highway safety agency always has agreed that roof failures can cause death and injury. Its roof-crush proposal estimates that 596 deaths and 807 serious injuries a year are linked to roof collapse.

Its proposed rule would increase the force a roof must withstand in a rollover from its current 1.5 times a vehicle's weight to 2.5 times — at a cost per vehicle of about $12. It would cover large trucks and SUVs of more than 6,000 pounds for the first time. The agency also is considering requiring stability control systems to reduce rollover risk. The revised roof rule would create "the strongest ever uniform set of minimum … standards" for automakers in the U.S., Transportation Department spokesman Brian Turmail said.

However, the safety agency is projecting relatively modest benefits from the upgrade: 13 to 44 deaths and 500 to 800 injuries prevented a year. One reason: Nearly 70% of existing vehicles already meet the proposed standard.

Critics call this a token improvement. The stiffest criticism, however, has been reserved for the effort to grant immunity from lawsuits. The safety agency says its push to preempt personal injury litigation is based on a concern that automakers, fearful of lawsuits, might beef up roofs to such an extent that the vehicles become top-heavy and more prone to roll over.

John G. Womack Jr., a former acting chief counsel at the safety agency, said that equating roof strength with weight was a "very debatable proposition." Other options are to use high-strength steel or widen the stance of vehicles to compensate for heavier roofs, he said.

Diverse groups — including Public Citizen, a consumer watchdog, and the National Conference of State Legislatures — have condemned the provision and questioned the highway safety agency's authority to protect automakers. Some have complained that if companies could not be held liable for damages, it would remove incentives for automakers to exceed minimum safety standards.

A bipartisan group of 26 state attorneys general said in a December letter to the highway safety agency that the lawsuit ban, if accepted by the courts, would shift significant costs of caring for seriously injured victims from the industry to taxpayer-funded programs such as Medicaid. It would also conflict with consumer rights, they said. "Such an extreme step is unwarranted in the absence of express congressional intent," they wrote.

Roof-crush suits have resulted in costly settlements and verdicts against automakers at a time of widespread financial trouble for the U.S. industry. In 2004, Ford paid $41 million in a case in which a California appeals court compared the company's use of a fiberglass and metal roof in the 1978 Bronco to "involuntary manslaughter."

The same year, a San Diego jury awarded damages against Ford of $367 million, later reduced by the judge to $150 million. In 2003, GM was hit with a $19.6-million verdict, described as the largest product liability award in Nebraska history. The San Diego and Nebraska cases are being appealed.

For victims like Parker, the prospect of manufacturer immunity is an especially bitter pill. The paralyzed Texas man, who had worked as a technician for a local utility, said he at least gained some financial security through litigation by extracting a settlement from Ford. Otherwise, he said, he and his wife "would have been living from hand to mouth."

He criticized the preemption clause, saying it was as if the industry had "this red phone and they just pick it up and it automatically dials NHTSA." The immunity clause was unexpected, even to some in the industry. "Whether this was some conspiracy or whether it was a pleasant surprise, I really don't know," said Barry Felrice, director of regulatory affairs with DaimlerChrysler in Washington. Spokesmen for GM and Ford said that their companies had not lobbied for the lawsuit ban but that they supported it.

Bill Walsh, a former highway safety agency senior executive who worked on the rule before retiring in 2004, said the immunity language "was dropped in from out of the blue." Preempting lawsuits, he said, was "different from how we normally operated … in issuing regulations." Rosen, the Transportation Department's general counsel, said this was not the first time the highway safety agency had tried to override state liability laws.

During the 1990s, the agency joined automakers in arguing that they shouldn't be sued for not installing air bags at a time when the agency allowed either air bags or automatic seat belts. In 2000, the Supreme Court agreed that such suits were preempted but said that compliance with a standard ordinarily "does not immunize a manufacturer."

Card, the White House chief of staff, and Glassman, the agency's chief counsel, declined to discuss how the roof-crush lawsuit preemption originated. Rosen said he did not want "to get into the specifics of who said what to whom…. As a legal matter, I'm obliged to protect the deliberative process."

The Rev. Lawrence Harris of Pittsgrove, N.J., sees the issue from the vantage point of his wheelchair. Had his claim been preempted after a devastating accident with his family in North Carolina, he might not be preaching on Sundays. Harris, then 46, was wearing a seat belt but suffered a fractured spine in 1997 when his Ford Econoline van rolled over. Except for minimal movement in his hands, he was paralyzed from the chest down.

With the damage award he won from Ford, Harris installed a roll-in shower and wheelchair lift in his house, hired a caretaker to help him dress each morning, and modified a van so he could continue as pastor of Olivet United Methodist Church. Without the lawsuit, he said, "I would not be able to do the things I'm able to do." If automakers are immune, Harris said, "where is the check and balance going to be for them?"

Within days of its roof-crush proposal, the highway safety agency again backed the auto industry in challenging California's efforts to cut emissions. The Alliance of Automobile Manufacturers had gone to court to stop the state Air Resources Board from regulating tailpipe emissions of carbon dioxide and other greenhouse gases, contending the rule was preempted.

Because carbon dioxide emissions drop when less fuel is burned, the industry attacked the rule as a backdoor attempt to regulate fuel economy — under federal law, the exclusive domain of the highway safety agency. The agency agreed. On Aug. 23, it issued new mileage standards for light trucks, saying that its authority over fuel economy meant that "a state law that seeks to reduce motor vehicle carbon dioxide emissions is … preempted."

Industry lawyers filed papers the next day in U.S. District Court in Fresno informing the judge of the agency's position. California's global warming rule, which would first apply to 2009 models, is not all that's at stake in the Fresno case. Ten states have copied California's emission rule, and all those rules could be wiped out if the industry wins.

Rosen's former law firm, Kirkland & Ellis, represents the Alliance of Automobile Manufacturers in the suit to block California's global warming rule. The suit was filed in late 2004, a year after Rosen left the firm to join the Transportation Department. Transportation spokesman Turmail said Rosen did not discuss the matter with the law firm. In considering the safety agency's position on the matter, Rosen acted in the government's interest, Turmail said.

Eleven U.S. senators from both parties and 29 House Democrats from California have urged Transportation Secretary Norman Y. Mineta to reverse the agency's opposition to the emissions standard. "Rather than attempting to thwart such state efforts, the federal government should encourage states to develop innovative solutions to serious public health and environmental problems," the senators wrote to Mineta in December.

Kirkland & Ellis also represented automakers in another case against California regulators. In 2002, the industry — backed by the Justice Department — challenged a state rule that required production of a certain number of non-polluting vehicles.

Rosen said he did not participate in that case while he was with the law firm. The case was settled when the state agreed to remove language that the industry said amounted to regulating fuel economy. The Bush administration also helped two industry groups overturn a regulation requiring the purchase of cleaner-running fleet vehicles such as buses and garbage trucks in Southern California.

The Engine Manufacturers Assn. and Western States Petroleum Assn. claimed the rule by the South Coast Air Quality Management District was preempted by federal law. Their challenge was rejected in federal district court and by a federal appeals court. When the case went to the U.S. Supreme Court, the Justice Department filed a brief siding with the industry. The high court agreed that the local rules were preempted.

In the past, said California's Atty. Gen. Lockyer, when industries challenged state regulations, "the federal government abstained from those lawsuits." Now, he said, there's "a policy of rubber-stamping whatever business wants, and that's too bad." The idea behind another California law was simple: Tell credit cardholders on monthly bills how long it would take to retire their debt if they paid the minimum amount. But major banks issuing most of the nation's credit cards didn't like it. In a 2002 court challenge, they attacked the state's credit disclosure law with help from a powerful ally.

The U.S. Office of the Comptroller of the Currency joined forces with the American Banking Assn., Citibank and other plaintiffs, arguing in a friend-of-the-court brief that the law interfered with federal authority to regulate national banks, and with powers granted to the banks by their federal charters. A federal judge blocked the law from going into effect, and the state lost a subsequent appeal. Intervention by the comptroller's office "definitely tipped the balance," said Gail Hillebrand, a lawyer for Consumers Union, which had backed the state's position.

In recent years, the comptroller's office on many occasions has helped national banks and their subsidiaries fend off investigations or enforcement actions by state officials on preemption grounds. In 2004, for example, the agency helped to shoot down a California law that would have required customer permission before banks shared their personal information with business affiliates. Although a U.S. District Court judge upheld the privacy law, an appeals court ruled last year that its major provisions were preempted by federal law.

Last year, the agency went to court on the side of a banking association to block an investigation by New York Atty. Gen. Eliot Spitzer into possible racial bias in the lending practices of several banks. A federal judge agreed that Spitzer's investigation "impermissibly infringes" on the authority of the comptroller's office. The state is appealing.

Turf battles over banking regulation have occurred in the past, but the Office of the Comptroller of the Currency has become more aggressive in pushing preemption under Bush. Agency officials say they have zero tolerance for abusive practices and bristle at complaints that they might be chasing off state watchdogs to the detriment of consumers.

The banks "have an enormous body of consumer compliance laws and regulations that we apply to them at the federal level," said Julie L. Williams, the agency's senior deputy comptroller and chief counsel. But Arthur E. Wilmarth Jr., a George Washington University professor specializing in banking law, said, "The OCC hasn't been, shall we say, a very zealous enforcer on the consumer side…. States have been far more vigorous."

Greve, the American Enterprise Institute scholar who has been a mainstay of the conservative brain trust promoting preemption, said well-connected industry law firms were part of a policy network providing legal and political rationale for the effort. He called them "a merry band of Washington lawyers … who know how to push the buttons" and get things done.

Levin reported from Los Angeles and Miller from Washington. Times researcher Janet Lundblad in Los Angeles also contributed to this report.

Labels: DaimlerChrysler, Department of Justice, Eliot Spitzer, New York AG

Labels: New York AG, Peter Henning

...Ingles announced in December 2004 that the SEC was investigating it, and last year the company restated results for its 2002 and 2003 fiscal years and part of FY 2004. The problems, the company said last year, involved the timing of reporting of certain payments from vendors. Vendors sometimes give retailers money or credits for advertising, certain displays of their products or other considerations.

The legal purpose of a Wells Notice is to allow a company to offer information or arguments in its favor before the SEC acts, but it also often triggers negotiations for a settlement, two experts in securities law said.

“As a general rule, when a Wells Notice comes, the staff has decided,” said Mark Astarita, who practices securities law in New York and New Jersey.

Astarita and Peter Henning, a law professor at Wayne State University in Detroit and former attorney at the SEC, said it is rare for information that arises once a Wells Notice is filed to change the SEC staff recommendation...

Labels: New York AG, Peter Henning

Hedge fund to settle case with N.J. for $10M

Wednesday, January 18, 2006
Associated Press

Defunct hedge fund Canary Capital Partners LLC has agreed to pay the state $10 million to settle allegations it stacked the deck against ordinary investors, the New Jersey Attorney General's office said Tuesday.

Secaucus-based Canary, two of its units and managing principal Edward J. Stern were accused of trading after hours, when mutual fund prices are frozen, to reap profits from after-hours events that affect a stock's price the next day.

In addition, Canary and Stern were accused of engaging in market timing, or making trades into and out of funds to take advantage of short-term market fluctuations at the expense of long-term shareholders.

"The whole idea of our marketplace is that they're supposed to be fair and open and that everyone gets a fair shot," said Franklin Widmann, chief of the state Bureau of Securities.

"They weren't playing that way. They set up a situation where they concealed and disguised the nature of their trading."

Ron Simoncini, a spokesman for Canary Capital, said the company was not commenting Tuesday.

Stern - the youngest scion of the family that owns developer Hartz Mountain Industries - sparked a sweeping probe of the mutual fund industry when he struck a deal with New York Attorney General Eliot Spitzer in September 2003.

Stern paid $40 million to Spitzer's office to escape prosecution for illegal trading, and agreed to cooperate with the attorney general's investigation.

The probe shook the industry and resulted in scores of people fired and dozens of firms under scrutiny.

They paid out more than $1.5 billion in settlements.

Stern testified for the prosecution last year in the trial of Bank of America broker Ted Sihpol, who was accused of larceny, securities fraud and other charges related to mutual fund trading with Canary. Stern told a Manhattan court that his trading gave him an "unfair" edge over other investors.

A jury cleared Sihpol of 29 counts and the remainder were dropped.

Canary's payment to New Jersey is tied for the third-largest ever paid to the state to settle securities violations, said Peter Aseltine, a spokesman for the Attorney General's office.

As part of the settlement, Stern and Canary have agreed to be barred from acting as brokers or investment advisers for 13 years.

Last week, UBS Financial Services Inc. agreed to pay New Jersey nearly $25 million - the largest sum ever collected in a state securities matter - to settle allegations that it failed to properly supervise brokers who engaged in deceptive market-timing activities.

The UBS payment to New Jersey included a civil penalty of $12.75 million and an additional $12 million for investigative costs, investor education and other enforcement initiatives.

Staff Writer Hugh Morley contributed to this article.

The original appears here.

-- MDT

Labels: Eliot Spitzer, New York AG

AIG may pay up to $1.5 bln in settlement: report

Herald News Daily
January 13, 2005

American International Group Inc. may pay as much as $1.5 billion to settle civil investigations by state and federal authorities into an accounting scandal, The Wall Street Journal said Friday, citing sources familiar with the matter.

New York Attorney General Eliot Spitzer and the New York State Insurance Department filed a civil suit against the largest U.S. insurance company and its former chief executive, Maurice "Hank" Greenberg, last May, charging them with misleading investors by using improper accounting. A settlement is likely in two or three weeks and would include a deal with the Securities and Exchange Commission , a source familiar with the matter told Reuters. The agency declined to comment.

AIG spokesman Chris Winans declined to comment on the report other than to say, "We continue to cooperate with all our regulators." Talks are ongoing, a spokesman for Spitzer said, but it is too early to speculate on the terms of any settlement. "We‘re in no position to comment," he said.

A settlement of $1.5 billion would nearly equal the $1.57 billion in losses from Hurricanes Katrina and Rita that AIG suffered in the third quarter. A settlement would put an end to the lawsuit against AIG but would not include a deal with Greenberg or former AIG Chief Financial Officer Howard Smith, The Wall Street Journal said. Greenberg and Smith have denied any wrongdoing.

Settling for $1 billion would represent about 25 cents per AIG share after taxes, Wachovia Securities analyst John Hall said in a research note Friday, and 1 percent of AIG‘s book value. The cost rises to 38 cents a share if the settlement is not deductible.

"We had been projecting AIG‘s regulatory settlement would total roughly $550 million," Hall said. "While considerable, we don‘t believe the divergence between our expectation and the reported settlement will have a material effect on AIG‘s financial position." AIG shares were down 24 cents to $70.02 in midday dealings on the New York Stock Exchange , trading at about 2.04 times book value, which is relatively high for the sector.

Since February 11, 2005, the trading day before the company said it had been subpoenaed concerning investigations of products that might help companies smooth earnings, AIG shares have fallen about 4 percent, while the S&P insurance index has risen about 10 percent.
Any SEC settlement would have to be reviewed by the agency‘s five commissioners later this month, The Wall Street Journal said. Terms of the deal could change in that time, but parties are negotiating a payment of about $1.5 billion, it said.

The SEC has not brought a lawsuit against AIG, but the federal regulatory agency is expected to file and settle civil charges on the same day, if a deal can be reached. The civil suit against AIG and Greenberg by Spitzer and the New York State Insurance Department accused them of fraud and cooking the company‘s books. Smith was also named as a defendant.

The suit alleged that Greenberg and Smith, who were ousted as the investigation picked up steam, took part in numerous fraudulent business deals that exaggerated the strength of AIG‘s underwriting business and propped up its stock price. In addition to a fine, a settlement is likely to make formal a number of corporate governance reforms, some of which AIG has already put in place, the newspaper report said.

Citing sources close to the AIG board, it said AIG is weighing three new director candidates. While interim Chairman Frank Zarb has said he will stay in the job until AIG‘s annual meeting in May, the newspaper said he could stay up to an additional six months if a successor is not in place.

Labels: AIG, Eliot Spitzer, General Re, New York AG

Appeals Judges Question SEC's Hedge Fund Rule

By Carrie Johnson
Washington Post Staff Writer
Saturday, December 10, 2005; D01

Appeals court judges sharply questioned yesterday whether the Securities and Exchange Commission had a reasonable basis for adopting a controversial rule that requires hedge funds to register with the agency.

A divided SEC passed the rule in a 3 to 2 vote last year, citing evidence that the loosely regulated investment pools had become a breeding ground for fraud and trading abuses. But New York fund adviser Phillip Goldstein sued to stop the rule, arguing that the SEC had overstepped its authority and did not provide adequate foundation for the move.

Goldstein's case appeared to get a boost yesterday based on questions from two of the three judges on the U.S. Court of Appeals for the D.C. Circuit panel.

"You don't have authority to act simply because you exist," Judge Harry T. Edwards told Jacob H. Stillman, the SEC's lawyer.

A few moments later, Edwards said: "We have to test your thesis, and your thesis doesn't hold up."

Judge A. Raymond Randolph also expressed skepticism about the agency's arguments.

Legal experts cautioned that it is difficult to draw conclusions about how a court will rule based on questions asked by judges during oral arguments. The appeals court, however, has criticized the SEC's approach in a few recent cases.

Earlier this year, the court sent back for more research a rule mandating that mutual fund board chairmen be independent of management. The SEC retooled the rule, prompting a second, pending legal challenge by the U.S. Chamber of Commerce. That case is to be argued Jan. 6.

Last month, the court rejected a separate bid by agency lawyers to impose financial penalties on board members at an investment fund called the Rockies Fund Inc., ruling that the agency had levied the fines "arbitrarily and capriciously."

Former SEC Chairman William H. Donaldson made the hedge fund effort one of his central initiatives before he resigned in June. In recent years, the market has boomed to include more than 8,000 funds with over $1 trillion in assets. Average investors and pension funds increasingly are investing in the funds.

From 1999 to 2004, the agency filed 51 fraud cases involving hedge funds. Last week, Millennium Partners LP, a highflying New York fund, agreed to pay $180 million to settle trading abuse allegations lodged by the SEC and New York state Attorney General Eliot L. Spitzer. In September, two top officers at the Bayou Management fund pleaded guilty to criminal charges for engaging in a fraud that cost investors $450 million.

Stillman, the SEC's lawyer, stressed to the appeals court yesterday that the agency moved to register funds with more than 14 investors and $25 million under management to further its mission of protecting investors.

"Aren't they really getting at trying to enhance the government's ability to identify and prosecute fraud when it occurs?" Judge Thomas B. Griffith asked a lawyer for Goldstein. "That's really what's at the core of this."

The rule is set to take effect in February. Critics fear the hedge fund rule could foreshadow inspections and other efforts to rein in the funds. Before it was adopted, the plan had been criticized by Treasury Secretary John W. Snow and Federal Reserve Board Chairman Alan Greenspan, among others.

A ruling is expected within the next several months, according Philip D. Bartz, a lawyer at McKenna Long & Aldridge LLP who represents Goldstein.

Labels: Bayou Group, Eliot Spitzer, New York AG

Millennium Settles With Spitzer, SEC for $180 Million

December 1, 2005
Bloomberg
By Christopher Mumma & Katherin Burton

Millennium Partners LP, a $5 billion hedge fund company accused of improper mutual fund trading, agreed to pay $180 million in a settlement with New York Attorney General Eliot Spitzer and the U.S. Securities and Exchange Commission.

Millennium, run by Israel Englander, defrauded fund companies from 2000 to 2003 by rapidly buying and selling mutual fund shares, a practice known as market timing, which drove up costs for long-term investors, Spitzer and the SEC alleged. The New York-based firm set up more than a thousand accounts to hide its identity as it made more than $52 billion in trades, Spitzer said today in a statement.

The sanctions are the biggest against a hedge fund in the two-year investigation of improper mutual fund trading that regulators say hurt other investors. Millennium is one of more than 30 companies that have paid a total of about $3.7 billion since Spitzer got a tip in 2003 about Canary Capital Partners LLC, a now-defunct hedge fund. The SEC later started its own probe of the $8.6 trillion mutual fund business...

Labels: Eliot Spitzer, New York AG

Federated settles late-trading charges

By Danielle Kost
Bloomberg News
November 29, 2005

Federated Investors, a U.S. money manager, said Monday that it had agreed to pay $100 million to settle regulatory allegations that it allowed traders to buy and sell mutual funds in ways that hurt long-term investors.

Federated will pay $35 million in restitution, $45 million in penalties and cut fees by $20 million over the next five years under agreements with the U.S. Securities and Exchange Commission and the New York State attorney general, Eliot Spitzer, Spitzer said in a statement. Federated did not admit to or deny regulators' findings as part of the settlement, the securities regulator said.

The Pittsburgh company is the 14th investment company to resolve claims of improper trading in the $8.1 trillion fund industry. The announcement comes after two setbacks for Spitzer's office, including a decision last week to drop charges against a former Canadian Imperial Bank of Commerce executive who was indicted in connection with alleged improper fund trading...

Labels: Eliot Spitzer, New York AG

Millennium nears $100M fraud settlement - Hedge fund talking with Spitzer, SEC over $100M pact

By Alistair Barr
MarketWatch
November 3, 2005

SAN FRANCISCO - Millennium Partners LP, a $5 billion hedge-fund firm run by Israel Englander, is in talks with New York Attorney General Eliot Spitzer and the Securities and Exchange Commission about settling securities-fraud charges, the Wall Street Journal reported on Thursday.

The New York-based company could pay more than $100 million to settle charges that it traded mutual funds between 2000 and 2003 at improper prices after the close of trading, as well as charges that the firm tried to disguise its identity to help it trade the funds rapidly, the newspaper said, citing an unidentified person close to the talks...

Labels: Eliot Spitzer, New York AG

Legal fight looms after J&J threatens to drop plan to buy Guidant

By Barry Meier and
Andrew Ross Sorkin
The New York Times
November 3, 2005

Johnson & Johnson has threatened to abandon its plan to acquire Guidant, a troubled maker of heart devices, setting the stage for a financial and legal confrontation between the two companies over a deal valued at $25.4 billion.

The development, announced on Wednesday, was a stunning reversal for a deal that was applauded when it was announced in December as both a handsome payoff for Guidant shareholders and a way for Johnson & Johnson to enter the growing market for implanted heart devices.

But along the way, Guidant, the second-largest U.S. maker of heart devices, found itself ensnared by safety issues and product recalls that appeared to spin out of control.

Guidant disclosed in late May, for example, that one of its defibrillators had repeatedly failed because of an electrical flaw. That disclosure led to regulatory scrutiny, a string of product recalls and, most recently, a Department of Justice investigation.

In a statement, Johnson & Johnson, based in New Brunswick, New Jersey, said on Wednesday that it believed that the recalls and federal investigations had materially affected Guidant's "short-term results and long-term outlook."

Guidant, based in Indianapolis, responded that any impact from the recalls would be short-term and that Johnson & Johnson was legally obligated to complete the deal by Friday as originally negotiated.

Guidant's legal problems also grew more complex on Wednesday as the New York State attorney general, Eliot Spitzer, filed a lawsuit accusing the company of fraud in connection with sales of a defibrillator model that short-circuited in some cases. The lawsuit seeks to force Guidant to disclose device malfunction data and disgorge its profit from sales of the defibrillator.

The deal's breakdown could present a challenge to Johnson & Johnson's strategy of growth by acquisition.

Guidant and Johnson & Johnson did not rule out continuing talks, but with the original deal valued at $76 a share, any new agreement will depend on whether the two sides can compromise on a lower price. People involved in those talks described the latest moves by both companies as a high-stakes game, with neither particularly interested in walking away just yet.

But these people suggested that a gap remained between the price that Johnson & Johnson is now willing to pay and the price that Guidant is willing to accept. These people said Johnson & Johnson was hoping to pay no more than something in the mid-$60s a share, while Guidant was seeking a price in the low $70s.

While some analysts said Johnson & Johnson appeared to have the negotiating edge, other analysts said Guidant executives might choose to sue Johnson & Johnson because they believe that the company's stand-alone value is close to $60 a share. On Wednesday, Guidant closed at $60.40 a share, down 4.3 percent, or $2.70 a share.

"They are playing chicken, and right now it appears that J&J has the upper hand," said Joanne Wuensch, an industry analyst with Harris Nesbitt.

The centerpiece of any legal fight will revolve around a single but complex issue: whether Guidant's product recalls and related events have had a materially negative impact on its future sales and profit. Not surprisingly, both companies on Wednesday staked out their positions. In its statement, Johnson & Johnson said it believed that developments had clouded Guidant's future prospects. For its part, Guidant characterized those effects as "near-term."

Courts have found that a significant negative impact must extend beyond the near term to qualify as grounds for terminating a contract. In 2001, a Delaware court ruled that Tyson Foods was not justified in terminating its merger deal with IBP, a beef processor. Tyson had argued that undisclosed financial problems at an IBP subsidiary had invalidated the deal.

Guidant's chief executive, Ronald Dollens, said in a statement, "We believe that the fundamentals of our business are strong and our markets and products have attractive prospects for growth."

Spokesmen for both companies declined to comment beyond their public statements or make executives available for interviews. Johnson & Johnson issued its statement immediately after the Federal Trade Commission on Wednesday gave it conditional approval to acquire Guidant.

It was in mid-December that Johnson & Johnson announced its plan to purchase Guidant, with the $25.4 billion deal representing the company's biggest acquisition by far. The move represented a decision by Johnson & Johnson to move into the market for implantable defibrillators and pacemakers, a field that is rapidly growing because of an aging population.

Defibrillators are devices that send out an electrical charge to disrupt a potentially fatal heart rhythm; a pacemaker controls a heart that is beating too fast or too slowly.

Spitzer's lawsuit, filed on Wednesday in New York State Supreme Court in Manhattan, accuses Guidant of fraud in connection with its failure to alert doctors about the electrical flaw in the defibrillator known as the Prizm 2 DR. In a statement, Spitzer said doctors needed safety information about implanted devices to determine which model was most appropriate for a patient.

"We would not permit this type of conduct in connection with the sale of cars or washing machines," said Spitzer, who last year sued drug companies to force them to disclose more clinical trial data. "It is simply unconscionable that it occurred with a critical medical device."

Late Wednesday, a Guidant spokesman, Steven Tragash, said the company had not seen the lawsuit. The company, however, has said repeatedly that it has done nothing wrong.

In a recent filing with the drug regulator, Guidant also said it planned to release more detailed data to doctors to show how many units of a particular model had failed because of severe malfunctions like a short circuit that prevented a unit from delivering therapy. The company has declined to say when it will begin disclosing that data.


NEW YORK Johnson & Johnson has threatened to abandon its plan to acquire Guidant, a troubled maker of heart devices, setting the stage for a financial and legal confrontation between the two companies over a deal valued at $25.4 billion.

The development, announced on Wednesday, was a stunning reversal for a deal that was applauded when it was announced in December as both a handsome payoff for Guidant shareholders and a way for Johnson & Johnson to enter the growing market for implanted heart devices.

But along the way, Guidant, the second-largest U.S. maker of heart devices, found itself ensnared by safety issues and product recalls that appeared to spin out of control.

Guidant disclosed in late May, for example, that one of its defibrillators had repeatedly failed because of an electrical flaw. That disclosure led to regulatory scrutiny, a string of product recalls and, most recently, a Department of Justice investigation.

In a statement, Johnson & Johnson, based in New Brunswick, New Jersey, said on Wednesday that it believed that the recalls and federal investigations had materially affected Guidant's "short-term results and long-term outlook."

Guidant, based in Indianapolis, responded that any impact from the recalls would be short-term and that Johnson & Johnson was legally obligated to complete the deal by Friday as originally negotiated.

Guidant's legal problems also grew more complex on Wednesday as the New York State attorney general, Eliot Spitzer, filed a lawsuit accusing the company of fraud in connection with sales of a defibrillator model that short-circuited in some cases. The lawsuit seeks to force Guidant to disclose device malfunction data and disgorge its profit from sales of the defibrillator.

The deal's breakdown could present a challenge to Johnson & Johnson's strategy of growth by acquisition.

Guidant and Johnson & Johnson did not rule out continuing talks, but with the original deal valued at $76 a share, any new agreement will depend on whether the two sides can compromise on a lower price. People involved in those talks described the latest moves by both companies as a high-stakes game, with neither particularly interested in walking away just yet.

But these people suggested that a gap remained between the price that Johnson & Johnson is now willing to pay and the price that Guidant is willing to accept. These people said Johnson & Johnson was hoping to pay no more than something in the mid-$60s a share, while Guidant was seeking a price in the low $70s.

While some analysts said Johnson & Johnson appeared to have the negotiating edge, other analysts said Guidant executives might choose to sue Johnson & Johnson because they believe that the company's stand-alone value is close to $60 a share. On Wednesday, Guidant closed at $60.40 a share, down 4.3 percent, or $2.70 a share.

"They are playing chicken, and right now it appears that J&J has the upper hand," said Joanne Wuensch, an industry analyst with Harris Nesbitt.

The centerpiece of any legal fight will revolve around a single but complex issue: whether Guidant's product recalls and related events have had a materially negative impact on its future sales and profit. Not surprisingly, both companies on Wednesday staked out their positions. In its statement, Johnson & Johnson said it believed that developments had clouded Guidant's future prospects. For its part, Guidant characterized those effects as "near-term."

Courts have found that a significant negative impact must extend beyond the near term to qualify as grounds for terminating a contract. In 2001, a Delaware court ruled that Tyson Foods was not justified in terminating its merger deal with IBP, a beef processor. Tyson had argued that undisclosed financial problems at an IBP subsidiary had invalidated the deal.

Guidant's chief executive, Ronald Dollens, said in a statement, "We believe that the fundamentals of our business are strong and our markets and products have attractive prospects for growth."

Spokesmen for both companies declined to comment beyond their public statements or make executives available for interviews. Johnson & Johnson issued its statement immediately after the Federal Trade Commission on Wednesday gave it conditional approval to acquire Guidant.

It was in mid-December that Johnson & Johnson announced its plan to purchase Guidant, with the $25.4 billion deal representing the company's biggest acquisition by far. The move represented a decision by Johnson & Johnson to move into the market for implantable defibrillators and pacemakers, a field that is rapidly growing because of an aging population.

Defibrillators are devices that send out an electrical charge to disrupt a potentially fatal heart rhythm; a pacemaker controls a heart that is beating too fast or too slowly.

Spitzer's lawsuit, filed on Wednesday in New York State Supreme Court in Manhattan, accuses Guidant of fraud in connection with its failure to alert doctors about the electrical flaw in the defibrillator known as the Prizm 2 DR. In a statement, Spitzer said doctors needed safety information about implanted devices to determine which model was most appropriate for a patient.

"We would not permit this type of conduct in connection with the sale of cars or washing machines," said Spitzer, who last year sued drug companies to force them to disclose more clinical trial data. "It is simply unconscionable that it occurred with a critical medical device."

Late Wednesday, a Guidant spokesman, Steven Tragash, said the company had not seen the lawsuit. The company, however, has said repeatedly that it has done nothing wrong.

In a recent filing with the drug regulator, Guidant also said it planned to release more detailed data to doctors to show how many units of a particular model had failed because of severe malfunctions like a short circuit that prevented a unit from delivering therapy. The company has declined to say when it will begin disclosing that data.

Labels: Department of Justice, Eliot Spitzer, New York AG

Lawyers Herd Vioxx Cases Into State Courts

By LINDA A. JOHNSON
The Associated Press
Monday, October 24, 2005; 7:46 PM

TRENTON, N.J. -- Lawyers for plaintiffs in the massive litigation over withdrawn painkiller Vioxx are banding together a legal "dream team" that plans to push all their future lawsuits into state courts, considered less friendly to defendant Merck & Co.

Houston lawyer Mark Lanier and New York attorney Perry Weitz have assembled a legal team of at least 10 law firms and 350 lawyers, Lanier told The Associated Press Monday. In addition to pushing the lawsuits to state courts, the effort is aimed at forcing Merck to start "trying to resolve cases fairly" with settlements instead of fighting each in court, Lanier said.

"We've got the best courtroom lawyers, we've got the best mass tort lawyers ... and we've got the best negotiators that America has to offer working together on a dream team that is Merck's biggest nightmare," he said. "We call it kind of the 'Legal Godfathers.'"

Meanwhile in Atlantic City, where Merck is wrapping up its defense in the second Vioxx product liability trial, the company suffered a setback Monday when the judge turned down its request to let jurors see a U.S. Food and Drug Administration document the company considers crucial to its case.

During a conference call with analysts at which Merck discussed its third-quarter earnings report, general counsel Kenneth Frazier said the company was sure its strategy of fighting every lawsuit remains correct.

"We expect to oppose any attempt to splinter, to disrupt the operation of the MDL," Frazier told the analysts, referring to multidistrict litigation in federal court. In the MDL, pretrial evidence-gathering for thousands of Vioxx suits is consolidated to save time and prevent Merck officials from having to give repeated depositions.

Merck outside counsel Ted Mayer said the company also prefers keeping cases in the MDL because that gives Merck consistent rulings on standards for admitting evidence and for expert testimony. He added that Merck has plenty of legal teams to handle simultaneous trials.

For plaintiffs, evidence rules in state courts generally allow more leeway. Lanier said Merck expected to fight most Vioxx cases in federal courts in the MDL, but he expects to have 10 legal teams running state trials nearly continuously, tying up Merck resources. Lanier said his lawyers' group already has about 18,000 potential lawsuits awaiting filing.

The lawyers will share depositions, documents and legal strategies, according to Lanier, who in August won a $253.4 million verdict for the widow of a Texas Vioxx user in the first Vioxx trial. That will be reduced to about $26 million because Texas caps punitive damages. Merck shares rose 82 cents, or 3.1 percent, to $27 in trading on the New York Stock Exchange.

Whitehouse Station-based Merck withdrew Vioxx from the market in September 2004 after research showed a doubled risk of heart attack and stroke for people using the drug for at least 18 months. The company already faces roughly 7,000 Vioxx product liability suits.

"I would be surprised if Merck would just cave (and settle cases) simply based on having to have lawyers run in a lot of different directions," said Deborah Barnard, a Boston lawyer specializing in product liability cases.

New York attorney Michael London, who is handling more than 100 Vioxx lawsuits but is not on Lanier's team, said Lanier's strategy is a good one because it makes things less predictable for Merck.

With nearly all the lawsuits so far filed either in New Jersey or federal court and just two judges overseeing those cases now, London said Merck can expect consistent rulings and know when its next cases will be scheduled for trial.

"Who knows what some 30, 40 state court judges might do?" London said, with trial schedules and evidence rulings. By law, cases filed in Merck's home state of New Jersey cannot be moved to federal court. Merck can automatically move to federal court any cases filed in other state courts and the small number of class-action cases filed so far.

If a state court plaintiff also names a second defendant, such as a doctor or pharmacy, in that plaintiff's home state, usually the case cannot be moved to federal court. However, Mayer said Merck has persuaded state judges in "a fairly large number" of such cases to transfer them to federal court, arguing the second defendant is not a bona fide target.

In the Atlantic City trial, Superior Court Judge Carol Higbee, who had blocked Merck's move to put the FDA memo in evidence before the trial started, rejected it again Monday after hearing from an expert cardiologist hired by Merck who called it "scientifically reliable."

The 19-page memo, issued last April, said other anti-inflammatory drugs also carry a risk of heart attack, stroke and death. Higbee, who said she read the memo 10 times before she understood what it was saying, said giving it to jurors would confuse them but not shed any light on the questions they will have to decide, in part because it was issued long after the 2001 heart attack suffered by plaintiff Frederick "Mike" Humeston.

"We do think it's relevant information the jury should be allowed to hear," Merck spokesman Jim Fitzpatrick said after the ruling. Merck has acknowledged links between Vioxx users and heart attacks after 18 months' use but contends Humeston was stricken for other reasons.

Labels: New York AG

A 'surprise' for Crazy Eddie investors - After fraud dragged down the company in 1989, SEC will distribute $6 million

October 11, 2005
by Greg Saitz
Star-Ledger Staff

At some point, perhaps after seeing one of Crazy Eddie's ubiquitous advertisements insisting its prices were "insane," thousands of investors decided it was perfectly reasonable to buy stock or bonds in the consumer electronics company. It wasn't.

Now nearly 16 years after the company crashed amid a spectacular fraud, many of those investors will be getting a reminder in the mail of their ill-fated venture -- a check.

The failure of Crazy Eddie, which in its final years had its headquarters in Edison, spawned a web of civil and criminal actions against those involved. Last month, a federal judge in Newark approved a plan to disperse $6 million that securities regulators collected from members of the Antar family, primarily Sam M. Antar, who co-founded the chain with his son Eddie Antar.

Years ago, investors received other distributions totaling nearly $125 million.

"People had given up trying to get anything back a long time ago," said Rick Simpson, an attorney with the Securities and Exchange Commission who has been involved since 1989. "So any time we can make a distribution, it's a pleasant surprise."

Business headlines often mention huge settlements reached in shareholder class-action lawsuits. A judge last month approved a $6.1 billion settlement in the WorldCom case, and experts believe the Enron settlements eventually will prove to be even bigger.

But the point at which investors are actually repaid a portion of their losses comes years after the agreements. Often, rummaging to find the necessary trade confirmations and filling out claims forms is rewarded with a check that's just a fraction of the amount that was lost.

"At the end of the day, you ask, 'What's this worth?'" said James Cox, a law professor at Duke University Law School who has studied the rate at which institutional investors submit claims in class-action settlements. "Sometimes not very much."

Aside from settlements reached in class-action cases, the SEC also tries to get money back for investors. Since 2002, the agency has identified more than $4.8 billion in penalties and disgorgements that should be returned to harmed investors.

But even though regulators had collected money in 73 of the 75 cases, as of April, just $60 million from three cases had been distributed to investors, according to a recent report by the federal Government Accountability Office. Another $25 million was being prepared for disbursement, said the report, which characterized the SEC's payment to investors as slow.

Crazy Eddie investors are luckier than most. About $124 million has been distributed to not only former shareholders, but also other creditors such as Sony and an investment team that bought out the company only to discover it was rife with fraud. Estimates of investor losses were pegged at about $140 million.

Howard Sirota, a New York attorney who represented shareholders in the Crazy Eddie class action filed in 1987, said a typical recovery for investors -- after attorneys' fees -- is about a penny a share. But Simpson, from the SEC, estimated Crazy Eddie stockholders have gotten perhaps 35 cents back for every dollar they invested.

The figure includes the latest $6 million payment, which is being divided among more than 10,000 claimants. Some of those claimants are brokerage houses, which means their recoveries must be divided again among all the individual clients who owned Crazy Eddie stock.

Securities regulators first went after Eddie Antar, who now lives on the Upper East Side in Manhattan, suing him in civil court for accounting fraud in 1989, about the same time the company collapsed. The SEC then sued Eddie Antar's father, Sam, and other family members in 1993, accusing them of reaping millions in illegal profit from selling stock that was artificially high because the company was making up its financial figures.

After a 1997 trial, a federal judge in 2000 ordered Sam Antar to repay $57.5 million in ill-gotten gains and interest.

The elder Antar, who was in his 80s when he died within the past year, battled efforts to collect for years, transferring assets to his wife and others, attorneys said. By this spring, though, a receiver appointed in the case amassed $10.4 million. Costs, fees and expenses account for the $4 million difference between the amount collected and the distribution. Bruce Goldstein, a Newark attorney who represented Sam Antar in the SEC case, declined to comment.

Thousands of investors received $82.2 million via payments in 1997 and 1998, part of a judgment against Eddie Antar, who served time in prison for stock fraud after living on the run in Israel. The money was in addition to a $42 million settlement with outside auditors and others in the class-action case.

"This is, in terms of dollar-for-dollar, the best result in the history of class actions in America, but it still leaves the victims out of pocket," Sirota said. Many investors don't even bother filing claims forms to get part of the settlements. In general, about half of those eligible actually participate, said Ron Miller, a senior consultant with NERA Economic Consulting.

Sirota has a pretty good idea why more don't. "There's a justifiable, widely held belief that it's not worth the paperwork because you get back a check for $16," he said. And the apathy isn't restricted to individual investors. A study by Cox, the Duke professor, and a colleague found less than 30 percent of institutional investors -- mutual funds and other large shareholders -- filed claims to collect on these settlements.

The professors found that amount could come to more than $1 billion a year.

Labels: Crazy Eddie, Enron, New York AG

Conrad Black's right-hand man pleads guilty to $32m fraud

David Teather in New York
September 21, 2005
The Guardian

David Radler, the former right hand man of disgraced media tycoon Conrad Black, pleaded guilty to fraud charges yesterday in a Chicago courtroom. The plea could prove a pivotal moment in the long-running investigation into the alleged looting of Hollinger International, the newspaper group that until last year owned the Daily Telegraph. "This is the first step in making amends for what has taken place," Mr Radler's lawyer, Anton Valukas, said after the hearing.

Mr Radler had been a business partner of Lord Black for 35 years and was the financier behind the flamboyant former press baron. But there were clear signs of a crack in the relationship last month when Mr Radler was indicted on seven fraud charges, each carrying up to five years in prison. The US attorney general, Patrick Fitzgerald, said at the time that Mr Radler would plead guilty and had agreed to cooperate with further investigations. Federal investigators disclosed in March that they were conducting a fraud inquiry into Hollinger, Mr Radler and Lord Black.

There were reports in the US media at the weekend that Lord Black could in turn be planning to point the finger of blame firmly at Mr Radler. According to the Wall Street Journal, Lord Black has been building a defence strategy arguing that he had not been a hands-on manager and that any alleged misdeeds were down to Mr Radler. The indictment alleges that Mr Radler and his "co-schemers" diverted more than $32m (£18m) of Hollinger funds to themselves and companies controlled by him, Lord Black and others. The funds were largely in the form of "non-competition" payments - money that is usually paid to the seller of a business to guarantee that it doesn't immediately re-enter the market it has just exited. In this case, the money was allegedly paid to individuals, instead of to Hollinger.

Lord Black was ousted as Hollinger chief executive in November 2003 after an internal inquiry sparked by a disgruntled shareholder. The investigation eventually uncovered hundreds of millions of dollars that had allegedly been taken by Lord Black, Mr Radler and others in unapproved bonuses and non-competition fees and excessive pay. The company has since sued for the return of $425m.

A 500-page internal report accused Lord Black of running a "corporate kleptocracy" and of pursuing an "endless quest" for cash. Lord Black denies all wrongdoing and has launched countersuits against Hollinger. Lord Black craved a British title so much he gave up his Canadian citizenship. But his reputation has been left in tatters by the financial scandal. He has been forced to sell his lavish London townhouse as well as a mansion in Palm Beach, Florida.

Lord Black and Mr Radler began their business relationship by acquiring a small newspaper in Quebec in 1969. They built an empire of more than 340 titles, including the Chicago Sun-Times, the Daily Telegraph and the Jerusalem Post. While Lord Black hobnobbed in London, Mr Radler worked behind the scenes in the company's offices in Vancouver and Chicago.

The new management at Hollinger has since broken the company up. The Telegraph was sold to the billionaire Barclay brothers in June last year for £665m. According to the indictment, in one instance Hollinger sold newspapers to a company controlled by Mr Radler and Lord Black. It then paid Mr Radler and Lord Black's holding company Ravelston $1.2m "not to compete with themselves".

In March 2003 a Hollinger annual report disclosed details of "non-competition" payments - in one case of $53m paid into a Black-controlled firm. The auditors had insisted on the disclosures. Eight months later, Radler resigned with an agreement to pay back unauthorised fees of $7.2m. On the same day, Conrad Black quit as chief executive.

Labels: Conrad Black, General Re, New York AG, Quest

Class Action Could Mean Billion-Dollar Exposure for Merck - Multistate class of third-party payers would be entitled under Consumer Fraud Act to treble damages and attorney fees

Tim O'Brien
New Jersey Law Journal
September 2, 2005

After Merck & Co.'s devastating loss in Texas several weeks ago in the first Vioxx case to go to a jury, the nation's eyes now turn to Atlantic City, where New Jersey's first case is set for trial on Sept. 12. There are about 5,000 personal injury suits filed nationwide, about half in New Jersey, over the Merck painkiller that has been linked to increased risk of heart attack or stroke, but lurking behind those thousands of cases is a single one that could pose the greatest danger to America's third-largest drug company.

On July 29, in the midst of the trial in Texas, New Jersey Superior Court Judge Carol Higbee certified a national class action covering every private third-party payer that allowed members of its health benefits plan to buy Vioxx. With 20 million Vioxx users in the United States alone since 1999, Merck's exposure could be well into the billions if it loses the case, International Union of Operating Engineers Local 68 Welfare Fund v. Merck & Co. Inc.

The majority of Vioxx purchases were through plans run by insurance companies and health maintenance organizations. Unlike the thousands of individual personal injury claimants, Local 68 lawyers don't have to prove that anyone suffered injury. The suit was filed under New Jersey's plaintiff-friendly Consumer Fraud Act, under which all that need be proved is that the third-party payers were influenced by unconscionable Merck business practices -- primarily deceptive marketing and promotion of Vioxx, either affirmatively or by omitting data such as the possibility of heart attacks.

The Consumer Fraud Act does not require proof that the buyer relied on the allegedly false advertising or that there is a specific causal link between a purchase and the marketing: only that there was a "causal nexus between the concealment of the material and the loss." If the engineers' union wins, all third-party payers nationwide can recoup payments to the company, and under the CFA they are entitled to collect treble damages as well as attorney fees. Assuming 10 million users each bought $1,000 worth of Vioxx through their benefits plan (Merck charged $72 for a 30-day supply), a plaintiffs' verdict would come to $10 billion plus fees and expenses.

Lead Local 68 lawyer Christopher Seeger, of Seeger Weiss in New York and Newark, and co-counsel John Keefe Jr., of Lynch Keefe Bartels in Shrewsbury, N.J., note that some carriers, HMOs, unions or plan administrators could opt out of the class, though none has so far. The class excludes government entities and the Medicaid and Medicare programs.

Merck lawyers Diane Sullivan of Dechert in Princeton and Jeffrey Judd of O'Melveny & Myers in San Francisco filed a motion for leave to appeal Higbee's class certification, or interlocutory appeal, with the Appellate Division on Aug. 18. The defense counsel argue in their brief that Higbee erred in deciding that under New Jersey's choice-of-law rules such a national class dealing with the CFA should apply to out-of-state transactions. The Merck lawyers further argue that the CFA requires individualized proof of causation by each class member.

The certification of the third-party class was the second big blow dealt to the company by Higbee, the judge the New Jersey Supreme Court designated in 2003 to handle all the state's Vioxx litigation. In July 2004, she denied Merck's motion to dismiss the Consumer Fraud Act claim for lack of standing. Merck lawyers argued that HMOs and insurance companies can't be considered consumers under the CFA and are therefore not entitled to the law's protections. Only individuals may sue, Merck contended.

But Higbee ruled that Merck's attempt to limit the consumer under the act to "the one who actually takes the medication or uses the product is too simplistic." The focus, she said, should be on the "misrepresentation causing a 'person' to pay for something they otherwise would not have been willing to pay for because of the higher cost." The company has already lost an interlocutory appeal on its move to dismiss based on standing. The appeal on the merits remains.

Merck would have been able to remove the case to federal court under the Class Action Fairness Act of 2005, but the case was filed before the law was passed. The class certification has put Merck in a scrambling mode. Higbee herself said in her ruling that "there is no controlling Supreme Court or Appellate Division level decision as to whether [the Consumer Fraud Act] can be applied to a class action involving out of state plaintiffs and a New Jersey defendant." She rejected defense arguments that such a multistate class action would be unmanageable because the claims are predominately individual and the state's choice-of-law rules require that the consumer fraud law of the home state of each putative class member apply.

The judge analyzed the consumer fraud laws of every state, and, after acknowledging that New Jersey probably has the strongest one, concluded there is nothing in any state or federal law barring such a class certification here. She found that Local 68 meets all the requirements of the class action rules -- it is representative of the class; its claims are typical of other third-party payers nationwide; it's impractical to try so many plaintiffs separately; there are common issues of law and fact; and the plaintiffs attorneys are competent to represent the class.

As a result, Higbee concluded that the case belongs in New Jersey under state law. "There does not appear to be any state with stronger ties to this litigation than New Jersey," she wrote, citing all the research and development, policy decisions, marketing operations, manufacturing and even press releases generated by Merck in the state. "Does New Jersey have any reason not to protect consumers (third-party payers) from other states from fraud committed by a New Jersey corporation? … No. … Do other states have any interest in denying their citizens the protection of New Jersey law if it offers them more protection than the law of plaintiff's state? … No."

Seeger, who is also co-lead liaison counsel to the 1,800 cases consolidated before U.S. District Judge Eldon Fallon in New Orleans, says, "I believe there are similar class action rulings for settling purposes, but I agree that this seems to be the first ruling regarding New Jersey's CFA anywhere for a litigation class."

Merck's more immediate battle in New Jersey is the first personal injury trial, Humeston v. Merck & Co., ATL-L-2272-03, set for jury selection in two weeks. Merck filed a motion to postpone the trial's start for 45 days, citing a "media blitz" after the first Vioxx trial. Higbee turned down that request Monday, also rejecting several other Merck motions related to the upcoming trial.

Following Humeston will be 2,311 cases, though the number continues to rise almost daily. The plaintiffs come from 33 states. Unlike cases filed in other states, the defense can't have them removed to federal court -- where the rules of evidence tend to favor defendants -- because Merck is a New Jersey company. Merck has vowed to vigorously fight the suits notwithstanding a hint by its general counsel last week that some may be settled on a case-by-case basis.

The company is expected to argue that Frederick Humeston of Boise, Idaho, who took Vioxx for two months before suffering a heart attack in 2001 at age 56, had other risk factors, including clogged arteries, a weight problem and a lack of exercise. Seeger, who represents Humeston and another 225 plaintiffs, denies that and says Humeston has long needed painkillers for a knee injury from a combat wound in Vietnam. Calling his client "a two-time Purple Heart decorated Marine," Seeger notes that "it's gonna be hard to keep his service out of the case because that's why he took Vioxx."

Both sides jointly selected Humeston in a process, conducted by Higbee, that initially whittled the selection to five plaintiffs. Dechert partner Sullivan is expected to try the case for the company, which has also brought in Williams & Connolly partner Stephen Raber and Christy Jones of the Jackson, Miss., firm of Butler, Snow, O'Mara, Stevens & Cannada.

Seeger and associate David Buchanan, who has taken the lead in much of the New Jersey litigation, know more about the Vioxx litigation nationwide than anyone, Higbee said in concluding that Seeger Weiss is qualified to represent the third-party payer class. The firm, having led the discovery process, is the depository of 7 million documents produced so far, according to the judge. Seeger had filed the class action and many related cases before Merck withdrew Vioxx 11 months ago.

But whatever the outcome of Humeston -- other cases are set to go shortly in California and Alabama as well as in federal court in Louisiana -- the Local 68 case is expected to go to trial next year. Plaintiffs' co-counsel Keefe calls it a simple case: "We say three things. Vioxx was no more efficacious than over-the-counter drugs; the plans were deceived into paying 800 percent more than those OTC drugs; and the company did not disclose the risk of cardio problems."

Labels: Louisiana, New York AG

Former KPMG officials indicted: Eight accused in questionable sales of tax shelters

By Jonanthan D. Glater
New York Times

Eight former partners of KPMG, the giant accounting firm under investigation for its role in creating and selling questionable tax shelters, were named by federal prosecutors in an indictment unsealed Monday in federal court in Manhattan. The indictment is the long-anticipated next step in prosecutors' broadening investigation into shelters that from 1996 through 2002 helped wealthy investors evade billions of dollars in taxes. It is also strong evidence that the government is prepared to pursue the accountants, financial advisers, lawyers and bankers who had a hand in the transactions.

KPMG was mindful of how criminal charges wrecked competitor Arthur Andersen in an Enron-related accounting scandal. Some 28,000 workers had to find other jobs after Andersen was convicted of destroying Enron-related documents, which forced it to surrender its accounting license and stop conducting public audits. Avoiding the loss of jobs that followed Andersen's conviction was a factor in the government's decision not to prosecute KPMG, authorities said.

"The conviction of an organization can affect ordinary workers," Attorney General Alberto Gonzales said. "Justice must serve offenders and victims as well as the economy and the general public." The Supreme Court reversed Arthur Andersen's conviction earlier this year. Monday's indictment refers to unnamed foreign banks and other entities, which suggests that the government may file other criminal charges at some later date. While the banks are not identified, a 2003 report by a Senate subcommittee said that Deutsche Bank, UBS of Switzerland and HVB of Germany among others had roles in the questionable KPMG shelters. And earlier this month, a former executive in the New York office of HVB pleaded guilty to conspiracy to commit tax fraud and is presumably assisting prosecutors in their investigation.

The indictment, which names an outside lawyer along with the former partners, accuses the nine of conspiring to defraud the government by concocting "tax-shelter transactions and false and fraudulent factual scenarios to support them"; by preparing "false and fraudulent documents to deceive" the Internal Revenue Service; by preparing "false and fraudulent" tax returns that included the false tax losses; and taking steps to conceal the shelters from the IRS.

The former KPMG partners named in the indictment are: Jeffrey Stein, John Lanning, Richard Smith, Jeffrey Eischeid, Philip Wiesner, John Larson, Robert Pfaff and Mark Watson. The lawyer is Raymond Ruble. The arraignment of the nine men is scheduled for Sept. 6. Nearly all the lawyers representing the defendants and who could be reached for comment Monday said their clients intended to fight the charges vigorously.

The indictment was unsealed as a federal judge approved a $456 million settlement between KPMG and the Justice Department that allows the firm to avoid a criminal indictment, which would have been a near-certain death knell for the firm. As part of a deferred prosecution agreement that remains in effect until Dec. 31, 2006, the firm admitted wrongdoing, accepted an outside monitor, and pledged to limit its tax practice.

"The message we want to send is that if you engage in fraud, if you participate in providing false statements, you're going to be prosecuted," Gonzales said. "We want to be very, very clear: There is no company that is too big or too important an industry that will escape prosecution if they in fact engage in wrongdoing."

The agreement allows KPMG to begin to put the criminal investigation, which has been under way for more than a year and a half, behind the firm, said Timothy Flynn, KPMG's chairman and chief executive. "We regret the past tax practices that were the subject of the investigation," Flynn said in a prepared statement. But for individual former partners, the ordeal begins now in earnest — and under the terms of the agreement with prosecutors, the firm is allied against them. What strategy the partners may pursue — and to what extent they will coordinate their joint defense — is not clear.

According to the indictment, one of the defendants, Eischeid, gave "false, misleading and evasive" testimony to the IRS in 2002 about certain tax shelters. The indictment cited an e-mail message from one KPMG partner who wrote that the firm's general counsel and outside lawyer "determined that the best strategy was 'the less said the better.' " As a result, the e-mail continued, "the record will reflect repeated 'I don't knows,' 'I don't recalls,' and 'I was out of the loops' — the rope-a-dope/Enron defense."

As part of its agreement with the government, KPMG issued a strongly worded acknowledgment of wrongdoing, which can be used by prosecutors in their criminal case against the individual partners, as well as against the firm in the event it violates the terms of the deferred prosecution agreement. Lawyers for the former partners criticized the firm's statement as meaningless. "The government held a gun to KPMG's head and said, 'Say what we want or we will put you out of business,' " said Robert Hotz Jr., who represents Lanning.

Labels: Department of Justice, Enron, KPMG, New York AG

U.S. Investigating Long Island School Districts

By Lisa W. Foderaro

August 31, 2005

In the wake of a string of school-spending scandals on Long Island, the federal government this week blanketed districts in both Nassau and Suffolk Counties with letters requesting financial records from the past five years.

As districts were preparing for the start of a new school year, the Office of Inspector General at the United States Department of Education asked superintendents in a letter dated Aug. 23 for information relating to contracts exceeding $10,000 and tax documents for all outside workers and consultants. The requests were first reported by Newsday yesterday.

A spokeswoman for the inspector general's office would not comment on the nature or scope of the investigation.

But one school official, Henry L. Grishman, who is superintendent of the Jericho schools and also chairman of a statewide committee on school accounting practices, said he believed that "most every district in Nassau County and probably in Suffolk had received the letter."

Since the eruption of a major financial scandal last year in Roslyn, school districts have been under close scrutiny from local prosecutors as well as the New York State comptroller, Alan G. Hevesi, whose office has completed 13 of 23 school audits on Long Island.

Criminal charges have been brought against school officials and employees in several districts.

But the entry of the federal government seemed to catch school officials off guard.

The letter, which included a disk containing a spreadsheet for districts to complete, said that the Education Department's Office of Inspector General had joined with the United States Department of Justice and "other federal agencies" to review school expenditures on Long Island.

"I can't believe this," said J. Philip Perna, the superintendent of the Montauk Union Free School District, as he opened and read the letter from the Department of Education while on the phone with a reporter.

"It's going to be a lot of work for everybody," he added. "We'll do what we have to do. We'll certainly comply with the request, if nothing else to prove that there are some honest people in the business, which is most of us."

Some law enforcement officials questioned the federal move. The Suffolk County district attorney, Thomas J. Spota, said neither he nor anyone in his office had been notified of the investigation. He said he was concerned that the new inquiry could be covering old ground.

"We have a very extensive, aggressive and growing probe of school districts on Long Island," he said. "We welcome their involvement, but it would really be a shame if they duplicated all of the hard work done by the our staff, the New York State comptroller's staff and the Suffolk County comptroller's staff. There's a lot to be done in this area, and the resources need to be used efficiently."

A spokesman for Mr. Hevesi declined to comment on the federal inquiry. Last week, the comptroller's office issued a blistering report on its audit of the Central Islip school district, saying it paid for "excessive, questionable and unsupported travel and other expenses for school board members."

Auditors found that the district had no policy for credit card use. The superintendent and board members had not attached any receipts to credit card claims totaling $82,873, according to a news release from the comptroller's office.

An additional $9,500 in credit card charges could not be traced to any legitimate business purposes. One board member charged $1,726 for trips to Rochester and Albany; the charges included $47 spent at a performing arts center. No explanation was given for the trips, and auditors found no indication that conferences were being held in the cities at the time the trips were made, the audit said.

In its request for records, the Departments of Education asked districts to identify all vendors, contractors, consultants or other business concerns receiving any single payment of $10,000 or more between January 2000 and this July. It also asked for all 1099 tax statements, federal tax forms issued to vendors receiving payment of $600 or more for services, for the same period.

Labels: Department of Justice, New York AG

KPMG Will Pay $456 Mln Fine to Avoid Prosecution, People Say

by Ryan J. Donmoyer
Bloomberg
August 27, 2005

KPMG LLP will pay $456 million in fines under an agreement with federal authorities to avoid prosecution by the U.S. government for selling abusive tax shelters, people familiar with the matter said.

The settlement, under negotiation since June, will be unveiled in Washington on Aug. 29, the people said. The announcement may also include indictments of as many as a dozen former partners of the accounting firm, they said.

The agreement is the government's biggest victory in its fight against tax shelters that proliferated in the 1990s. Avoiding criminal prosecution may enable KPMG International's U.S. arm avoid an exodus of clients, which led to the closing of Arthur Andersen LLP after its indictment for obstruction in 2002. The deal marks a surrender for KPMG, which fought the government after rivals Ernst & Young LLP and PricewaterhouseCoopers LLP paid fines of as much as $20 million.

``KPMG elected to fight to the bitter end, and then they discovered what the bitter end was and decided, `Hey, let's not do that,''' said former IRS Commissioner Donald C. Alexander, now a partner with Akin, Gump, Strauss, Hauer & Feld, a law firm in Washington.

Under the terms of the deferred-prosecution agreement, KPMG will pay the $456 million fine in three installments, the people familiar with the matter said. The first installment, due next week, will be about half the amount. The firm will pay $100 million in June 2006 and another $100 million in December 2006.

Retraining Advisers

Attorney General Alberto Gonzales, Internal Revenue Service Commissioner Mark Everson and U.S. Attorney David Kelley will announce the settlement, the people said. U.S. District Judge Loretta A. Preska, who must approve the agreement, will hold a hearing earlier in New York.

KPMG also agreed to not take on any new tax clients for 30 days while it retrains its advisers on new standards, the people said. Under the agreement, all tax opinions given to clients must be likely to survive an IRS audit, the people said. The previous standard required that the advice be ``more likely than not'' to win IRS approval.

The New York Times said earlier today that the amount of the fine, previously reported by Bloomberg News as more than $450 million, would be $456 million.

Former Securities and Exchange Commission Chairman Richard Breeden, 55, will monitor the firm's compliance with the agreement, the people said. If the firm meets the terms of the deal, the deferred criminal charges against it will be dismissed in December 2006, the people said.

Independent Monitor

Breeden, who was appointed to the SEC by President George H.W. Bush in 1989 and served until 1993, didn't return calls for comment. KPMG spokesman George Ledwith declined to comment. Herb Hadad, a spokesman for the U.S. Attorney's Office in Manhattan, also declined to comment.

Arthur Andersen lost most of its partners and clients after being accused by the Justice Department of obstructing an investigation into its audit client, Enron Corp., the now bankrupt energy trader. Andersen's conviction, overturned by the U.S. Supreme Court in May, came too late to resurrect it and reduced the number of large accounting firms to four.

Deferred prosecutions have been on the rise since the Enron bankruptcy in December 2001 kicked off a wave of investigations into corporate fraud. Computer Associates International Inc., Bristol-Myers Squibb Co., Time Warner Inc. and American International Group Inc. made similar arrangements to avoid criminal charges in the last two years.

KPMG has about 1,600 partners and reviews the books of more than 1,000 companies including General Electric Co. and Pfizer Inc.

`Full Responsibility'

In a June statement, KPMG said that the firm has stopped selling abusive tax shelters and that it took ``full responsibility for the unlawful conduct by former KPMG partners'' from 1996-2002.

The KPMG shelters were sold to wealthy individuals such as former Treasury Secretary William Simon Sr., the late stock car racing champion Dale Earnhardt and Thomas Frist III, the brother of Senate Majority Leader Bill Frist. None of the individuals has been accused of wrongdoing.

The U.S. Senate's Governmental Affairs Permanent Subcommittee on Investigations concluded in November 2003 that accounting firms sold illegal shelters because the penalties for doing so were minuscule compared with the fees they earned.

Labels: Department of Justice, Enron, KPMG, New York AG

Wall Street's private eye

Vanson Soo
The Standard
August 29, 2005

Jeremy Kroll rolls his eyes when someone attempts to portray him as a second-generation private eye, even though his family name is as synonymous with the modern profession of risk consultancy and investigations as Pinkerton's once was with detection.

Still, the 34-year-old son of the man who founded Kroll Associates, who works under his father as managing director of global business development and strategy of the company's consulting services group, acknowledges that something akin to the film noir gumshoe spirit does run in his family.

``Back when my dad started the business, my grandma spent a week tailing a subject in her car, changing her outfit every day to make herself harder to spot,'' he says, smiling at the recollection.

``My family is full of curious people, and that has not changed.'' The patriarch, Jules Kroll, now 64, is a former Manhattan assistant district attorney who came to believe that a lot of the time and money spent prosecuting corporate crime would be better spent trying to prevent it. With that in mind, he set up the company in 1972.

Though the company was sold last year to insurance giant Marsh & McLennan, Jules Kroll remains its executive chairman. The younger Kroll, who was in Hong Kong earlier this month to visit clients, graduated in French, Italian and fine arts from Georgetown University in Washington, DC, the same school where his father got his law degree.

A family man, he's the eldest of four children; his sister, Dana Kroll, also works at New York headquarters as an associate managing director. In nine years with the firm, Jeremy Kroll has risen from investigator in the areas of corporate intelligence and due diligence to head of a division with more than US$500 million (HK$3.9 billion) in annual revenue.

If Kroll Associates enjoys some cloak-and-dagger mystique, it's probably because of the large number of ex-police, military and intelligence officers Jules Kroll originally hired to lend his new company credibility.

Nowadays, its recruits are just as likely to be computer nerds, lawyers, accountants and investment bankers. The company has spread far beyond its beginnings in investigative and security services. Today, its four primary business segments are consulting, corporate advisory and restructuring, background screening and technology services.

"Technology is a big growth area,'' Jeremy Kroll says. "Computer forensics is a major weapon in our arsenal.'' The company glories in its reputation as "Wall Street's private eye,'' a firm that multinationals, and on occasion even the US government, are comfortable entrusting with their most sensitive affairs.

It burnished its reputation in the early 1990s, successfully tracking down millions of dollars of assets concealed by political outlaws like Jean-Claude Duvalier of Haiti, Ferdinand and Imelda Marcos of the Philippines, and Saddam Hussein of Iraq. Less glamorous, but probably more typical of the way Kroll earns its bread and butter, is its mandate, bestowed in 2002, to restructure Enron, the fallen angel of the US energy business.

Kroll booked US$900 million in turnover last year and currently employs more than 4,000 people in 65 offices worldwide. Kroll files says the company's security work revolves mainly around emerging markets. ``In some industries, such as oil and energy, there is a need for companies to be in `bad neighborhoods' where it's dangerous to business.''

Does that include China? Not really, he says. If China were considered that dangerous, he adds, would Yahoo! ever have invested, as it did recently, US$1 billion (HK$7.8 billion) to acquire a 40 percent stake in Alibaba, a narrowly focused Internet outfit in a speculative industry that last year earned just US$46 million?

``Overall, we have seen a maturing view of Greater China over the past five to 10 years, as experience and confidence have increased,'' he says. Though in earlier years, China may have been just another bandwagon on which globetrotting companies were expected to jump, it has since moved up the charts to become an integral part of many global strategies.

With that, the level of risks has risen proportionately. ``We get daily phone calls from American and European companies about troubles that are threatening their joint ventures in China,'' Kroll says. The China concerns of Kroll's clients today fall very broadly into three categories - transactional risks, regulatory risks and operational risks. Transactional risks relate to joint ventures and partnerships.

Regulatory risks are those inherent in a company's dealings with Chinese authorities, and operational risks involve issues like technology, supply chains and general ambiguities associated with doing business in the mainland, for example, intellectual property protection.

Kroll also advises on political and societal risks that tend to become more important for companies as their mainland roots deepen. "Kroll helps clients understand their markets a lot better, and to recognize that China is becoming an influential player in the global marketplace,'' he says.

Financial institutions are also rushing headlong into the mainland but many are plagued by doubts about their clients - as basic, in some cases, as whether they are real or fictitious. "The real ownership structure of a company and who's behind them are issues that must be dealt with.''

Establishing title is a major headache for real estate investors. Shell companies abound, and it is often unclear just who owns what. I ask Kroll what, after a decade in the company, is his most memorable experience? Surprisingly, it has nothing at all to do with catching someone red-handed in a headline-grabbing scandal. "No. It's the recovery of a kidnapped child. It happened when I was in my late 20s. The feeling of returning a child safely to his family is beyond description.''

Finally, I can't help asking him if it's true, as some people have suggested, that Kroll people carry guns when they're in China. "No way,'' he says, laughing. ``The only people in the company who ever carry guns are those involved in personal security protection, but they've never been deployed anywhere in Greater China.''

That's a pretty good indication that Hong Kong and China are not all that dangerous as places to do business.

Labels: background checks, China, Enron, Kroll, New York AG

“The vast majority of state and federal prosecutors don’t have the resources, staff, energy, perspective, know-how, legal authority, and – perhaps most importantly – political drive needed to bring major corporate crime prosecutions,” said Russell Mokhiber, editor of the Corporate Crime Reporter. “The overwhelming number of prosecutors in the country look at the obstacles and say – I’ll pass. But these ten prosecutors have what it takes to tackle the problem.”

“The prosecutors who enter this field need an added element – a finely tuned sense of political and prosecutorial discretion – knowing when to go and when to stop, so as not to offend the powers that be,” Mokhiber said. “If things go right, prosecutors use the publicity they gain from these prosecutions to fuel their ongoing quest for higher office. If things go wrong, as they can easily and often do, these prosecutors will be publically humiliated in the courtroom by high-priced white collar crime defense attorneys and in the court of public opinion by the business press and political rivals.”

The top prosecutors (in alphabetical order) are:

Christopher Christie, U.S. Attorney, New Jersey
James Comey, Deputy Attorney General, Justice Department, Washington, D.C.
Patrick Fitzgerald, U.S. Attorney, Chicago
David Kelley, U.S. Attorney, Manhattan
Alice Martin, U.S. Attorney, Birmingham, Alabama

Patrick Meehan, U.S. Attorney, Philadelphia, Pennsylvania
Robert Morgenthau, District Attorney, Manhattan
Eliot Spitzer, Attorney General, New York
Michael Sullivan, U.S. Attorney, Boston, Massachusetts
Debra Yang, U.S. Attorney, Los Angeles, California.

The prosecutors were chosen for their consistent emphasis on high profile corporate and white collar crime cases.

Labels: Department of Justice, Eliot Spitzer, New York AG, Quest

Spitzer and SEC question Lloyd's

By Jason Nisse
August 21, 2005
Eliot Spitzer, the New York State Attorney General, and the US financial regulator, the Securities & Exchange Commission, have dragged Lloyd's of London into their investigation into insurance market abuses in America.

Investigators from the SEC and the Attorney General's office contacted Lloyd's last month with a list of questions, The Independent on Sunday has learnt. These relate to a practice called "finite reinsurance", a system of complex long-term transactions which the regulators contend may have been used to make insurance companies' accounts look in better shape than they were.

The investigation has centred on particular contracts between American International Group, one of the US's largest insurers, and General Re, a subsidiary of Warren Buffett's Berkshire Hathaway investment giant. Berkshire admitted earlier this month that it was the target of the investigation and that the Financial Services Authority in London was also involved.

The probe has led to the departure of Milan Vukelic, the chief executive of a Berkshire subsidiary with links to the Lloyd's market, and to questions being asked about the reputation of Mr Buffett, one of America's most respected businessmen.

Lloyd's has confirmed that it has been in discussions with the investigators. US reinsurance accounts for nearly two fifths of the entire turnover at Lloyd's.

"We have had a request from the US regulators for information which we are in the process of complying with," said Julian James, the director of markets at Lloyd's. "We understand that the investigation is not directed at us and the business area they are investigating is a small part of Lloyd's annual business."

Labels: Eliot Spitzer, General Re, New York AG

From WorldCom's Origin to Sullivan Fraud Sentence: Timeline

August 11, 2005
By Carrie O'Reilly
Bloomberg

The following timeline lists events leading to and in the investigation of WorldCom Inc. and former finance chief Scott Sullivan, who was sentenced to five years in jail today for helping lead an $11 billion fraud that ended in bankruptcy.

The Timeline

September 1983: Businessmen Murray Waldron and William Rector meet in a Hattiesburg, Mississippi, coffee shop to discuss plans for a new reseller of long-distance service. A waitress scribbles the letters ``LDDC'' on a napkin and gives the company its first name, Long Distance Discount Co. The University of Southern Mississippi is the first customer.

April 1985: Early LDDC investor Bernard Ebbers, a former bar bouncer, basketball coach and hotel owner, is named chief executive officer.

August 1989: LDDC goes public by acquiring Advantage Cos.

May 1995: LDDC changes its name to WorldCom.

April 1998: Clinton, Mississippi-based WorldCom buys MCI Communications Corp. for $47 billion to challenge global telecommunications companies such as British Telecommunications Plc, France Telecom SA and Deutsche Telekom AG in selling businesses one-stop long-distance and data services.

June 21, 1999: WorldCom shares reach an all-time high of $61.99.

Sprint Merger Abandoned

July 2000: Ebbers abandons a planned $152 billion merger with the No. 3 U.S. long-distance carrier Sprint Corp. in the face of opposition by U.S. and European antitrust regulators.

June 8, 2001: Trading starts in tracking stock of WorldCom's consumer long-distance unit, MCI Group.

March 11, 2002: WorldCom says U.S. securities regulators are investigating loans to top executives and accounting practices.

April 3, 2002: WorldCom says it will fire 3,700 workers, or 4.4 percent of its workforce, in the face of declining demand and the accounting investigation.

April 25, 2002: The company says first-quarter 2002 profit fell 78 percent as long-distance sales slid.

Ebbers Quits

April 30, 2002: Ebbers, found later to have borrowed $408 million from the company in April, quits after 17 years as chief executive. Vice President John Sidgmore replaces him.

May 10, 2002: The three biggest credit-rating companies drop their ratings of WorldCom debt to below investment grade.

May 14, 2002: WorldCom shares fall in the most active day for a U.S. stock, with 413 million shares trading after Standard & Poor's says it will remove the company from its main index.

May 22, 2002: WorldCom says it will buy MCI Group stock to save $284 million in annual dividend costs.

June 5, 2002: WorldCom, weighed down by $30 billion in debt, says it will exit the wireless business immediately and cut jobs that some analysts estimate may total as many as 16,000.

WorldCom Admits Fabrications

June 25, 2002: WorldCom says it fabricated profit by misreporting $3.85 billion in expenses and fires Chief Financial Officer Scott Sullivan. The Securities and Exchange Commission says the earnings restatement for the first quarter and 2001 shows ``improprieties of unprecedented magnitude.'' WorldCom says it notified the SEC after auditors found expenses booked as capital expenditures. The company says it will cut 28 percent of its workforce, or 17,000 jobs.

June 27, 2002: The SEC says it will review $31.6 million in stock sales by WorldCom officers and directors during the 15 months that the company concealed losses.

July 12, 2002: Twenty-five banks sue WorldCom, claiming the company committed fraud in borrowing $2.5 billion six weeks before announcing that the expenses were misreported.

July 15, 2002: WorldCom is sued by the California Public Employees Retirement System, the largest U.S. pension fund, and other pension funds over $433 million in bond losses.

Debt Ratings Cut

July 17, 2002: WorldCom credit ratings on some debt are cut to D, indicating default, by Standard & Poor's after the long-distance carrier fails to make $74 million in interest payments.

July 21, 2002: WorldCom files for bankruptcy, reporting more than $35 billion in debts and $103.9 billion in assets, the largest U.S. bankruptcy ever measured by assets.

Aug. 1, 2002: Sullivan and David Myers, WorldCom's former controller, are arrested.

Aug. 28, 2002: Sullivan is indicted on charges of making false SEC filings to deceive investors and inflate WorldCom earnings.

Sept. 4, 2002: Sullivan pleads not guilty in federal court in New York.

Following Orders

Sept. 26, 2002: Myers pleads guilty to conspiracy and securities fraud and says he was following senior managers' instructions.

Oct. 2, 2002: Buford Yates Jr., WorldCom's former accounting director, pleads guilty to participating in fraud.

Oct. 10, 2002: Betty Vinson and Troy Normand, former WorldCom accounting officials, plead guilty to fraud and conspiracy.

Oct. 11, 2002: Myers pleads guilty in Mississippi to a state charge of conspiring to commit securities fraud.

Nov. 5, 2002: The SEC says WorldCom misstated $9 billion in income, almost $2 billion more than previously disclosed, and adds two charges to its civil suit against the company.

Nov. 15, 2002: Yates and Myers settle civil fraud charges with the SEC.

SEC Settlement

Nov. 26, 2002: WorldCom settles SEC fraud case, agreeing to hire an independent consultant to review its accounting and allow a court-appointed monitor to review its governance.

December 2002: Michael Capellas replaces Sidgmore as WorldCom chief executive officer. His $50 million pay package is approved on condition that court-appointed monitor Richard Breeden gets more say on the CEO's bonuses.

March 31, 2003: An internal investigation uncovers $11 billion in overstated profit, $2 billion more than previously disclosed.

June 9, 2003: Bankruptcy examiner Richard Thornburgh, a former U.S. attorney general, reports a ``board breakdown'' at WorldCom allowed fraud to flourish. Former SEC lawyer William McLucas, hired by WorldCom to examine company accounting, reports the fraud was a ``consequence'' of the way Ebbers ran the company.

Oklahoma Charges

Aug. 27, 2003: Oklahoma Attorney General Drew Edmondson charges WorldCom, Ebbers, Sullivan, Yates, Normand, Vinson and Myers with 15 felony counts of violating the Oklahoma Securities Act.

September 2003: Ebbers, Sullivan and WorldCom plead not guilty to the Oklahoma charges.

Oct. 17, 2003: Oklahoma agrees to delay its cases against Yates, Vinson, Normand and Myers until after Sullivan's federal trial.

Oct. 24, 2003: A federal judge allows investors and bondholders to pursue claims as a group against former WorldCom officers, directors and underwriters, including Ebbers, Citigroup Inc. and its former telecommunications analyst Jack Grubman.

Oct. 31, 2003: WorldCom, now based in Ashburn, Virginia, wins court permission to exit bankruptcy and rename itself MCI Inc.

Nov. 20, 2003: Oklahoma's Edmondson drops charges against Ebbers to avoid interfering with Sullivan's federal trial.

Sullivan Pleads Guilty

March 2, 2004: U.S. prosecutors charge Ebbers with directing the biggest accounting frauds in U.S. history. Sullivan pleads guilty to fraud, conspiracy and making false statements and agrees to assist prosecutors.

April 20, 2004: MCI, formerly WorldCom, exits bankruptcy after shedding $35 billion in debt.

July 6, 2004: MCI, Ebbers and 18 former WorldCom officials agree to pay about $51 million to settle a suit by employees who lost hundreds of millions of dollars when the company collapsed.

July 20, 2004: Judge approves Citigroup Inc.'s $2.65 billion settlement of a suit by WorldCom Inc. investors over the underwriting of the company's securities.

Jan. 25: Ebbers's fraud trial begins.

Feb. 17: Sullivan says he decided which one-time revenue items to use in financial reports to meet analyst expectations, ending a 6 1/2-day stint as the star witness in Ebbers's trial.

Feb. 22: At the trial, Ebbers criticizes Sullivan for having been ``too conservative'' with Wall Street analysts.

Ebbers Convicted

March 15: Ebbers is convicted of directing an $11 billion fraud that triggered WorldCom bankruptcy, the largest in U.S. history.

March 16: JPMorgan Chase & Co., the second-largest U.S. bank, agrees to pay $2 billion to settle claims by investors that the lender should have known WorldCom Inc.'s books were fraudulent when it helped sell $5 billion in company bonds.

March 18: WorldCom investors settle securities-fraud claims against 11 former company directors for $55.25 million.

March 21: Ex-WorldCom Chairman Bert Roberts agrees to pay $5.5 million to settle fraud claims by investors.

Settlements

April 25: Arthur Andersen LLP, WorldCom's auditor, agrees to pay $65 million to settle lawsuit over its liability in collapse, ending the largest securities-fraud class action in U.S. history.

May 2: MCI agrees to $8.44 billion takeover offer from Verizon Communications Inc., after spurning higher bid from Quest Communications International Inc.

June 30: Ebbers agrees to pay as much as $45 million to settle claims by the government, ex-employees and defrauded investors, leaving him with $50,000 and a ``modest'' home in Mississippi.

July 13: Ebbers sentenced to 25 years in prison for orchestrating the largest accounting fraud in U.S. history. He is ordered to report to federal prison to start serving his term on Oct. 12.

July 26: Sullivan, Myers and Yates settle a civil suit over the accounting fraud. The settlement forces Sullivan to turn over the 30,000-square-foot home he was building in Boca Raton, Florida, and hundreds of thousands of dollars in his 401(k) retirement plan. More than $6.1 billion has been recovered by investors from defendants including underwriters, accountants and directors.

Sentences

Aug. 5: Vinson sentenced to five months and in jail and five months home detention. Normand sentenced to probation.

Aug. 9: Yates sentenced to one year and one day in prison.

Aug. 10: Myers sentenced to one year and one day in prison.

Aug. 11: Sullivan sentenced to five years in prison and three years' probation.

Labels: New York AG, Quest

Payola Shocker: J-Lo Hits, Others Were 'Bought' by Sony

Monday, July 25, 2005
By Roger Friedman

... internal memos from Sony Music, revealed today in the New York state attorney general's investigation of payola at the company, will be mind blowing to those who are not so jaded to think records are played on the radio because they're good. We've all known for a long time that contemporary pop music stinks. We hear "hits" on the radio and wonder, "How can this be?"

Now we know. And memos from both Sony's Columbia and Epic Records senior vice presidents of promotions circa 2002-2003 — whose names are redacted in the reports but are well known in the industry — spell out who to pay and what to pay them in order to get the company's records on the air...

...Announced today: Sony Music — now known as Sony/BMG — has to pony up a $10 million settlement with New York's Attorney General Eliot Spitzer. It should be $100 million. And this won't be the end of the investigation. Spitzer's office is looking into all the record companies. This is just the beginning.

...Who will take the fall at Sony for all this? It's not like payola is new. The government investigated record companies and radio stations in the late 1950s and again in the mid 1970s... Spitzer is said to be close friends with Sony's new CEO, Andrew Lack, who publicly welcomed the new investigations earlier this year when they were announced..

Spitzer Evidence To Be Handed Over To FCC

July 25, 2005
By Paul Heine and Bill Holland

..."I would encourage the FCC to take a very hard look at whether something that is this pervasive, something that is so corrosive to the integrity of the market place should not merely be investigated and pursued, but whether some of these stations deserve to have their licenses stripped," said Spitzer at the downtown Manhattan press conference trumpeting the settlement. "They know what the law is and they have been disregarding it willfully and pervasively"...

...[FCC] commissioner Jonathan Adelstein says Spitzer has given the FCC "an arsenal of smoking guns" to ramp up federal payola enforcement. Adelstein says he has asked Spitzer for "everything he’s got" so that evidence uncovered in New York's pay-for-play probe can be evaluated for possible federal violations. An outspoken advocate for heightened payola enforcement, Adelstein says an email trail now exists to justify a full-on federal investigation...

..."These same exact practices are explicitly prohibited by the Communications Act, including criminal violations that would be handled by the Justice Department," Adelstein says. "People haven't been willing to come forward." "It took an attorney general's subpoena power to blow the lid off a potentially far-reaching payola scandal...Now it's incumbent on us to enforce our rules and conduct a thorough investigation of each of the allegations."

FCC protocol calls for the agency to investigate and act upon filed complaints... Although he expects to receive complaints based on the settlement, Adelstein says the magnitude of potential federal violations warrants an immediate investigation and potential enforcement action. "What we have here for the first time are emails documenting the reasoning behind this," Adelstein said, referring too materials uncovered by Spitzer. "We no longer have to guess what was in the mindset of people, we can actually see it."

Labels: Eliot Spitzer, New York AG

Big Business Turns to Plaintiffs Lawyers for Help: Trial skills, lower costs are winning corporations over

Tresa Baldas
The National Law Journal
07-13-2005

Though once considered a thorn in the side of corporate America, plaintiffs attorneys say big businesses are hiring them with increasing frequency to help fight their legal battles.

• For example, in Florida, personal injury lawyer Jack Scarola was the lead counsel in billionaire Ronald O. Perelman's recent $1.4 billion win in a securities fraud suit against investment bank Morgan Stanley.

• In New York, personal injury attorney Bob Clifford of Chicago's Clifford Law Offices is representing General Electric Co.'s insurance arm in the World Trade Center litigation where insurers are suing American Airlines and airport security to recoup costs paid out for damages from Sept. 11.

• And in Illinois, asbestos litigator Jeff Cooper's Chicago firm CooperSimmons, which has seen an "explosion of interest from corporations," recently formed a business-to-business, contingency fee-based litigation practice in partnership with New York's Hanly Conroy Bierstein & Sheridan.

"Corporate America is more willing now to dance with the devil -- that being your plaintiffs lawyers -- in bet-the-company cases to represent them because there is no longer the stigma that there used to be," said Scott Marrs, an intellectual property lawyer with Houston's Beirne Maynard & Parsons who helped a company win a $130 million verdict in a patent case involving a vegetable slicer two years ago.

"You would never, ever find a corporation hiring a plaintiffs lawyer 20 years ago to represent it in litigation," Marrs said. "It's a new phenomenon."

In the past, attorneys note, most business-to-business lawsuits were handled by traditional, full-service law firms that charge by the hour, as well as large defense-oriented firms with strong ties to the business community. Hiring a plaintiffs lawyer, such as a wrongful death or personal injury attorney, was considered taboo.

But that stigma has subsided, they assert, mainly because of two factors: rising legal fees, which have prompted companies to look for less expensive legal options; and tort reform, which has forced plaintiffs attorneys to get more creative with their services.

"I think that in part, this is a response to what we all see as a mounting assault on the tort system and a means by which to begin to build into our practices a safeguard against some draconian tort reform measures," said Scarola, the lead attorney in the Perelman case. "It's not business seeking out the skills of personal injury lawyers, but us going after them as a safeguard."

Scarola, a litigator with West Palm Beach, Fla.'s Searcy Denney Scarola Barnhart & Shipley, said Jenner & Block recruited him in 2001 to assist in Arthur Andersen litigation, and then in the Perelman case, both in Palm Beach, Fla. He said his name came up as someone to consider as local counsel.

Jerold Solovy, chairman of Chicago-based Jenner & Block, recalls bringing Scarola on board. He said that calling on a personal injury litigator to handle a complex business matter didn't concern him.

Instead, he saw Scarola's trial experience as an asset. "What you want is somebody who can try cases. Mr. Scarola knows how to try cases. That's why we picked him," Solovy said.

READY FOR THE JURY

Scarola said that in recent years he has seen a growing reliance upon lawyers with personal injury skills to present business matters before juries. Of course, he speaks from personal experience.

In the Perelman case, Scarola said he had to simplify complex business concepts before the jury and show how Morgan Stanley covered up the failing finances of Sunbeam Corp. so Perelman would sell his Coleman camping-equipment company to Sunbeam in exchange for cash and Sunbeam shares. Accustomed to explaining complicated medical procedures in his personal injury cases, Scarola said he was prepared for the challenge.

Scarola's tactics worked. The jury in May hit Morgan Stanley with $850 million in punitive damages and $604.3 million in compensatory damages. Coleman Parent Holdings v. Morgan Stanley, No. 2003 CA 005045 AI (Palm Beach Co., Fla., Cir. Ct.).

Attorneys for Morgan Stanley include Mark Hansen of Kellogg, Huber, Hansen, Todd, Evans & Figel in Washington and Joseph Ianno of Carlton Fields' West Palm Beach office. Neither was available for comment.

While many attorneys agree that corporations are turning to the plaintiffs bar, they don't agree on why.

Michael Slack, managing partner at Slack & Davis, a personal injury and wrongful death firm in Austin, Texas, said it is not that tort reform is driving plaintiffs lawyers to big companies, as some suggest, but that big businesses are chasing plaintiffs lawyers.

"I think somebody held a business conference somewhere and said, 'You know what, we're not being very smart about shopping for legal services if we're not hiring contingent fee-based plaintiffs lawyers," Slack said. "We were chuckling about it in-house the other day ... where it seems the inner circles at businesses are now saying, 'The same people that we've been bashing in the tort arena are our new best friends.'"

Slack said that in recent months, his personal injury firm, which deals mainly with aviation accidents and pharmaceutical cases, has been inundated with phone calls from businesses seeking contingent fee-based legal services.

"We've had more inquiries in the last six months than we have had since this firm was established," said Slack, who is planning to hire a top commercial litigator to handle this new demand for litigation services. "All of a sudden, the negative connotations that have been directed to contingent-fee lawyers over the last decade seem to have been overcome."

Then again, some plaintiffs firms find they are not up to the challenge.

Patent attorney Fred Tecce, who specializes in contingency fee-based commercial litigation, said he has seen plaintiffs attorneys cutting in on his turf in recent years.

"From what I've seen and know from talking to some of my clients, they're seeing an uptake in med-mal guys who are worried about tort reform," Tecce said. "A lot of these med-mal guys are trying to fashion themselves and repackage themselves as business-to-business litigants. But I don't mind the competition at all."

Tecce of McShea & Tecce in Philadelphia noted that in the last few years, he's picked up four referrals from plaintiffs law firms that took a shot at commercial contingency fee cases, but found out they couldn't handle them.

"If these guys take these cases, they take one of them. They get burned. And I end up getting referral work," Tecce said.

CONTINGENCY FEE APPEAL

Marc Moller of the aviation litigation and personal injury firm Kreindler & Kreindler in New York believes mounting legal fees are leading companies to plaintiffs firms that operate on a contingency fee basis.

Moller's firm is currently handling five business-to-business cases, and has settled another five in recent years.

"[Contingency fees] are very attractive for companies that are trying to control their litigation costs," Moller said. "A contingent fee lawyer only gets money if he wins."

He added that this fee makes lawyers more picky in the cases they decide to take. "There's a higher premium on winning if you're only going to get paid if you win," he noted.

Jim Beasley, managing partner of Philadelphia's Beasley Firm, which handles many products liability claims, noted that his firm represents many small businesses that have problems with Fortune 500 companies. He said the contingency fee model helps small companies that want to sue other companies, but can't afford to.

"It gives them the same key to the courthouse that a poor person would have," said Beasley, adding that contingent fee billing is also more efficient. "If you run on a contingent fee model, you know that attorneys representing you are going to be efficient. They're not just here to bill, they're here to work."

IT'S THE BIG VERDICTS

But defense attorney Levi McCathern of McCathern Mooty in Dallas believes corporations are selling themselves out to the plaintiffs bar. He argues that plaintiffs attorneys are winning businesses over because of the lucrative verdicts they get.

Companies are impressed with these big verdicts, he said, so they're willing to hire plaintiffs attorneys to take on their big cases.

"I just think they'd be better served by using the defense bar," McCathern said. "Commercial litigation has long been the work of the defense bar. But not anymore. ... I've seen it go south."

McCathern also questions plaintiffs attorneys' motives in helping corporate America.

"Sometimes most of the good plaintiffs attorneys are what I call true believers -- they really believe that corporations are the evil empire that control the country," McCathern said. "It's interesting to see them get on their side and work these kinds of cases. I certainly think that tort reform has placed them in that position."

There's no denying that, contend several plaintiffs attorneys.

"There's no questions that this business model can help firms become tort-reform proof," said Cooper, whose Chicago firm started the business-to-business litigation practice two months ago.

Since then, he said the firm has received more than 200 phone calls from companies of all sizes looking for legal representation. He said the stigma of hiring plaintiffs lawyers appears to be over.

"One CEO we spoke to in his office said, 'Having you guys in my office is like Nixon going to China,'" Cooper said. "We're seeing a loss of that stigma. When we first entered, we thought we'd have to sell a lot harder, and that hasn't been the case."

He said further, "There's a niche in this market that we're able to fill, and I expect other plaintiffs firms to do this."

Despite plaintiffs lawyers' claims that corporations are warming up to them, officials at many companies declined to comment for this story.

Officials at Industrial Risk Insurers, General Electric's insurance arm in the World Trade Center litigation against American Airlines, declined comment on why they picked Clifford as counsel.

Labels: China, Morgan Stanley, New York AG

N.Y. official sued over bank probe

By Larry Neumeister
The Associated Press
Jun. 17, 2005

NEW YORK - An association of leading commercial banks and a federal agency sued New York Attorney General Eliot Spitzer on Thursday, saying his probe into the lending practices of national banks violates laws ensuring that banks are not subject to supervision by state authorities.

The suit asked the U.S. District Court in Manhattan to block Spitzer from demanding information to enforce federal and state discrimination-in-lending laws against banks belonging to the Clearing House Association. The Manhattan association said it was protecting the rights of its 11 members, eight of which are federally chartered national banks already subject to federal regulation.

The bank association said at least three members -- HSBC Bank USA, JPMorgan Chase Bank and Wells Fargo Bank -- have been subjected to the inquiry.

The suit by the Office of the Comptroller of the Currency seeks to block what it said was Spitzer's interference in the agency's fair-lending supervision.

The agency "is absolutely committed to assuring that the national banking system is free of lending discrimination of any sort," acting comptroller Julie Williams said in a statement. "This issue is vital and it is complex, and it must not be politicized."

Spitzer has questioned some of the nation's biggest banks in an investigation of potentially discriminatory mortgage practices. Community groups have said blacks and Hispanics are more likely than Anglos to be given higher-cost mortgage loans and are much more likely to be turned down for mortgages.

Labels: Eliot Spitzer, New York AG

AIG executive rolls for Spitzer

June 9, 2005

A former American International Group senior executive may spill the beans on the controversial reinsurance deals of Warren Buffett's company. Joseph Umansky was once known inside the company as a troubleshooter. In the sprawling, multi-tiered investigation of AIG and former top executives, he may be a source of trouble.

Mr Umansky was a senior vice-president in the corporate division of the insurer AIG and president of AIG Reinsurance Advisers, a reinsurance unit. Part of the inner circle of executives who dealt closely with the former chief executive, Maurice Greenberg, he was intimately involved in many of the deals that regulators and AIG itself have found to be improper.

Mr Umansky is to co-operate with New York attorney-general Eliot Spitzer in exchange for immunity. That complicates a parallel investigation by the Justice Department and the Securities and Exchange Commission.

Labels: AIG, Eliot Spitzer, General Re, New York AG

NY Attorney General Spitzer Targets Identity Theft

Apr 18, 2005

NEW YORK (Reuters) - New York Attorney General Eliot Spitzer on Monday said he is seeking stronger state laws against identity theft and computer hacking.

Spitzer's office, together with several consumer advocate groups and crime victim organizations, are asking legislators to give consumers better control over personal information, enhance the state's ability to prosecute crimes that lead to identity theft, and boost penalties.

Spitzer, known for his sweeping probes of Wall Street research, the mutual fund and insurance industries, said he submitted a package of bills to the state legislature.

Labels: Eliot Spitzer, identity theft, New York AG

Wall Street Needs A New Cop

Liz Moyer
04.14.05

NEW YORK - As Stephen Cutler prepares to step down as the top cop at the U.S. Securities and Exchange Commission, he leaves behind an intensifying investigation into the insurance industry but a sense that an era of corporate scandal is winding down.

Cutler said today he would leave in the next month after three and a half years as director of the SEC's enforcement division, which acts as the watchdog of Wall Street. It has been among the most tumultuous periods in corporate America. As director, he levied more than $6 billion in penalties and disgorgement, targeting Enron, Adelphia Communications (otc: ADELQ - news - people ), Qwest Communications (nyse: Q - news - people ), Tyco International (nyse: TYC - news - people ), WorldCom (nasdaq: MCIP - news - people ), Time Warner (nyse: TWX - news - people ) and others.

Earlier this week, Cutler finalized a multiyear investigation into trading practices by specialists on the New York Stock Exchange, bringing civil charges against 20 individuals and scolding the NYSE for failing to police those traders, who are supposed to make efficient markets in listed stocks.

Already today, there was speculation that Linda Thomsen, a highly regarded longtime SEC prosecutor and Cutler's deputy, would be named interim enforcement director, if not his outright successor. An SEC spokesman declined to comment.

Naming Thomsen would "send a powerful signal that the chairman wants continuity," says Joel Seligman, a professor of corporate law at Washington University's School of Law. "It would be seen as disquieting to bring someone in from the outside."

Cutler joined the agency as deputy director of enforcement in 1999. Before that, he was a partner in the Washington firm Wilmer, Cutler & Pickering. He has not said where he is headed, though the announcement said he planned to return to private practice.

Just weeks after he became director in 2001, Enron, a Houston energy firm that was once the seventh-largest U.S. company, collapsed into bankruptcy amid allegations of massive accounting fraud.

Cutler worked often in tandem with New York State Attorney General Eliot Spitzer. Two years ago this week, the SEC and Spitzer announced a $1.4 billion settlement with ten Wall Street firms, including Citigroup (nyse: C - news - people ), Merrill Lynch (nyse: MER - news - people ) and Morgan Stanley (nyse: MWD - news - people ), and ordered them to put better controls on avoiding conflicts of interest between bankers and research analysts.

"It's been one of the most amazing times in the agency's history," says Charles Elson, a professor and corporate governance expert at the University of Delaware.

An investigation into transactions and accounting at American International Group (nyse: AIG - news - people ) is just under way, but observers said they didn't believe Cutler's departure from the SEC would interrupt that probe.

Cutler's departure "is certainly not sending us a signal that we can discern anything with regards to the AIG case," says Roy Smith, a professor at New York University's Stern School of Business.

A steady stream of earnings restatements in the last year will ensure that there is plenty of work for the SEC's enforcement division, but even Cutler suggested a lot of the heavy lifting is over.

In a speech last month, he said, "I do believe our enforcement approach is about where it needs to be--and is producing real results... I don't think we'll be seeing an enforcement docket three to five years from now that looks anything like the enforcement docket we have today."

Labels: AIG, Eliot Spitzer, Enron, Morgan Stanley, New York AG, Tyco

AIG admits 'improper' accounting in deals with Buffett group

Mark Milner
Thursday March 31, 2005
The Guardian

American International Group, the world's biggest insurer, admitted yesterday that it had improperly accounted for a deal at the heart of a series of investigations.

The insurer said the agreement with General Re, a subsidiary of Warren Buffett's Berkshire Hathaway, had been wrongly characterised.

"Based on its review to date, AIG has concluded that the Gen Re transaction documentation was improper and, in the light of the lack of evidence of risk transfer, this transaction should not have been recorded as insurance," it said.

Berkshire Hathaway said this week that Mr Buffett, America's most respected investor, had not been briefed on the structure of the transactions between General Re and AIG or on "any improper use or purpose of the transactions". He is expected to talk to investigators in the next fortnight.

AIG said yesterday that improper documentation related to two transactions between AIG and General Re, each involving $250m (£133m). AIG said yesterday that the deals should have been accounted for as deposits.

Last month AIG acknowledged that it had received subpoenas from the New York attorney general, Eliot Spitzer, and the US securities and exchange commission relating to "non-traditional insurance products and certain assumed reinsurance contracts". The New York department of insurance is conducting inquiries into related matters.

The affair has already seen the departure of AIG's chairman and chief executive, Maurice "Hank" Greenberg. Mr Greenberg, who ran AIG for almost four decades, was forced to stand down as chief executive only two weeks ago and this week confirmed that he would quit his new role as non-executive chairman when he returned from a business trip in Asia. Three other executives have also left.

AIG said yesterday that it would have to delay further the release of its 2004 figures as it continued to investigate its records. It warned that shareholders' equity could be reduced by up to 2% and that it faced tax charges of up to $670m as a result of discoveries thrown up by the review.

AIG said it was reviewing the impact of fresh evidence of its relationships with a series of offshore companies with which it had done business.

It said it would have to consolidate the results of Richmond, a Bermuda-based reinsurance company, in which it holds a 19.9% stake, after finding "previously undisclosed evidence of AIG control".

It is also examining its relationship with the Barbados-based Union Excess. Though AIG has no direct stake in Union, it said yesterday that "a significant portion of the ownership interests of Union Excess shareholders are protected under financial arrangements with Starr International ... which owns approximately 12% of AIG's common stock and whose board of directors consists of current and former members of AIG management".

Labels: AIG, Eliot Spitzer, General Re, New York AG

In this corner, in the blue pinstripe suite, Maurice "Hank" Greenfield - the grizzled and wiley World War II veteran and thirty-year chief executive who stormed Omaha Beach on D-Day, winning the bronze star. He is now the most powerful man in the insurance industry.

v/s

In this corner, in the white hat, Eliot "Babyface" Spitzer - the upstart, high-flying young Attorney General from New York state. Using his fearsome submission maneuver, The Martin Act, Spitzer has run roughshod over his competition is recent bouts.

Labels: Eliot Spitzer, New York AG