LAW BLOG NEWSLETTER
from The Wall Street Journal Online
July 29, 2009 -- 6:30 p.m.
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TODAY'S POSTS
- Trial Ends in Jefferson Case; Jury to Get Case Thursday
- Madoff Trustee Spreads His Wings, Sues Ruth
- To Catch a Goldman Sachs Compliance Officer?
- First Neurontin Case Dismissed: Pfizer Saved by the Mystery Donor
- A Lamb Lies Down at Paul Weiss
- 'Billion Dollar' Charlie Nesson Makes Jury Feel Right at Foam
- In UBS Tax Case, U.S. Continues To Wage War, While Talking Peace
- Tuesday With Bernie: Plaintiffs' Lawyer Talks to Madoff in Prison
- 'Sue First, Ask Questions Later'? Not So Fast, Says Twitter-Suit Plaintiff
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Trial Ends in Jefferson Case; Jury to Get Case Thursday
Game-time. Gut-check time. It's getting down to that time for former Rep. William Jefferson, who, for the past six weeks has been on criminal trial down in Alexandria, Va. Closing arguments wrapped up on Wednesday. The judge in the case, T.S. Ellis III, is likely to send the case to the jury Thursday morning. Click here for the story from the New Orleans Times-Picayune; here for earlier LB posts on the Jefferson trial.
The quick refresher on the case. In 2007, Jefferson, a former Democrat from New Orleans, was charged on 16 counts of bribery, racketeering, and violations of the Foreign Corrupt Practices Act. The government alleged that Jefferson used his congressional office to help promote business projects in western Africa in return for payments for his family. The most vivid evidence put on display: that feds found in Jefferson's freezer $90,000 stuffed in Boca Burger and pie-crust boxes.
During closings, government lawyer Rebeca Bellows said: "It's time, at long last, to bring Congressman Jefferson to justice . . . He was always looking for a payday. He not only sold his office he wanted to make sure he got top dollar for it."
According to reporting from the WSJ's Dionne Searcey, defense attorney Robert Trout countered that Jefferson's behavior was perhaps unethical and even stupid but not criminal. "To make something that isn't criminal into a crime, ladies and gentleman, that is power," Trout told jurors.
But before Trout took the stand, according to Searcey, prosecutors on Wednesday outlined a number of schemes Jefferson crafted to use his political office to create business opportunities for his family. The most notorious: an alleged plot to give at least $100,000 in cash to the vice president of Nigeria, Atiku Abubakar, in exchange for permission for a company that had family ties to Jefferson to offer telecom services there. Much of that cash - $90,000 in marked bills - was found in Jefferson's freezer.
During Wednesday's hearing prosecutors played video and audio tapes of Jefferson in meetings with the informant, Virginia businesswoman Lori Mody, at swanky Washington-area hotel restaurants. Searcey describes one snippet in which he camera focuses squarely on a white coffee mug while in the background Jefferson waves his hands as he talks about an alleged bribe, saying it'll be doled out "to make sure the hook is in there." Over dinner at the Mandarin Oriental he chides Mody for referring to what prosecutors say is a bribe to the vice president of Nigeria as a "goodwill present."
Mody delivered $100,000 to Jefferson in the parking lot of the Ritz Carlton. Jefferson allegedly intended to give the cash to Abubakar during a visit to Washington D.C. but he left town before it could be delivered, prosecutors said.
Trout conceded that Mr. Jefferson agreed to the bribe but did so only to please Ms. Mody and that he never intended to deliver it. He hid the cash in his freezer for safe-keeping, Trout said.
We'll the jury buy it? We'll soon know.
See and Post Comments: http://blogs.wsj.com/law/2009/07/29/trial-ends-in-jefferson-case-jury-to-get-case-thursday#mod=djemWEB&reflink=djemWEB&reflink=djemWLB
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Madoff Trustee Spreads His Wings, Sues Ruth
Ever since Bernie Madoff's guilty plea back in March, life seemed to be finally settling down for Bernie's wife, Ruth. Last month, she agreed to give up her potential claim to more than $80 million of assets, but, in an agreement with federal prosecutors, was allowed to keep $2.5 million in cash. Then, earlier this month, federal investigators concluded they didn't have enough evidence to charge her criminally.
But things took a turn for the worse for Ruth earlier today when Irv Picard, the trustee for Bernie's collapsed firm, filed civil suit against Ruth, seeking to recover some $44 million from her. Click here for the complaint, filed in Manhattan bankruptcy court.
So why, if Ruth seemingly wasn't a co-conspirator in Bernie's operation, gives the trustee the right to go after her? Picard explains in the complaint:
For decades, Mrs. Madoff lived a life of splendor using the money of BLMIS's customers. Regardless of whether or not Mrs. Madoff knew of the fraud her husband perpetrated at BLMIS, during the past two- and six-year statutory periods, she received tens of millions of dollars from BLMIS for which BLMIS received no corresponding benefit or value and to which Mrs. Madoff had no good faith basis to believe she was entitled. The purpose of this action is to recover that money to the extent possible for the benefit of BLMIS and its defrauded customers.
And will the $2.5 million be part of what Picard goes after? Apparently so:
The United States government agreed not to contest Mrs. Madoff's claim to $2.5 million and to make a payment to her in that amount following forfeiture of the Madoffs' assets. The forfeiture Stipulation And Order . . . expressly provides that the $2.5 million payment to Mrs. Madoff "does not in any way preclude . . . Irving H. Picard, Esq. as trustee for the liquidation of the business of defendant Bernard L. Madoff Investment Securities LLC . . . from seeking to recover the Funds from Ruth Madoff." While Madoff's crimes have left many investors impoverished and some charities decimated, Mrs. Madoff remains a person of substantial means. The inequity between Mrs. Madoff's continuing financial advantages and the economic distress of Madoff's customers compels the Trustee to bring this action.
Peter Chavkin, a lawyer for Ruth, had this to say: "What makes this complaint particularly perplexing and totally unjustified . . . is the fact that Ruth already forfeited to the United States Attorney's Office almost all of the assets named in this complaint," assets that prosecutors will distribute to victims of the fraud. "We believe the Trustee's action is wrong as a matter of law and fairness."
LBers, we really want to hear from you on this one. Given all you know about Ruth, should she be allowed to hang onto her $2.5 million?
See and Post Comments: http://blogs.wsj.com/law/2009/07/29/picard-spreads-his-wings-sues-ruth-madoff#mod=djemWEB&reflink=djemWEB&reflink=djemWLB
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To Catch a Goldman Sachs Compliance Officer?
It was nearly impossible not to think of the "To Catch a Predator" show from a few years back, starring that fellow to your left, Chris Hansen, when we read this latest story: New York state prosecutors have filed criminal charges against a Goldman Sachs compliance officer after he allegedly solicited an undercover investigator posing as a teenage girl in online conversations. Click here for the Dow Jones Newswires article; here for the NY Daily News piece.
In a statement, Westchester County District Attorney Janet DiFiore said Todd Genger, 33 years old, of Manhattan, was arraigned Tuesday on one count of attempted disseminating of indecent material to a minor.
The felony charge carries a sentence of up to one and one third year to four years in prison. Genger, a vice president in Goldman's compliance division who holds a law degree, was released on his own recognizance after being arraigned in White Plains, N.Y. on Tuesday.
DiFiore said Genger allegedly engaged in online "chat" conversations, using his AOL account, with an investigator from the district attorney's office posing as a 15-year-old girl between April and July. As part of the conversations, Genger allegedly discussed specific explicit sexual acts in which he hoped to engage with the undercover agent whom he believed to be an underaged girl, the district attorney said.
A lawyer for Genger didn't immediately return a phone call seeking comment Wednesday. Goldman Sachs declined comment Wednesday.
See and Post Comments: http://blogs.wsj.com/law/2009/07/29/to-catch-a-goldman-sachs-compliance-officer#mod=djemWEB&reflink=djemWEB&reflink=djemWLB
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First Neurontin Case Dismissed: Pfizer Saved by the Mystery Donor
Well, that was strange. The first case in what's widely expected to be a long-running string of cases between plaintiffs lawyers and pharma giant Pfizer over the alleged effects of Pfizer's anti-epilepsy drug, Neurontin, was voluntarily dismissed on Wednesday by the plaintiff's lawyer on the case, Mark Lanier.
The case, the first of some 1,200 Neurontin suits in the pipeline, was brought by the family of Susan Bulger, a 39-year-old woman who took the drug before hanging herself in 2004.
Weird, behavior, you say, to dismiss the case just after it starts? Well, consider this: Lanier dropped the case partly, it seems, because an anonymous donor stepped up and agreed to put money in trust for the daughter of the woman who committed suicide, allegedly due to Neurontin's side-effects.
"It was the best thing for the family," said David Egilman, a spokesman for the decedent's family, to Bloomberg.
We've placed a call to Lanier to clear things up on this (an anonymous donor?), but have yet to hear back. But it's probably safe to say Lanier's happy to have the case set aside. Earlier in the week, after all, he seemed to voice some skepticism over the case, conceding to the American Lawyer that he had a tough case. "I've got a near impossible case. . . . If I lose, it's almost like a focus group educational experiment. If I win, it portends bad things for Pfizer."
The point was made by Boston federal district court Judge Patti Saris, who, at a pre-trial hearing, called Bulger's case "very tough" because of the plaintiff's "personal history." Said Lanier: "[Bulger] tried to commit suicide three times. She prostituted herself. She abused drugs."
One thing's for sure: Pfizer ain't complainin'. Said general counsel Amy Schulman after today's dismissal:
Today, the plaintiff in the first Neurontin personal injury trial dismissed his case with prejudice after only one day of trial. Pfizer has not paid anything in exchange for plaintiff's dismissal and continues to believe that there is no scientifically reliable evidence that Neurontin causes suicidal behavior. . . . Neurontin is an important FDA-approved medicine that physicians have prescribed to treat millions of patients safely and effectively.
Of course, we'll keep you posted as the story unfolds.
See and Post Comments: http://blogs.wsj.com/law/2009/07/29/first-neurontin-case-dismissed-pfizer-saved-by-the-mystery-donor#mod=djemWEB&reflink=djemWEB&reflink=djemWLB
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A Lamb Lies Down at Paul Weiss
Following other non-native firms that have recently opened offices in Wilmington, Del., New York litigation juggernaut Paul Weiss has announced it too will set up shop in the First State. Stephen Lamb, a judge on the Delaware Court of Chancery, will join the firm and help it open the office. Click here for the WSJ story.
Over the years, firms have made the move to Delaware in order to be close to the action at the Delaware Court of Chancery, one of the leading courts in the nation on corporate and business law, as well as the U.S. Bankruptcy Court in Wilmington, a forum of choice for a lot of corporate Chapter 11 filers.
With Lamb, Paul Weiss is getting a well-respected jurist from the high-profile court. A vice chancellor on the Delaware court since 1997, the 60-year-old Mr. Lamb, a registered Republican, presided over many closely watched cases. Observers say he sometimes took a more conservative tack that favored corporate management in their defense of lawsuits by shareholders.
"He's conservative, yes," says Elizabeth Nowicki, a corporate law professor at Tulane University Law School. "But I'm pro-investor and I've always been impressed with how careful he is to independently approach each case without being attached to a certain dogma."
Lamb made a bit of a splash last year when he ruled that Hexion, a chemical company owned by private-equity firm Apollo Management LP, intentionally breached a $6.5 billion merger agreement with a rival, Huntsman Corp., to escape closing the deal, and that it should honor its obligations under the deal. Click here for a LB post on Lamb's decision.
The ruling led to a settlement in which Apollo Management, after nixing the merger, agreed to pay about $1 billion to Huntsman.
See and Post Comments: http://blogs.wsj.com/law/2009/07/29/a-lamb-lies-down-at-paul-weiss#mod=djemWEB&reflink=djemWEB&reflink=djemWLB
***
'Billion Dollar' Charlie Nesson Makes Jury Feel Right at Foam
We really, really hope a screenwriter or two is sitting in the audience of the music copyright-infringement case currently underway in federal court up in Boston. The cinematic possibilities are just too good.
The lead actor (Dustin Hoffman?) would unquestionably portray Charles Nesson (pictured), the eccentric Harvard Law school professor who's representing the defendant in the case, Joel Tenenbaum. Tenenbaum, a 25 year-old Boston University grad student, has admitted to using a peer-to-peer music-sharing network, Kazaa, to swap music online, but maintains he did it only because he liked the music, not to turn a profit. Click here for the Boston Glob story; here for the National Law Journal story.
The trial began on Tuesday, and, from the sound of it, Nesson gave a pretty entertaining opening statement. According to the Boston Globe, Nesson held up a rectangular piece of plastic foam wrapped in cellophane, saying the visual represented the compact discs that record companies sold before digital music became available online. Then he cut open the wrapper with scissors. Hundreds of small pieces fell in a pile in front of the jury.
Said Nesson, during the demonstration: "You have the ability to share, and this physical object . . . suddenly broke into a million bits. Here it is. Bits. . . . Can you hold a bit in your hand? You can't. . . . And suddenly you have songs being shared by millions of kids around the world.''
If the jury finds his client committed copyright infringement, Nesson said, it should impose only minimal damages. That said, the Globe reports that Nesson appeared to be encouraging jurors to engage in a form of nullification, or to disregard a judge's instructions and rule in favor of a defendant because they disagree with the underlying law.
Timothy Reynolds, who represents four major record labels in the trial, said damages to the industry from free file-sharing are enormous and imperil "real people,'' ranging from sound engineers to talent scouts. "The defendant knew what he was doing was wrong at each step of the way, but he did it anyway,'' said Reynolds.
Tenenbaum is one of more than 18,000 recipients of letters from the Recording Industry Association of America in recent years demanding payment for illegal file-sharing, but is only the second to challenge a lawsuit in federal court. The first didn't go too well for the defendant: Last month, a Minnesota woman, Jammie Thomas-Rasset, faced similar allegations, and a federal jury awarded record labels $80,000 per song, or a total of $1.92 million. Click here and here for LB posts on that case.
Every time we mention the escapades of "Billion Dollar" Charlie Nesson (so nicknamed for his work in the W.R. Grace contamination cases), we have to yet again urge you to watch this YouTube video, a highly entertaining promotion for one of Nesson's courses.
See and Post Comments: http://blogs.wsj.com/law/2009/07/29/billion-dollar-charlie-nesson-makes-jury-feel-right-at-foam#mod=djemWEB&reflink=djemWEB&reflink=djemWLB
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In UBS Tax Case, U.S. Continues To Wage War, While Talking Peace
The UBS tax-shelter matter may be inching ever-closer to a global resolution. But that doesn't mean U.S. authorities aren't continuing to bring down individuals alleged of having used Switzerland and UBS as an illegal safe-haven from IRS inspectors.
Both sides of the U.S.'s strategy are in full view in today's newspapers. On the one hand lie the settlement discussions. UBS and the Swiss and U.S. governments are continuing settlement talks and now are expected to seek a postponement of a major tax-evasion federal court hearing scheduled for Monday in Miami. Click here for the WSJ story; here for the NYT story.
The delay would be the second sought as UBS tries to fight off U.S. government efforts to gain access to 52,000 accounts held by U.S. citizens at UBS. The IRS wants access to those accounts as it investigates whether U.S. clients, with the help of UBS, evaded U.S. taxes. The first hearing was scheduled for July 13. The Aug. 3 hearing could be held if talks break down.
UBS and the Swiss government have claimed in court filings and public statements that UBS can't provide the information because that act would violate Swiss law. The Swiss government has even gone as far as to say it would seize UBS data to protect its country's privacy laws.
But even as the parties move toward resolution, the U.S. is continuing to go after individuals. On Tuesday, Jeffrey Chernick of New York pleaded guilty to filing a false tax return and admitted he concealed more than $8 million in Swiss bank accounts. Chernick's lawyers didn't immediately return calls for comment.
The Justice Department said Tuesday that Chernick, who owns a corporation that represents toy manufacturers in China and Hong Kong, failed to report on his 2007 tax return he had an interest in or a signature authority over an account at UBS while also not reporting income from the account. According to court documents, beginning in the mid-1970s, the Stanfordville, N.Y., man set up a Hong Kong corporation and opened offshore bank accounts in order to conceal from the IRS commissions paid to him for toy sales.
The NYT article details the lengths to which Chernick and his charges would go to evade officials:
Mr. Chernick's private banker and a Swiss lawyer would dress as tourists when meeting Mr. Chernick at New York hotels, with the executive lying to customs officials by saying he was there to visit his brother. They mailed, rather than hand-carried, Mr. Chernick's bank statements, for fear that customs officials would seize hard copies. They also cut out Mr. Chernick's name and address from printed statements. Mr. Chernick gained access to his money in part through a credit card linked to his UBS and other Swiss accounts.
See and Post Comments: http://blogs.wsj.com/law/2009/07/29/in-ubs-tax-case-us-continues-to-wage-war-while-talking-peace#mod=djemWEB&reflink=djemWEB&reflink=djemWLB
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Tuesday With Bernie: Plaintiffs' Lawyer Talks to Madoff in Prison
Dozens of people have begged and pleaded with lawyers from Dickstein Shapiro for an interview with their infamous client, Bernard Madoff (pictured).
The first person to get in? A San Francisco plaintiffs' lawyer named Joseph Cotchett and his colleague, Nancy Fineman.
Cotchett, who is suing Madoff family members and associates on behalf of two victims of the massive fraud, told the Law Blog he interviewed Madoff on Tuesday for more than four hours at the visitors' center of Madoff's medium-security prison in Butner, N.C., where he has been since July 14. Madoff, dressed in khaki-colored prison garb, "answered every single question and shed a lot of extraordinary details on exactly how he was able to get away with the scam," Cotchett said. The two shook hands and Cotchett called Madoff "an absolute gentleman."
Madoff told Cotchett that he's "fortunate to be in Butner." (Details on the facility are at the bottom of this story.) He said he's trying to stay physically fit by walking on the prison's outdoor track in the evenings because it was so hot during the day, and that he's reading a lot. In addition, "he was clearly remorseful . . . . He verbally expressed it on several occasions and you could tell by his demeanor. He said he was very sorry that this didn't come to end right away, the fraud."
But Madoff, who was flanked by one of his lawyers, Mauro Wolfe, did tell Cotchett that his scheme was "pretty open and straightforward, and he hid everything but hid it in an inept way," he says. Madoff told him, in essence, that "you didn't have to be a rocket scientist to figure out what was going on. What happened here was when you're getting the kinds of returns [Madoff reported to clients], you might have a tendency to look the other way rather than asking questions." Cotchett added that "it's clear from the details that he gave us that there were many people here who were negligent and not doing due diligence."
Cotchett says he will amend the two complaints (here and here) he's filed in New York state court based on new information provided by Madoff, which he won't discuss until the filing occurs.
Cotchett had to catch a plane back to California before the Law Blog was through with him, but he told ABC News that Madoff said there "were several times that I met with the SEC and thought 'they got me.'"
"He obviously wanted to speak with us because in his opinion, certain members of his family knew nothing about it, had no involvement of it," Cotchett told ABC. "He cares about Ruth."
Madoff's lawyer, Wolfe, told the Law Blog that the interview was another way his client was trying to help victims recover from the fraud. He declined to say whether he would grant further interviews or which lawyers had put in requests for an interview. Needless to say, the Law Blog made its first interview request on Dec. 11, 2008.
See and Post Comments: http://blogs.wsj.com/law/2009/07/28/tuesday-with-bernie-plaintiffs-lawyer-talks-to-madoff-in-prison#mod=djemWEB&reflink=djemWEB&reflink=djemWLB
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'Sue First, Ask Questions Later'? Not So Fast, Says Twitter-Suit Plaintiff
We've got a little following up to take care of in regard to the Twitter post we did earlier today. (Click here to find it, or just scroll down a bit.)
An astute (and, it seems, excited) reader named Dave! pointed out that in a Chicago Sun-Times article, Jeffrey Michael, whose family runs Horizon, the real-estate management company that filed suit against tweeter Amanda Bonnen, said in response to a question about the suit: "We're a sue first, ask questions later kind of an organization." It's truly one of the greatest law-and-business quotes we've ever had the pleasure of reading.
But now comes Michael, who, with the help of a public-relations agency, has modified his official statement, and referred to an underlying lawsuit. He writes:
The response to our libel lawsuit has been tremendous. We would like to take this opportunity to clarify some confusion concerning the circumstances surrounding our lawsuit against Amanda Bonnen.
I would first like to take this opportunity to apologize for tongue and cheek comments that were made previously regarding our approach to litigation. This statement is not in line with our philosophy towards property management and was taken out of context.
I need to set the record straight on a number of issues.
The facts that gave rise to this Twitter lawsuit were discovered in the course of due diligence relating to a class-action lawsuit first filed by Ms. Bonnen relating to alleged Chicago Residential Landlord Tenant Ordinance (RLTO) violations. It is our position that this lawsuit is completely baseless and was waged merely as a pretext to address an underlying disagreement that Ms. Bonnen had with regards to her apartment . . . .
As you can imagine, allegations of mold are taken very seriously by our organization. . . .
We look forward to presenting our side of this matter before the court and putting the unfounded accusations of a single, former tenant behind us so we can focus on continuing to serve our more than 1,500 existing tenants throughout the Chicagoland area."
See and Post Comments: http://blogs.wsj.com/law/2009/07/28/sue-first-ask-questions-later-not-so-fast-says-twitter-suit-plaintiff#mod=djemWEB&reflink=djemWEB&reflink=djemWLB
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LAW VIDEO
The Senate Judiciary Committee votes today to send Sonia Sotomayor's confirmation to the full Senate, where's she's expected to be confirmed in a bipartisan vote next week. Video courtesy of Fox News.
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TOP LAW NEWS
In the largest Manhattan office lease so far this year, law firm Orrick finalized a deal for 220,000 square feet in "Black Rock," CBS headquarters, at a huge bargain over 2007 prices.
http://online.wsj.com/article/SB124882179252188243.html#mod=djemWEB&reflink=djemWEB
* * *
Developers battling banks to keep funding spigots open on construction projects are taking heart from Citgroup's defeat in its court battle with a mall.
http://online.wsj.com/article/SB124882292016488291.html#mod=djemWEB&reflink=djemWEB
* * *
UBS said a Miami court has set a renewed meeting for Friday between the Swiss bank and IRS meant to gauge progress of the parties' settlement talks.
http://online.wsj.com/article/SB124887938516790353.html#mod=djemWEB&reflink=djemWEB
* * *
Ruth Madoff is being sued for more than $44 million over claims she lived a "life of splendor" on the gains from the fraud.
http://online.wsj.com/article/SB124889554637990959.html#mod=djemWEB&reflink=djemWEB
* * *
Thirty-two physicians and executives have been indicted for schemes to submit more than $16 million in false Medicare claims, the federal government said, in the latest step to root out fraud in the program.
http://online.wsj.com/article/SB124888553192790663.html#mod=djemWEB&reflink=djemWEB
* * *
A jury heard closing arguments in the bribery trial of a former Louisiana congressman whose case gained notoriety after a search of his home turned up $90,000 cash hidden in a freezer.
http://online.wsj.com/article/SB124887559160290205.html#mod=djemWEB&reflink=djemWEB
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