In what can only be described as an over-the-top and spiteful request, the prosecutors in the sad case of Jamie Olis requested yesterday that U.S. District Judge Sim Lake resentence Olis to a 15 year jail sentence that is exceeded in its absurdity by only the 24 year sentence that the prosecutors improperly obtained in Olis’ original sentencing hearing.

Although the prosecution’s brief on resentencing is not yet available publicly, the Chronicle story on the brief reports that the prosecution is holding to the absurd theory that Olis’ allegedly criminal actions contributed to a $20 to $50 million decline in the value of Dynegy stock.

Meanwhile, because Olis does not believe he did anything wrong and thus, declines to rat on other Dynegy executives, the government ratchets up its proposed sentence to the highest possible level.

The Olis case is proof that the concept of prosecutorial discretion is dead at the U.S. Department of Justice.

Does anyone else get the sense that NY attorney general Eliot Spitzer is becoming Captain Queeg-like in his pursuit of former American International Group CEO, Maurice “Hank” Greenberg?
The latest revelation in the Lord of Regulation’s relentless campaign against the former AIG executive Greenberg is the serious charge that Greenberg and other former AIG executives cheated the Greenberg-controlled charitable foundation — the Starr Foundation — through “self dealing” in the handling of the estate of AIG founder, Cornelius Vander Starr. Spitzer’s report on the matter contends that Greenberg’s self-dealing deprived the Starr Foundation of assets that “would now be worth more than $6 billion.”
Well now, those are serious charges. But a couple of small details were left out of Spitzer’s typically boisterous media release on the charges. First, the Internal Revenue Service, a New York state court and the New York attorney general’s office had previously approved the transactions that Spitzer now characterizes as improper “self-dealing.” But even more incredibly, Spitzer is complaining of allegedly fraudulent transactions that occurred 35 years ago!

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Among the more interesting civil cases that arose out of the Enron Corp. bankruptcy case are the various lawsuits that were filed to recover retention bonuses paid to former key Enron executives.
Retention bonuses are payments made to a company’s key executives immediately before the filing of the company’s bankruptcy for the purpose of retaining those key executives during the company’s bankruptcy case, particularly during the early stages of the case when risk of liquidation is high. The theory behind retention bonuses is that ensuring that key executives continue to work for a debtor-company is a reasonable hedge against the risk of liquidation, which generally results in greater loss of jobs and lesser dividends on creditors’ claims than if the debtor-company is reorganized.
Retention bonuses have always been controversial, primarily because they are made immediately prior to the company going into bankruptcy and, thus, are not subject to Bankruptcy Court approval as they would be if proposed after the company enters bankruptcy. Nevertheless, creditors have traditionally used the avoidance powers in bankruptcy cases — i.e., the power of the Bankruptcy Court to order the return to the debtor’s bankruptcy estate of certain pre-petition payments that prefer certain creditors over others or that constitute fraudulent transfers to third parties — to go after retention bonuses paid to a debtor-company’s former executives. In most cases, the core issue in such lawsuits is whether the debtor-company’s payment to the key executive was a reasonable price to pay for the executive’s services in helping the debtor-company reorganize.

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Matthew T. Bodie is a Hofstra law professor who is guest blogging over at the Conglomerate blog and, in this post, wonders why fellow law professors such as Stephen Bainbridge and Larry Ribstein are critical of New York attorney general Eliot Spitzer. After extolling the merits of the Lord of Regulation’s crackdown on the mutual fund and investment banking industries, Mr. Bodie then observes:

All of these accomplishments took creative application of the laws, as well as the settlement process, to bring systemic changes to entire industries. . . Now, apparently it makes one a naif to believe that Spitzer has improved things. But really, what is so controversial about what he has done? Who was in favor of the gross conflicts of interests at play in analysts’ recommendations, so luridly displayed in emails? Who thought the rigged bidding in the mutual fund industry was a practice to be encouraged? Really, where’s the problem?

Mr. Bodie’s question is commonly asked regarding the use of the state power to prosecute or regulate through civil litigation the unpopular and greedy businessperson of the moment. “Why shouldn’t (insert the name of any Enron defendant, Arthur Andersen, Martha Stewart, Frank Quattrone, Hank Greenberg, etc) be prosecuted or sued,” the argument goes. “They probably did something illegal. So what if the state has to cut some corners in pursuing them. That’s a small price to pay for protecting us from these evil people, isn’t it?”

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As anticipated by this earlier post, U.S. District Judge Nancy Atlas declared a mistrial earlier today on the remaining 12 criminal counts against former Duke Energy trader, Timothy Kramer. Two days ago, the jury acquitted Kramer on seven counts and his co-defendant, former Duke Energy trader Todd Reid, on all counts. Earlier posts on the case are here.
This case establishes once again that it’s far easier in most white collar criminal cases involving the prosecution of agency costs to bludgeon a plea bargain out of the defendants than to obtain a conviction through a fair trial.

The New York Times’ Joseph Nocera has written a couple of real doozy op-eds recently, one extolling the “lofty standards” of New York AG Eliot Spitzer and another one defending the virtues of the Sarbanes-Oxley Act, the latter of which contained a quote or two from UCLA law professor and well-known corporate law blogger, Stephen Bainbridge.
In this Tech Central Station op-ed, Professor Bainbridge dissects Nocera’s argument in favor of SOX and exposes the legislation for what it is — a knee-jerk legislative reaction to a brief spike in corporate accounting scandals that arose after the bursting of the late 1990’s stock market bubble. As Bainbridge lucidly points out, SOX neither makes such scandals less likely to occur nor improves the functioning of public-equity financing markets.
Advantage Bainbridge.

This earlier post noted that Lea Fastow — a former mid-level Enron executive and wife of demonized former Enron CFO Andrew Fastow — was prosecuted more harshly than normal for tax fraud because of her relationship to Fastow and endured longer and harsher punishment because of it. Earlier posts on the Lea Fastow case are here.
The Chronicle’s Mary Flood reports here that Mr. Fastow apparently agrees with me. He has sworn that neither Mrs. Fastow nor he were involved in tax fraud at all. Of course, as Peter Henning points out, Mr. Fastow’s sworn statements raise all sorts of interesting questions.
One of the most interesting questions is for the Enron Task Force — despite his guilty plea to various crimes under a plea bargain, does Mr. Fastow truly believe that he committed crimes at Enron? It would be a good idea for the Task Force prosecutors to pin Fastow down on that little detail before he takes the stand in the upcoming trial of former key Enron executives Ken Lay, Jeff Skilling and Richard Causey.

In another stunning loss for federal prosecutors in the post-Enron prosecutions of persons involved in the energy trading industry, a federal jury in Houston federal court yesterday acquitted former Duke Energy trader Todd Reid on all counts of conspiracy, fraud and falsifying books, and acquitted co-defendant Timothy Kramer on seven counts of wire fraud, mail fraud, and circumventing Duke Energy internal controls in connection with the award of $9 million in trader bonuses during 2001. Earlier posts on the case are here, here and here.
As of mid-afternoon yesterday, the jury reported to U.S. District Judge Nancy Atlas that they were deadlocked on 15 remaining counts against Kramer. Judge Atlas instructed the jury to continue deliberating and then informed the attorneys involved in the case that she would declare a mistrial if the jury could not agree on a verdict on the remaining counts against Kramer by the end of the day. Later that afternoon, the jurors sent the Judge a note informing her that they had acquitted Kramer on three more counts and that they wanted to return tomorrow to attempt to resolve the remaining 12 counts (a personal matter of one juror prevents the jury from deliberating today). Judge Atlas agreed to allow the jury to do so.

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Eliot Spitzer makes no bones about using his position as New York attorney general to promote his campaign for governor, but he certainly isn’t the only lawyer cashing in on the trend of criminalizing business to further one’s career.
This Wall Street Journal ($) article from over the weekend reports that David Anders, the assistant U.S. Attorney who was the lead prosecutor in the recent cases against former WorldCom Chief Executive Bernard Ebbers and investment banker Frank Quattrone, plans to leave the Manhattan U.S. Attorney’s office at the end of this year for a cushy job with the venerable New York law firm, Wachtell, Lipton, Rosen & Katz.
Now, Anders appears to be a competent lawyer who worked for a couple of big New York firms before going to the U.S. Attorney’s office, so maybe he would have ended up at a big New York firm after working as an assistant U.S. Attorney, anyway. Moreover, he is certainly not the first lawyer to take advantage of the opportunity to move from government work to a more lucrative position in private practice. However, the willingness of Wachtell, Lipton — one of the most profitable law firms in the U.S. — to pay a high price to purchase the services of a lawyer whose claim to fame is obtaining a highly questionable conviction of Quattrone and an over-the-top life sentence for Ebbers is a rather sad reflection of the value that the market places on the ability to appeal to the public’s envy and resentment while pursuing questionable prosecutions of the unpopular businessmen of the moment. So it goes in the wacky world of criminalizing corporate agency costs.

This Chronicle article reports that the hearing on the re-sentencing of former Dynegy executive Jamie Olis will take place on Thursday January 5, 2006 before U.S. District Judge Sim Lake, with briefs due on the resentencing issues on December 20 and 27. The resentencing hearing follows the Fifth Circuit overturning Olis’ 24 year sentence last month in a widely-anticipated ruling.
Interestingly, the docket entry regarding Olis’ resentencing indicates that two other former Dynegy executives ó Olis’ former boss, Gene Foster, and former in-house accountant Helen Sharkey ó will also be sentenced with Olis on January 5. Both Foster and Sharkey pleaded guilty to conspiracy in August 2003 for their roles in the allegedly fraudulent Project Alpha deal that also ensnared Olis. Foster testified against Olis during Olis’ trial and implicated other former Dynegy executives ó including former finance chief Rob Doty ó but no one else has been charged to date. Under their plea deals, Foster and Sharkey face maximum sentences of five years.
According to the Chronicle article, Judge Lake declined Olis counsel’s request on Friday to have Olis released from prison pending the resentencing hearing. In so doing, Judge Lake signaled his intent on resentencing by commenting that, despite the 5th Circuit’s objection to the government’s damages figure, Olis still “has a number of years to serve even under the most liberal interpretation of laws.”

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