Longtime Houston attorney Tom Kirkendall's observations on developments in law, business, medicine, culture, sports, and other matters of general interest to the Houston business, professional, and academic communities.
Given the Homeland Security Department and Transportation Security Administration’s typically over-the-top reaction (see also here) to the Christmas Day attempt to blow up a jet flying into Detroit from Amsterdam, one wonders at what point the government’s elaborate "securitytheater" will finally make flying so miserable that it will choke the life out of the U.S. airline industry? Professor Bainbridge provides a good roundup of the blogosphere’s discussion of that and related issues.
The latest incident also reminded me of this prophetic Bruce Schneier post from about a month ago. Schneier does the best job that I’ve read of explaining why a balance between legitimate and symbolic is helpful in deterring terrorism, but that most of Homeland Security’s security theater is utterly misguided, as well as a waste of time and resources.
The entire post is excellent, but two points he makes are particularly important.
First, Schneier observes that the governmental impulse "to do something" in response to an attack is mostly misdirected:
Often, this ‘something’ is directly related to the details of a recent event: we confiscate liquids, screen shoes, and ban box cutters on aeroplanes. But it’s not the target and tactics of the last attack that are important, but the next attack. These measures are only effective if we happen to guess what the next terrorists are planning . . . Terrorists don’t care what they blow up and it shouldn’t be our goal merely to force the terrorists to make a minor change in their tactics or targets . . .
Even more importantly, Schneier points out that the right kind of security theater — that is, the best way to counteract the damage that terrorism attempts to inflict upon all of us — is to act as if we are not scared of it:
The best way to help people feel secure is by acting secure around them. Instead of reacting to terrorism with fear, we — and our leaders — need to react with indomitability.
By not overreacting, by not responding to movie-plot threats, and by not becoming defensive, we demonstrate the resilience of our society, in our laws, our culture, our freedoms. There is a difference between indomitability and arrogant ‘bring ’em on’ ehetoric. There’s a difference between accepting the inherent risk that comes with a free and open society, and hyping the threats . . .
Despite fearful rhetoric to the contrary, terrorism is not a transcendent threat. A terrorist attack cannot possibly destroy a country’s way of life; it’s only our reaction to that attack that can do that kind of damage.
Schneier is spot on. Rather than making air travel increasingly distasteful, Homeland Security and the TSA ought to be encouraging Americans to spit in the terrorists’ collective eye by traveling even more by air under reasonably tolerable and legitimate security arrangements.
The popular view is that R. Allen Stanford is a crook and should spend the rest of his life in prison.
But doesn’t the U.S. Constitution — not to speak of simple human decency — provide him with the opportunity to contest the government’s charges against him fairly?
Theseearlierposts (here, too) touched on the indefensible prison conditions that the federal government has imposed onR. Allen Stanford as he awaits trial on criminal fraud charges arising from the demise of Stanford Financial Group.
Last week, Stanford’s lawyers filed the motion below requesting that U.S. District Judge David Hittner release Stanford on strict conditions pending his trial that would make it virtually impossible for him to go to the corner drug store without the U.S. Marshals being notified immediately.
Judge Hittner promptly denied the motion without comment, which is next to inexplicable given what is contained in the motion. Here is a mere sampling:
Mr. Stanford has been incarcerated since June 18, 2009 and was moved to the [Federal Detention Center] on September 29, 2009. Immediately upon his arrival at the FDC, he underwent general anesthesia surgery due to injuries that were inflicted upon him at the Joe Corley Detention Facility. He was then immediately taken from surgery and placed in the Maximum Security Section — known as the “Special Housing Unit” (SHU) — in a 7′ x 6 1/2′ solitary cell. He was kept there, 24 hours a day, unless visited by his lawyers. No other visitors were permitted, nor was he permitted to make or receive telephone calls. He had virtually no contact with other human beings, except for guards or his lawyers.
When he was taken from his cell, even for legal visits, he was forced to put his hands behind his back and place them through a small opening in the door. He then was handcuffed, with his arms behind his back, and removed from his cell. After being searched, he was escorted to the attorney visiting room down the hall from his cell; he was placed in the room and then the guards locked the heavy steel door. He was required, again, to back up to the door and place his shackled hands through the opening, so that the handcuffs could be removed. At the conclusion of his legal visits, he was handcuffed through the steel door, again, and then taken to a different cell where he was once again required to back up to the cell door to have his handcuffs removed and then forced to remove all of his clothing. Once he was nude, the guards then conducted a complete, external and internal search of his body, including his anus and genitalia. He was then shackled and returned to his cell. In his cell there was neither a television nor a radio and only minimal reading material was made available to him. He remained there in complete solitude and isolation until the next time his lawyers returned for a visit.
In short, Mr. Stanford was confined under the same maximum security conditions as a convicted death row prisoner, even though the allegations against him are for white collar, non-violent offenses. He is certainly not viewed as someone who poses a threat to other persons or the community, nevertheless, he has been deprived of human contact, communication with family and friends, and was incarcerated under conditions reserved for the most violent of convicted criminals. Officials at the FDC informed counsel that this was for Mr. Stanford’s “own protection” and to minimize their liability. . . .
The U.S. criminal justice system used to be an institution that distinguished a free society from those that endured under oppressive regimes.
But with cases such as Stanford’s, it’s sure getting hard to tell the difference between the U.S. system and the supposedly more oppressive ones.
Owning shares of stock in Houston-based Landry’s Restaurants, Inc. has never been for the faint-hearted.
First, Landry’s board of directors failed to obtain a standstill agreement from Landry’s chairman and CEO, Tilman Fertitta, as his failed take-private offers over the past couple of years that would have prevented Fertitta from acquiring majority stock ownership in the company while its stock tanked.
Then, the Pershing Square Capital hedge fund entered the picture, bought up a bunch of Landry’s shares and announced that it opposed Fertitta’s most recent buyout offer.
Now, as Steve Davidoff explains, it appears that Fertitta has not been complying with his board’s instructions in making public disclosures about his buyout offers.
At least partly as a result, counsel for a special committee of Landry’s board that was created to negotiate Fertitta’s buyout offers resigned, apparently in protest.
As a result of this disclosure and other developments, don’t be surprised if the Securities and Exchange Commission comes knocking on Landry’s door to look into these developments.
And Tilman Fertitta’s firm grip on Landry’s from its inception may be slowly slipping away.
This time its the harsh sentences that U.S. District Judge Melinda Harmon handed down on Thursday to three former El Paso Natural Gas Company natural gas traders — 14 years to one defendant and 11 years and 3 months to the other two. They were convicted of multiple counts fraud and false reporting in connection with what has become known in Houston as "the trader cases."
The severity of the sentences is mind-boggling when compared with the nature of the alleged "crime."
The government alleged that the three traders provided false information to natural gas industry publications such as the Inside FERC Gas Market Report, which use data from traders to calculate an index price of natural gas.
Inasmuch as movement in index prices can theoretically affect the level of profits that traders can generate, the government’s theory was that the defendants provided false information so that they and El Paso could reap higher profits on their trades.
However, the government never proved that the magazines actually used the false information that the defendants provided to them or that the information actually affected the natural gas markets at all. Indeed, a myriad of market factors affect natural gas prices, as with the price of any commodity.
That was no problem for prosecutors, though. The government contended that the market effect of providing the false information was irrelevant and that the prosecution needed only to prove that false information was reported to the magazines in order to make a gain a conviction of the defendants. And they got away with it.
So, key point to all businesspeople — don’t ever provide any information to a publication about your business that could be construed to be false. It really doesn’t make any difference whether the false information affects your company. The government contends that the mere transmittal of the false information is the crime.
Meanwhile, three relatively young men (the oldest is 49) with families and promising careers are now facing over a decade of imprisonment for the "crime" of reporting false price information to a magazine.
Given the excellence of Professor Ribstein and Mr. Jenkins’ analysis of the corrupt nature of the backdating prosecutions, there is really nothing to add in that regard. The bottom line is that the unchecked prosecutorial power of the state does enormous damage to lives, families, and careers, as well as job and wealth creation.
But as I read the transcript below and the motion to dismiss that prompted it, imagine my surprise to discover that one of the prosecutors involved in the Broadcom misconduct was a member of the Enron Task Force that engaged in similar conduct in connection with the prosecution of former Enron CEO Jeff Skilling and chairman Ken Lay. Frankly, as bad as the prosecutorial misconduct was in the criminal case against Mr. Ruehle and the other Broadcom executives, it pales in comparison to whatprosecutors made Skilling and Lay endure.
Judge Carney provided in the Broadcom prosecutions a perspective of fairness and wisdom that was sadly lacking in the Enron cases. He reminds us that the line between freedom and oppression in civil society is often razor-thin.
His final declaration in the transcript below is one that we should all embrace:
"I don’t think anything needs to be said further other than, Mr. Ruehle, you are a free man."
Overcriminalization of daily life, particularly as it relates to punishing taking risks necessary to create jobs and wealth, are common topics on this blog.
Longtime Boston attorney Harvey A. Silverglate is an expert on this troubling trend in American jurisprudence. His recent book — Three Felonies a Day: How the Feds Target the Innocent(Encounter Books, 2009) — examines how pliable politicians have expanded the criminal laws to the point where the freedom of virtually anyone who attempts to take risks to create jobs and wealth is subject to the whims of often avaricious prosecutors.
Silverglate is currently guest-posting over at The Volokh Conspiracy where, in this post, he examines how the crime of honest services wire fraud involved in the Skilling case has allowed prosecutors pretty much to choose whether to indict and prosecute business people at their discretion:
Because of the vague terminology increasingly used in the ever-expanding federal criminal code, combined with the erosion of intent as a requirement for conduct to be considered prosecutable, the average citizen can easily commit several felonies in any given day. . . .
“Honest services” fraud is an instructive example of this trend, but the federal law books are cluttered with countless others. Creative interpretations of the Computer Fraud and Abuse Act, obstruction of justice statutes, and controversial Patriot Act provisions—to name a few—have turned honest citizens into federal defendants and even convicted felons. [. . .]
This dangerous trend is exacerbated by the “win at all costs” mentality of the Justice Department. Colleagues are turned into stool pigeons as prosecutors offer deals for testimony that often bears little resemblance to the truth. (As my colleague Alan Dershowitz colorfully but all-too-accurately puts it, “prosecutors can pressure witnesses not only to sing, but also to compose.”)
Faced with the prospect of a long prison sentence, enormous costs of defense counsel, and frequent threats to indict family members who are thus held hostage, defendants often choose, to parody an old cigarette commercial, to switch rather than fight.
At some point, shouldn’t we be asking the question — why are we doing this to ourselves?
On the heels of the U.S. Supreme Court’s hearing earlier this week in Conrad Black’s appeal of his criminal conviction on honest services wire-fraud charges under 18 U.S.C. § 1346 (“Section 1346), former Enron CEO Jeff Skilling filed his brief on the merits of his similar appeal with the Supreme Court yesterday. Oral argument on Skilling’s appeal will take place on March1st of next year at 1 p.m.
A copy of the Skilling’s merits brief is below. The sections of that copy are bookmarked in Adobe Acrobat to facilitate ease of review, so download a copy to take advantage of those features.
This earlier post and Lyle Denniston’s ScotusBlog post on the Skilling merits brief provide thorough analysis of the issues involved in Skilling’s appeal, which differ a bit from Lord Black’s appeal. So, I won’t reiterate those points here.
However, the following are some highlights of the brief, which is well-written and forceful. Citations to the appellate record that are contained in the brief are deleted in the following excerpts.
The following excerpts get to the heart of the appeal:
Skilling not only was tried by jurors drawn from a community passionately committed to convicting him, but he was prosecuted under a vague statute that virtually ensured jurors would vindicate that objective. Section 1346 is an unconstitutionally vague statute. A federal criminal statute must define the conduct it proscribes so that ordinary persons have notice of what is prohibited, and prosecutors are constrained in what they can prosecute.
But everyone agrees that § 1346 on its face says nothing about the conduct it proscribes. To identify its meaning, one must consult almost two decades worth of Federal Reports, searching for cases describing or enforcing the judicially-created crime of honest-services fraud, before this Court rejected them all as exceeding the judicial function in McNally v. U.S., 483 U.S. 350 (1987). But those cases reflect only the same morass of conflict and confusion that, in part, led this Court to require that Congress define the crime clearly in the first place. Congress did not do so. And it is beyond the judicial function to identify, through common-law exegesis of pre-McNally precedents, the crime that Congress failed to define. [. . .]
The Government’s theory is not that Skilling received bribes or kickbacks, or that he directed money or property to an entity in which he had a personal interest, or indeed that he acted for any private gain that was distinct from his ordinary compensation incentives. The Government openly conceded at trial that Skilling stole no money from Enron, that the case against Skilling was not about “greed,” that Skilling sought to pursue Enron’s “best interests,” and that every act for which he was prosecuted was undertaken for the purpose of protecting Enron and promoting its share value.
The Government proceeded on the theory that Skilling nonetheless committed honest-services fraud simply because he took on too much risk for the long-term good of Enron, and improperly touted the company. It did not seek an instruction requiring jurors to find that Skilling acted pursuant to undisclosed personal financial interests in conflict with Enron’s. Instead the Government urged the jury to send Skilling to prison simply because he breached his “duty to do [his] job and do it appropriately.”
That theory of honest-services fraud has no grounding in pre-McNally caselaw, and is totally at odds with the Government’s current conception of the statute.The implications of that theory, moreover, extend far beyond what Congress reasonably could have intended when it enacted § 1346 to overrule McNally, a public-official kickback case. In the private sector, corporate officers are expected to take business risks and cheerlead for their enterprises. A rule that criminalizes every business decision that seems imprudent to prosecutors or lay jurors in hindsight — but does not involve the corrupt pursuit of private gain— would force officers to proceed at their peril in making everyday business judgments. Fortunately, the theory of honest-services fraud the Government advanced below is not the law, as the Government now recognizes.
In that regard, Skilling reminds the Court of the chillingly scant basis of the “crime” the Enron Task Force prosecutors told the jury that Skilling had committed:
In closing argument, the Government declared that Skilling and Lay committed honest-services fraud because they violated a duty to Enron’s “employees” — one prosecutors described as “a duty of good faith and honest services, a duty to be truthful, and a duty to do their job … and do it appropriately.” [. . .][ The Enron Task Force’s] consistent position in this case has been that the evidence needed only to show—and did only show—“a material violation of a fiduciary duty that defendants owed to Enron and its shareholders.”
In other words, making a bad decision or doing a poor job in running a business is a crime. Almost nothing else need be said in explaining why the Skilling appeal is of paramount importance to the protection of taking risk and creating wealth in the American business community.
On the issue of why Skilling should have never been tried in Houston, check out part of the brief’s summary of the community prejudice against Skilling that the leader of the mob promoted:
What follows is a sampling of the searing media attacks.
One column in the Houston Chronicle, entitled “Your Tar and Feathers Ready? Mine Are,” demanded a “witch hunt.” Houstonians maintained that Skilling and Lay had “stole[n] money from investors,” “ripped off their stockholders for billions,” and “destroyed a great corporation.”
Skilling and Lay were compared to Al Qaeda, Hitler, Satan, child molesters, rapists, embezzlers, and terrorists and encouraged to “go to jail” and “to hell.” Some suggested they should face “the old time Code of the West.” A local rap song (entitled “Drop the S Off Skilling”) threatened Skilling’s murder. Polling showed that Houstonians routinely labeled Skilling a “pig,” “snake,” “crook,” “thief,” “fraud,” “asshole,” “criminal,” “bastard,” “scoundrel,” “liar,” “weasel,” “economic terrorist,” “evil,” “deceitful,” “dishonest,” “greedy,” “devious,” “lecherous,” “despicable,” “equivalent [to] an axe murderer,” and a man who had “no conscience,” “stole from employees,” and “swindled a lot of people.”
Skilling’s picture was “used as a dartboard” and placed on “Wanted” posters next to Osama bin Laden. When Skilling was indicted, the Chronicle proclaimed: “Most Agree: Indictment Overdue.” The paper’s negative coverage extended to articles on sports, education, music, and more.
After detailing how potential jurors’ pre-trial questionnaire answers about the case mirrored the foregoing community prejudice, Skilling describes U.S. District Judge Sim Lake’s nominal questioning of the jurors that was hopelessly inadequate to overcome the presumption of community prejudice:
Skilling sought extensive, non-public, individualized voir dire to try to screen out all the potentially biased jurors—especially in light of the questionnaire responses exposing specific prejudices. But the court took the opposite tack, holding voir dire before throngs of reporters in a ceremonial courtroom, limiting it to just five hours, and twice chastising defense counsel for asking too many questions about potential prejudice because the court had prohibited “individual voir dire.” Just 46 people were questioned—eight more than the minimum necessary—and only for a few minutes each. Only seven were struck for cause, with one excused for hardship.
Skilling then explains what should have happened in the face of such clear bias:
[I]f the [District Court] had presumed prejudice among all potential jurors, it could not have refused to permit probing inquiry into each individual juror’s biases. To the contrary, the Government would have been forced to make detailed inquiries of each juror in order to prove each juror’s impartiality beyond a reasonable doubt, and of course the defense would have been entitled to pursue similar lines to smoke out concealed or latent prejudices.
None of that happened here. Instead the district court satisfied itself that Skilling failed to prove actual prejudice for little reason other than the court looked jurors “in the eye” and decided to credit their promises of fairness. If the presumption of prejudice can be rebutted on that kind of showing, the presumption has no meaning at all.
As I’ve noted many times previously, a humane and civil society would find a better way than what was done to Jeff Skilling. It is simply un-American to throw people in prison for their errors in business judgment while they are attempting to create jobs for communities and wealth for investors.
I remain hopeful that the U.S. Supreme Court will agree.
It’s an entertaining system of corruption, but corrupt nonetheless.
Particularly appalling is the NCAA’s restriction of compensation to football and basketball players, who are the people who actually generate most of the wealth for the university athletic programs.
In that regard, a couple of news items from yesterday highlight the absurdities that often arise from this perverse regulatory scheme.
First, the University of Texas announced that it has increased the annual salary of its head football coach, Mack Brown, to a cool $5 million.
Now, Brown is a good coach who has done a fine job over the past 12 seasons at Texas. And he is a wonderful man who is a great representative for the University of Texas.
But the only way that UT can rationalize or afford to pay him $5 million per year is that it is not paying a portion of its football income as compensation to the players who create the income in the first place.
By way of comparison, in the National Football League — which is simply a higher level of professional football than big-time college football — very few coaches earn $5 million per year despite the fact that NFL franchises generate far more income than UT’s football program does.
One of the primary reasons that NFL teams do not generally pay such amounts to their coaches is that a substantial portion of the each NFL team’s income is paid to players as compensation.
So, to put it bluntly, Brown makes $5 million annually because UT and the NCAA prevent Longhorn players from receiving fair compensation for the considerable risks that they take.
Meanwhile, excess regulation almost always generates creative efforts to get around those regulations.
Thus, many big-time college football programs provide indirect compensation to their athletes through exclusive use of luxurious "resort" facilities, such as private housing, elaborate workout centers and special academic services.
But those elaborate resort facilities all look alike after awhile.
So, what additional form of indirect compensation can a football program offer to attract the best athletes?
The University of Tennessee has apparently came up with one by utilizing upon one of the oldest forms of compensation known to man.
The NCAA Rules and Regulation Manual already rivals the Internal Revenue Code in terms of length and mind-numbing detail.
Perhaps the Tennessee investigation may at least result in a new section of the NCAA Manual that the football coaches and college administrators might actually enjoy reading?
Watching the carnage unfold from the Tiger Woods affair is a bit like watching a train wreck in slow motion.
A train wreck unfolding with hyper-speed commentary from modern social media, that is.
The affair is a tragedy on several levels, from the public humiliation of Woods’ wife to the distinct prospect of job losses in the reeling Woods’ business empire (see also here). We should all have sympathy for those who are caught in this cauldron of insecurity resulting from Woods’ appalling arrogance and irresponsibility.
But in so saying, it is not my purpose to pile on with more harsh criticism of Woods. The only time I have met Woods was back in the mid-1990’s when he was attending Stanford and was in Houston practicing at Lochinvar Golf Club with his then-coach, Butch Harmon, who at that time was the head pro at the club.
When Butch introduced us, Woods could not have been more gracious. He thanked me as a club member for allowing him to practice at such a fine facility. My enduring thought of that brief encounter is that Woods’ parents did a very fine job of raising him.
Frankly, the type of societal ridicule that Woods and his family are enduring always makes me a bit uncomfortable. As noted years ago in connection with the death of Ken Lay, the preoccupation with Woods’ troubles is a palpable reminder of the fragile nature of the individual and civil society. The vulnerability that underlies our innate human insecurity is scary to behold, so we use myths and the related dynamics of scapegoating and resentment to distract us. We rationalize that a wealthy athlete did bad things that we would never do if placed in the same position (yeah, right) and thus, he is deserving of our scorn and ridicule. That the scapegoat is portrayed as arrogant and irresponsible makes the lynch mob even more bloodthirsty as it attempts to purge collectively that which is too shameful for us to confront individually.
In my experience, people in the public eye are often quite different in the context of a personal relationship than they are perceived publicly. That certainly could be the case with Woods, who people close to the PGA Tour tell me gets along quite well with most of his fellow Tour players. The same cannot be said about a number of other top Tour players from previous eras.
Similarly, the public scrutiny that Woods’ private life is currently enduring exceeds anything that a major sports figure has ever had to deal with (the Woods affair has been on the front page of the New York Daily News for the past ten days straight!). Arnold Palmer — a far more charismatic sportsman than Woods who is one of the few to rival Woods’ wealth and business empire — candidly admitted several years ago that, during his early days of success on the Tour, he had been less than completely faithful to his beloved late wife, Winnie. Although Palmer was never as indiscrete or arrogant as Woods has been, Palmer was also never subjected to the type of media scrutiny that Woods has endured. The media simply handled such things differently in Palmer’s heyday.
Moreover, Woods has been unfairly criticized for his behavior since the scandal broke open on the early morning after Thanksgiving. As I noted on Twitter on the Sunday morning after his early Friday morning car wreck, Woods’ silence has been absolutely essential and appropriate to the protection of his family and himself. Although none of us know what really happened leading up to Woods’ car wreck, Woods and his wife clearly faced at least the distinct possibility of serious criminal charges.
Under those circumstances, any competent lawyer would have advised Woods and his wife to refrain from saying anything to the police or publicly, as many public relations "experts" were proposing that they do. The bottom line is that Woods has done — and continues to do — the right thing by remaining silent.
On the other hand, Woods and his business team have their work cut out for them in attempting to stem the damage to the billion dollar Woods business empire resulting from the affair and the societal reaction to it. Woods’ main sponsors have stood by him so far, and I suspect that Nike — his main sponsor from the beginning of his career — will continue to support him.
But that Woods’ sponsors are staying with him now does not mean that they are going to renew their contractual arrangements with him.
You see, Woods has earned most of that billion dollar net worth by parleying his nearly unrivaled record of excellence on the golf course to sponsors who have wanted to associate with that excellence.
Following on a point made in earlier posts, the Chron’s Mary Flood reports on the indefensible conditions that the federal government has imposed on R. Allen Stanford as he awaits trial on criminal fraud charges arising from the demise of Stanford Financial Group.
Sort of reminds you of the way in which certain other countries handle the prosecution of business executives, doesn’t it?
Ironically, while rightfully questioning whether Stanford is being given a fair shake, the Chron continues to avoid examining its equally dubious record in creating a presumption of community prejudice against Jeff Skilling.
Witch hunts do not reflect well on the participants.
Given the Homeland Security Department and Transportation Security Administration’s typically over-the-top reaction (see also here) to the Christmas Day attempt to blow up a jet flying into Detroit from Amsterdam, one wonders at what point the government’s elaborate "security theater" will finally make flying so miserable that it will choke the life out of the U.S. airline industry? Professor Bainbridge provides a good roundup of the blogosphere’s discussion of that and related issues.
Overcriminalization of daily life, particularly as it relates to 
