In the key strategic decision of the criminal trial of former WorldCom CEO Bernard Ebbers, Reid Weingarten advised U.S. District Judge Barbara Jones on Friday that he intends to call his client Mr. Ebbers to the stand on Monday.
The prosecution rested its case on Wednesday and the defense began its case on Thursday. The defense intends to conclude by the end of next week, which means the case should go to the jury early in the following week. Here are previous posts on the Ebbers case.
Inasmuch as juries in white collar criminal cases expect to hear from the defendant, the decision to have Mr. Ebbers testify is only surprising because of how well the trial appears to have gone to date for Mr. Ebbers.
In their case in chief, prosecutors relied almost entirely on former WorldCom CFO Scott Sullivan‘s testimony in attempting to prove that that Mr. Ebbers helped direct a massive accounting fraud that inflated WorldCom’s publicly-reported earnings and revenue numbers. Mr. Ebbers’ alleged motive was to forestall a decline in WorldCom’s stock price in an effort to protect his personal net worth, which was almost entirely based on WorldCom stock.
The Ebbers defense team has countered with a theory of the case that it was Mr. Sullivan who masterminded the fraud and that he concealed it from Mr. Ebbers, who was an “honest idiot.” This past week, the defense put on its first witnesses, including Bert Roberts, WorldCom’s former chairman, who testified that Mr. Sullivan did not implicate Mr. Ebbers when he was initially confronted with the $11 billion fraud in June 2002. Moreover, Cynthia Cooper, the internal WorldCom auditor who first uncovered the fraud, testified for the defense that Mr. Ebbers directed her to disclose negative accounting information to the WorldCom audit committee that Mr. Sullivan had wanted withheld.
Thus, the Ebbers defense team probably feels reasonably good at this point about establishing reasonable doubt in the minds of the jurors. However, I agree with the decision to put Mr. Ebbers on the stand. Although a bad performance could give the jurors second thoughts about reasonable doubt, a good or even neutral performance could clinch an acquittal.

A couple of weeks ago it was the sale of the corporate jet. This week it’s a federal criminal investigation as formerly high-flying retail doughnut franchisor Krispy Kreme Doughnuts, Inc. moved a step closer to what appears to be an inevitable chapter 11 reorganization.
Krispy Kreme announced yesterday that the U.S. attorney for the Southern District of New York had launched an investigation that appears to be focused on the company’s franchise repurchases and a profit warning that the company issued in May, 2004. As is typical in such announcements, the the Winston-Salem, N.C.-based company said that the company is “cooperating fully” with the investigation. Here are the previous posts over the past year on Krispy Kreme’s mounting troubles.
The investigation deepens the problems facing Krispy Kreme, which is facing a liquidity crisis by the end of March. The company has been struggling with slowing sales and an SEC probe of its accounting practices that began last year. The company is cutting about 25% of its nonstore work force as part of a turnaround plan under Stephen F. Cooper, the Enron restructuring expert who became chief executive at Krispy Kreme in January.
Krispy Kreme stock was trading at $5.36 at the close of New York Stock Exchange composite trading yesterday, leaving the stock at about one-tenth of its peak price in August 2003. The company has also been blasted by multiple shareholder lawsuits over the past several months, which are another reason that chapter 11 appears to be an inevitable part of the company’s reorganization.

U.S. Bankruptcy Judge Letitia Z. Clark dismissed OAO Yukos’ controversial chapter 11 case yesterday, concluding that there is inadequate precedent for a major foreign oil company to gain the substantial legal protections of a debtor-in-possession under U.S. bankruptcy law. Here is copy of Judge Clark’s Memorandum Opinion and here are the prior posts over the past couple on months on this interesting international case.
Yukos had contended that the U.S. Bankruptcy Court had an adequate basis for jurisdiction over the company because of private American ownership of part of Yukos, two recently-created Texas bank accounts, and the fact that its chief financial officer had recently begun working out of his home in Houston.
Judge Clark’s ruling sends Yukos back to the Russian and International civil justice system in an attempt to find a forum for its claims that the Russian government acted illegally in forcing the December auction of Yukos’s valuable Yuganskneftegaz (“Yugansk”) production unit. Yukos’ former owner, Mikhail Khodorkovsky, remains in jail in Russia on fraud and tax evasion charges.
Yesterday’s decision also concludes the lawsuits that Yukos filed in the Bankruptcy Court resulting from the auction, including its $20 billion “Hail Mary” against four Russian companies, including the Russian government-owned natural gas company OAO Gazprom and oil company OAO Rosneft. Rosneft purchased the Yukos unit from a shell company that that had won auction for Yugansk.
The dismissal of the Yukos case facilitates the Russian government’s probable liquidation of the remainder of Yukos’ assets to generate proceeds to pay the balance of Yukos alleged tax debt to the Russian government. Moreover, the Russian government will probably proceed with the merger of Gazprom and Rosneft, which had been put on hold after Yukos’ chapter 11 case was filed. That planned merger will raise the Russian government’s holding in Gazprom to above 50 percent, which will then allow foreigners to own shares in Gazprom.

This NY Times article does a good job of summarizing the situation surrounding the increasingly likely retirement of U.S. Supreme Court Chief Justice William Rehnquist, who is suffering from thyroid cancer and the effects of the treatment for the condition. The Times article reports that a consensus is developing within the Bush Administration that Justice Rehnquist will step down at the end of the Supreme Court’s term in June. According to the Times article, the five names on the Administration’s short list are as follows:

1) Michael W. McConnell of the United States Court of Appeals for the 10th Circuit,
2) John G. Roberts of the United States Court of Appeals for the District of Columbia,
3) J. Harvie Wilkinson III of the United States Court of Appeals for the Fourth Circuit, and
4) J. Michael Luttig of the United States Court of Appeals for the Fourth Circuit, and
5) Samuel A. Alito of the United States Court of Appeals for the Third Circuit, who is mentioned as “another possible candidate.”

This is a high caliber list of intellectual heavyweights who, I believe with the exception of Judge Alito, are all former Supreme Court clerks. My personal favorite for the appointment is Judge Roberts, who I have found to be an absolutely superb thinker and writer in the opinions that he has penned while on the D.C. Court of Appeals.

In a somewhat shocking development to a world conditioned to prolonged white collar criminal prosecutions, the prosecution in the criminal trial of former WorldCom CEO Bernard Ebbers announced yesterday that it will not be calling any further witnesses from the company and that it expects to conclude its case-in-chief either today or tomorrow. The government’s statement came after U.S. District Judge Barbara Jones declined to grant the government’s request to call a former WorldCom employee who lost her entire retirement savings when the company collapsed,
Thus, the importance of former WorldCom CFO Scott Sullivan‘s testimony to the government’s case against Ebbers has come into clear focus. The government used Sullivan as the principal witness to connect Ebbers’ involvement in the accounting fraud at WorldCom, and the cross-examination hammered on Sullivan’s lies and misstatements, including a protracted discussion about whether what Sullivan said in a particular conference call constituted the universally understood concept of “B.S.”
Nevertheless, after three weeks of testimony, the government has essentially conceded that there is no paper trail to link Ebbers directly to the fraud. Sullivan’s testimony is that he falsified WorldCom’s accounts on numerous occasions and repeatedly lied about the company’s trading position because Ebbers urged in private conversations that “We have to hit our numbers.”
On cross-examination of Sullivan, the Ebbers defense promoted the “honest idiot defense” theory that Ebbers was the visionary who delegated the details of the company’s accounts to the more sophisticated and better educated Sullivan. Now, with the prosecution’s case winding down, the Ebbers defense team faces the key strategic decision in the case — whether to put Ebbers on the stand or even whether to put on any witnesses other than character witnesses to attest to Ebbers’ good ol’ boy nature. Inasmuch as juries in white collar cases expect to hear what the defendant has to say, they generally hold not testifying against the defendant even though they are not supposed to do so. However, with the WorldCom prosecution’s case relying heavily on Sullivan’s credibility, the Ebbers defense team may decide that Ebbers’ testimony could only hurt their defense and, thus, it’s worth the risk of not putting him on the stand.
Stay tuned on this one, folks. This case may go to the jury be early next week.

In a case that is being followed closely by free speech advocates and lawyers who specialize in defamation cases, Massachusetts Superior Court Ernest B. Murphy hammered The Boston Herald and one of its reporters with a $2.1 million jury verdict for libeling him in a series of articles that portrayed him as being overly lenient toward criminal defendants.
The Herald reported in February 2002 that prosecutors were criticizing Judge Murphy privately for giving overly lenient sentences to criminal defendants, and used as an example a sentence of eight years’ probation for a 17-year-old convicted of two rapes and an armed robbery. In a particularly inflammatory part of one article, the newspaper quoted Judge Murphy as telling prosecutors involved in the case to tell the teenage rape victim: “Tell her to get over it.” The story was picked up by media outlets across the country and Judge Murphy became a target of right wing talk radio shows that tabbed him as “Easy Ernie” and “Evil Ernie.” The Herald’s lead reporter on the story then appeared on Fox’s “The O’Reilly Factor” after his first story ran and confirmed that Judge Murphy had made the comment to three lawyers involved in the case.
In his suit against the newspaper, Judge Murphy’s essentially accused the Herald of fabricating a sensational story to sell papers. Based on about a dozen articles, Judge Murphy asserted that the Herald had misquoted him in connection with the above particular quote, and that it took other of his remarks out of context. The lawsuit also alleged that the judge was bombarded with hate mail, death threats and calls for his removal from the bench as a result of the Herald’s articles on the judge. The newspaper stood by its reporting of the particular quote and the series of articles in general.
The case is particularly noteworthy because Judge Murphy is a public figure, which means that Judge Murphy had to persuade the jury that either the Herald knew it was reporting false information or that it acted with a reckless disregard for the truth. That is a considerably higher standard than what a normal citizen must fulfill to win a defamation lawsuit.

This Washington Monthly article profiles Tommy Goldstein, the Washington D.C. lawyer who, though still in his 20s, has elbowed his way into the select group of lawyers who regularly appear before the U.S. Supreme Court. What makes Mr. Goldstein’s story most interesting is that he has accomplished this feat while starting and operating his three-lawyer firm out of his house:

He had never clerked for a justice or worked in the SG’s office. He earned his law degree at plebian American University, not Harvard or Yale. Yet Goldstein is already renowned among his peers and has begun to make a lot of money, too. This year, his firm, Goldstein & Howe– Howe is his wife and partner, Amy–will bill close to $1.5 million in fees. “His knowledge of the court is breathtaking,” says Ronald Collins, a First Amendment scholar at the Freedom Forum and former court clerk. “One cannot speak about Supreme Court litigation without breathing Tom’s name. And he has only just begun.”

Hat tip to On Appeal for the link to this interesting story.