On the heels of my earlier post today on Richard Chesnoff’s NY Daily News op-ed, I clicked on the television to watch Martha Stewart‘s statement after her sentencing. Much to my surprise, my old friend David Chesnoff — one of Las Vegas’ best attorneys and Richard’s younger brother — was standing there next to Martha. Looks like Martha is strengthening her legal team.
Chez and I struck up our long friendship while toiling together for the same Houston law firm in our first job of out of law school in 1979-80. After practicing civil trial law for a year, Chez decided that he wanted to practice criminal defense law, so he took a job in Vegas. He and I loaded everything he owned into and on top of his late model Fiat and we embarked on a legendary road trip down I-10 from Houston to Vegas. Chez quickly established himself in the Vegas criminal defense bar, and has risen to the top of his profession over the past 24 years.
Adding Chessie to your legal team is a good move, Martha.
And, as usual, Professor Ribstein puts Martha’s sentence and the sentence given in the sad case of Jamie Olis in proper perspective.

Mark Belnick, the former Paul, Weiss, Rifkind, Wharton & Garrison partner who was Tyco’s general counsel during the Dennis Kozlowski scandals, was acquitted yesterday of corporate fraud charges that involved an allegedly unapproved $15 million bonus and $14 million in personal real estate loans.
The article on the acquittal provides the normal exaggerations regarding the impact of the acquittal on prosecutors and defense attorneys, suggesting that it will make the former more cautious in future white collar prosecutions and that it will make the latter bolder in defending hte cases. In reality, the acquittal has very little effect in that regard.
However, the article does provide the following important information about the trial:

Mr. Belnick relied on the advice of the chief financial officer, Mr. Swartz, on the propriety and the disclosure of the relocation loans, Mr. Weingarten [Belnick’s defense attorney] told the jury. “There was nothing unusual, extraordinary or improper about seeking advice from that source,” he said.
Over nearly a week of testimony, Mr. Belnick essentially stuck to that argument, saying that he had done nothing wrong, had not intended to do anything wrong and had relied on advice from people he had no reason to distrust.

So, Mr. Belnick did what neither Martha Stewart nor Jamie Olis elected to do — i.e., testified during his criminal trial.
Although the temptation is great not to have a white collar criminal defendant testify during a trial and the decision can always be defended on technical grounds, the bottom line is that jurors want to hear what the white collar defendant has to say regarding the criminal charges. The decision not to testify is not the only reason that Ms. Stewart and Mr. Olis were convicted, but my experience is that the risk of conviction in white collar criminal prosecutions increases substantially if the jurors do not hear directly from the defendant.

This Nicholas Kristof NY Times op-ed is a must regarding the U.S. Attorney General’s attempt to halt Oregon’s “Death With Dignity” experiment. The A.G. is threatening legal action against any physician who participates in assisted suicide by writing a prescription for a drug that appears on the federal government’s list of controlled substances. Hat tip to Professor Mayo and his HealthLawBlog for the link to this op-ed.

As readers of this blog know, I believe that the recent prosecution and conviction of Martha Stewart is an injustice.

The result of that injustice is equally disturbing.

As American Enterprise Institute scholar John R. Lott notes in this article, Ms. Stewart’s sentencing reflects a system that is so badly out of whack that it penalizes wealthy people far more than poorer people who commit the same offense:

Before the 1987 [sentencing] guideline, judges could sentence two criminals who’d committed the same crime to vastly different sentences: Ms. Stewart could have been let off with simple probation or given more than 10 years. But judges were rarely that arbitrary. In fact, denying judges discretion has made penalties less, not more, equal.

The reason is simple: the justice system imposes many types of penalties on criminals, but the sentencing guidelines only make sure that the prison sentences are equal. Beyond prison, criminals face financial penalties that largely depend on the criminal’s wealth. In addition to fines and restitution, white-collar criminals face the loss of business or professional licenses and the ability to serve as an executive or director for a publicly traded company.

Using Ms. Stewart’s case as an example, Mr. Lott notes that those extra penalties for the wealthy are substantial, such as Ms. Stewart’s responsibility for the losses that investors in her company suffered as a result of her conviction:

I cannot say it better than Mr. Lott’s conclusion:

It is hardly ever fashionable to defend the wealthy–let alone wealthy criminals. Yet the gap in punishment is so enormous it is impossible to ignore. If fairness means that two people who commit the same crime should expect the same penalty, the current system is not merely unfair, it is unconscionable.

The decisions are coming down fast and furious from the various Circuits Courts of Appeal in regard to the recent Supreme Court Blakely decision, which was noted in these earlier posts. Professor Berman over at Sentencing Law and Policy is keeping up with it all. Check out the developments.
And, as usual, Professor Ribstein is insightful regarding the meaning of these developments on the sad case of Jamie Olis, in particular, and on politically-motivated Congressional initiatives to increase criminal penalties on business criminals, in general.

This NY Times article reports on the recent chapter 11 bankruptcy filing of the Archdiocese of Portland, which is the first archdiocese in the nation to file for bankruptcy protection because of the large sums that it owes as a result of sexual-abuse claims.
The bankruptcy filing raises an interesting legal issue: For purposes of federal bankruptcy law, are the assets of a Roman Catholic parish assets of the diocese or of the individual parishes? If all parish assets are counted as assets of the diocese, then the diocese’s assets would be valued at about half a billion, more than enough to pay the $25 million or so in pending sexual abuse claims. On the other hand, if the diocese’s assets do not include those of the individual parishes, then the diocese’s bankrupcy estate would be valued at a much more modest $50 million, which would make full payment of sexual abuse claims more problematic. The argument that the assets belong to parishes is based on church law that is much older than United States law. However, the only actual corporate entity is the diocese, which the bishop manages and represents.
University of San Diego Law Professor Thomas Smith — who runs a very good blawg called The Right Coast — observes that the diocese’s bankruptcy filing is the result of the “political economy of child abuse:”

This all relates to what you might call the political economy of child abuse. A principal reason why the Catholic Church is singled out as a hotbed of child abuse, when there is no good reason to think priests abuse children any more frequently than Protestant pastors, Mormon bishops or Communist summer camp commisars, is that the organization of the Church makes it a much more desirable target for plaintiffs’ lawyers. If each parish were a separate corporation, the course of this scandal would have run very differently. Mysteriously, shallow pockets are must less prone to the evils policed by lawyers.

My sense is that the bankruptcy courts will look for guidance from prior non-bankruptcy liquidations of parishes in addressing the legal issue that Professor Smith raises.

This LA Times article is the best analysis that I have seen to date regarding what occurred in the sad case of former mid-level Dynegy accountant Jamie Olis that resulted in the absurd 24 year sentence for Mr. Olis.
In November, 2003, a Houston jury found Mr. Olis guilty of helping cook the books at Dynegy, a Houston-based pipeline company that tracked Enron’s course into online power trading before that entire industry went bust as a result of Enron’s collapse. Mr. Olis was convicted of a battery of charges — conspiracy, securities fraud, mail fraud and wire fraud — related to an accounting scheme called Project Alpha, which attempted to mask $300 million of debt as revenue.
U.S. District Judge Sim Lake — who is presently handling the criminal case against former Enron chief honchos Kenneth Lay, Jeffrey Skilling and Richard Causey — handled Mr. Olis’ sentencing. Under the sentencing guidelines, several factors — including the skills required to perpetrate an accounting sleight-of-hand, the number of victims and a defendant’s criminal history — contribute to the length of a prison term for a white-collar criminal. However, the most significant factor in determining a sentence in a corporate fraud case is the monetary loss and — as all business litigators know — proving financial loss is far from an exact science.
Indeed, even the government expert on financial loss upon whom Judge Lake primarily relied acknowledges that he did not testify that Project Alpha caused the amount of monetary loss that Judge Lake used in sentencing Mr. Olis:

At Olis’ sentencing, Lake put the loss at a minimum of $105 million. He based that finding on his view of losses suffered by the University of California, a major Dynegy shareholder and lead plaintiff in a class-action lawsuit against the company.
During the trial, Jeffrey Heil, a former university investment official, testified that the UC system had lost a little more than $100 million on its Dynegy investment.
But in a recent interview, Heil made clear that he was not sure the punishment meted out to Olis was fair, considering the much lighter sentences given to senior corporate officers who have cut plea agreements in other cases.
“This doesn’t make a lot of sense,” said Heil, who served as UC’s co-head of investments until January 2003.
Yet Heil, who now works for the Doris Duke Charitable Foundation in New York, acknowledged in the interview that he couldn’t place a dollar value on the UC losses tied specifically to Project Alpha.
It was not a number he was asked to single out at trial.
“To be truthful,” he said, “I wouldn’t have known the figure.”
Notably, Heil never testified that Project Alpha cost the university system more than $100 million. Rather, he told the court that UC lost that amount during its overall period of owning Dynegy stock in 2001 and 2002, a time when the shares dropped for any number of reasons: the market-rocking Sept. 11, 2001, terrorist attacks; Enron’s spectacular collapse, which dragged down the whole energy sector; Dynegy’s ill-fated attempt to acquire Enron; and the California energy crisis, which raised fears of a broad regulatory clampdown.

Consistent with the Justice Department’s current penchant for criminalizing business, the Olis prosecutors actually attempted to prove that public disclosure of Project Alpha caused a much greater loss:

The government urged Lake to figure investors’ losses at more than $500 million — and perhaps twice that amount — based on the hit taken by all shareholders, not just the university. Prosecutors submitted a consultant study that considered the entire decline in Dynegy’s market value and attempted to screen out factors unrelated to Project Alpha.

The defense countered that it was impossible to accurately separate the losses tied to the fraud, given the array of pressures bearing down on Dynegy.
In the end, Lake sought to simplify the matter by focusing on UC’s investment alone.

Meanwhile, in the wake of the Supreme Court’s recent Blakely decision, Houston-based criminal defense lawyer David Gerger has filed a motion asking for his client to be released pending appeal because, lacking the jury’s endorsement of the $100-million-plus loss that the Blakely decision appears to require, Olis’ sentence should be no longer than six months.

Highly-regarded Circuit Judges Richard Posner and Frank Easterbrook of the Seventh Circuit Court of Appeals wrote the majority and dissenting opinions in this recent decision (U.S. v. Booker) interpreting the U.S. Supreme Court’s recent decision in U.S. v. Blakely.
In Blakely, the Supreme Court held that judges cannot increase a defendant’s sentence under the state of Washington’s sentencing guidelines based on facts and behavior that were not presented to a jury. Some sentencing guideline specialists believe that Blakely could affect the guidelines under the federal system.
In the Seventh Circuit decision, Judge Posner leans toward the position that the entire federal sentencing scheme is history because Blakely eviscerates the sentencing enhancements under the scheme. Judge Easterbrook is more cautious in interpreting the effect of Blakely. Hat tip to Southern Appeal for the link to this decision on a legal issue that is affecting many white collar criminal prosecutions, such as the sad case of Jamie Olis.
By the way, a relatively new blawg — Sentencing Law and Policy by Professor Douglas A. Berman of the Ohio State University Law School — is providing excellent commentary and insight on Blakely, Booker and other decisions that are affecting this important area of the law, particularly given the sledgehammer approach that the Justice Department is increasingly taking in white collar criminal prosecutions.

This NY Times article by Linda Greenhouse is a fine summary of the key decisions of the United States Supreme Court during its 2003-04 term in the following areas: Detainees, Politics, Criminal Law, Privacy, Discrimination, Federalism and Regulation, Speech and Religion, and Jurisdiction.

This NY Times article reports on the interesting story of tax shelter lawyer Raymond J. Ruble, a former Manhattan-based partner with Sidley Austin Brown & Wood. Mr. Ruble was well-known at Sidley, Austin for his aggressive work on tax strategies for investors, and was one of the biggest earners for the firm.
However, Mr Ruble is at the center of a government investigation into Sidley, Austin’s promotion of abusive tax shelters. In October, Mr. Ruble was dismissed, a highly unusual move by such a prestigious law firm. Days earlier, government investigators told the firm that millions of dollars from a San Francisco-based seller of tax shelters had gone – apparently unknown to the law firm – into a Delaware trust created by Mr. Ruble.
At least four civil lawsuits name Mr. Ruble and his former employer as defendants. Some of the lawsuits contend that he also worked with Ernst & Young and Deutsche Bank, among others, to promote a variety of abusive tax shelters.
The entire article is interesting reading, and includes the following tidbit on Mr. Ruble’s promotion of tax shelters in a continuing education publication:

In any case, in an article, “The Professional Responsibilities of a Tax Lawyer in the Context of Corporate Tax Shelters,” published by the Practicing Law Institute in its course handbook series for lawyers, Mr. Ruble argued that tax lawyers had a first duty not to the tax system but to their clients.
He began the article by quoting from the Gospel of Matthew: “No man can serve two masters.”