Reliant Energy Services — a unit of Houston-based Reliant Resources — and four current and former Reliant employees were indicted on federal criminal charges today in connection with the shutting down of California power plants in 2000 allegedly to increase the price of electricity in that state. Here is a copy of the indictment.
The six-count indictment returned by a federal grand jury in San Francisco results from allegations that Reliant Energy illegally manipulated prices during June 2000 by shutting down four of its five power plants during a two-day period. Reliant Energy and the individuals were each charged with four counts of wire fraud, one count of commodities manipulation, and one count of conspiracy. Reliant Resources issued this statement in response to the indictment.
The four Texans indicted are Jackie Thomas, 49, a former vice president of Reliant Energy’s power-trading division; Reggie Howard, 37, a former director of the west power trading division; Lisa Flowers, 37, a term trader; and Kevin Frankeny, 42, manager of western operations.

Here is a copy of the transcript of the recent U.S. Supreme Court oral argument in the “under God”/Pledge of Allegiance case.

Larry E. Ribstein is the Richard & Marie Corman Professor of Law University of Illinois College of Law in Champaign. Professor Ribstein runs an interesting business law blog called Ideoblog, and yesterday he posted this timely item about a CLE program that he was attending in which the criminal case of former Dynegy executive Jamie Olis (previously discussed here, here and here) was being discussed. The entire post is well worth reading, and here is a sampling of his observations:

[David U. Gourevitch, defense attorney and former SEC enforcement attorney] notes that there has been a “new wave” of white collar prosecutions, with sentences “going through the roof.” The latest guidelines will lead to treason — or drug-type life sentences — for first time corporate defrauders.
[Michael Clark, a Houston litigator] re Jamie Olis: he notes that Olis had no prior record, no personal benefit. This was a standard “cookie jar reserve” case where Dynergy had structured earnings to meet Wall Street expectations. An expert witness contested the government’s damage-causation theory. He also notes that this 20-plus year sentence was without the enhancement that will be imposed in future cases under SARBOX.
Gourevitch points out that a few years ago such a case didn’t even merit an injunction. The recent prosecutions all involve common and pervasive practices. Conduct that was considered common and close to the line is now viewed by prosecutors as “way over the line.” An example is what happened with the mutual fund sentences [more on mutual funds in a later post]. Some critical differences from the past include parallel investigations, very speedy, with investigations and prosecutions unfolding in just a few months. So just as business has gotten faster, so has criminal investigation of business.

In this recent decision (Southland Sec. Corp. v. INSpire Ins. Solutions, Inc., No. 02-1055 (5th Cir. March 31, 2004)), the 5th Circuit held that the group pleading doctrine for pleading a company’s public statements (such as press releases or regulatory filing statements) as a basis for fraud against corporate officers does not withstand the Private Securities Litigation Reform Act of 1995 (PSLRA)’s specificity requirements. The Court observed that the PSLRA requires that untrue statements be set forth with particularity as to each individual defendant and that scienter be pleaded with regard to ‘each act or omission sufficient to give rise to a strong inference that the defendant acted with the required state of mind.'” In short, based on the PSLRA’s repeated references to “the defendant,” the 5th Cirtcuit concluded that Congress intended for plaintiffs to inform each defendant of the specific factual allegations attributable to his particular alleged fraud. In so holding, the 5th Circuit noted as follows:

Significantly, this court has never adopted the ?group pleading? doctrine, even before the PSLRA. While the PSLRA does not explicitly abolish the doctrine, it was not necessary to do so because Congress never made this judicial creation law to begin with. Even prior to the PSLRA, section 10(b) and Rule 10b-5 required plaintiffs to identify the roles of the individual defendants, and describe their involvement, if any, in preparing the misleading statements. [citation deleted] Even if this court were to conclude that the ?group pleading? doctrine existed in the absence of the PSLRA, it cannot withstand the PSLRA’s specific requirement that the untrue statements or omissions be set forth with
particularity as to “the defendant” and that scienter be pleaded with regard to “each act or omission” sufficient to give “rise to a strong inference that the defendant acted with the required state of mind.”

* * *

[C]orporate officers may not be held responsible for unattributed corporate statements solely on the basis of their titles, even if their general day-to-day involvement in the corporation’s affairs is pleaded. However, corporate documents that have no stated author or statements within documents not attributed to any individual may be charged to one or more corporate officers provided specific factual allegations link the individual to the statement at issue.

In sum, this is another in a long line of 5th Circuit decisions that require specific factual allegations to sustain a fraud claim against a defendant. Hat tip to The 10b-5 Daily for the link to this decision.

Crescat Sententia noticed the following observation from 7th Circuit Judge Richard Posner‘s opinion on the disclosure of Northwestern Memorial Hospital abortion records. Got to remember this one next time I’m pursuing a motion to quash discovery:

We’re still at a loss to understand what [the government] hopes to gain from such discovery. (We begged the government’s lawyer to be concrete.) Of course, not having seen the records, the government labors under a disadvantage, although it has surely seen other medical records. And of course, pretrial discovery is a fishing expedition and one can’t know what one has caught until one fishes. But Fed. R. Civ. P. 45(c) allows the fish to object, and when they do so, the fisherman has to come up with more than the government has been able to do in this case despite the excellence of its lawyers.

This is the account of one of the Tyco jurors, who is a writer for Sports Illustrated. Hat tip to TigerHawk for the link.

The residential real estate business is one brutal business.
This interesting First Circuit Court of Appeals decision involves a breach of implied covenant of good faith and fair dealing claim in connection with the sale of a Nantucket Island summer home.
The Zachars put up $205,000 in earnest money to purchase the home from the Lees for total consideration of $2,050,000. Prior to closing, the Zachars plans changed and they decided not to close on the home. In an effort not to lose all of their $205,000 in earnest money, the Zachars persuaded the Lees to enter into another agreement in which the Lees agreed to list the property for another six month period. If the Lees sold it during that period, then the Lees would pay the Zachars any excess that they received over the original $2,050,000 purchase price up to a total of $205,000.
Inasmuch as the Lees’ real estate company was the sole broker of the property, the Zachars were fortunate to have a contractual provision in their favor that the Lees would use reasonable and commercial means to sell the property. I say that was fortunate because the Lees proceeded to jack up the asking price for the property to $2,475,000 and then refused to reduce the asking price during the term of their agreement with the Zachars. Not surprisingly, the home did not sell and the Lees claimed entitlement to the entire $205,000.
Those were fightin’ words. The Zachars sued the Lees for the $205,000 under the theory that the Lees’ conduct in jacking up the asking price and refusing to lower it was a breach of their implied covenant of good faith and fair dealing. The jury agreed, and awarded the Zachars $205,000 in damages from the Lees.
Undaunted, the Lees appealed, a part of which contended that the District Court should have granted the Lees’ Daubert challenge to the Zachars’ real estate appraiser’s expert opinion on the reasonable length of time necessary to sell the property. The First Circuit upheld the District Court’s overruling of the Lees’ Daubert challenge, reasoning that the expert’s opinion on that particular issue was not important to the expert’s overall opinion or the trial issues, and that the District Court’s decision, even if wrong, amounted to harmless error.
Seems to me that everyone involved in this debacle could have saved a lot of time and effort by simply splitting the earnest money at the outset. But my experience is that parties to residential real estate transactions rarely act rationally. Hat tip to Blog 702 for the link to this interesting decision.

This NY Times article reports that FBI and federal banking investigators are examining cash transactions in foreign accounts at Washinton D.C.-based Riggs National Bank for possible connections to terrorist groups or money-laundering activities. Accounts controlled by diplomats from Saudi Arabia, Dubai, Abu Dhabi and Oman have been included in the inquiry.
In addition to the foregoing inquiry, a corporate account controlled by the president of the West African nation of Equatorial Guinea, Teodoro Obiang Nguema Mbasago, is also being examined because millions of dollars in questionable funds flowed through that account. Exxon Mobil, a major player in developing Equatorial Guinea’s energy reserves, deposited about $300 million into Mr. Mbasago’s personal Riggs accounts.

U.S. District Judge Sim Lake has released less than $225,000 of former Enron chief accountant Richard Causey‘s money that is subject to the court’s previous order freezing substantially all of Mr. Causey’s assets and $55 million of former Enron CEO Jeffrey Skilling‘s assets. Judge Lake released the funds to Mr. Causey on the condition that he not spend any of the funds on country club fees. Mr. Causey is a member of the exclusive Club at Carlton Woods in The Woodlands, which contains a Jack Nicklaus Signature Golf Course, one of the best tracts in the Houston metropolitan area.

My old friend Judge Marvin Isgur handles the Harlingen, Texas courtroom as a part of his duties as a bankruptcy judge in the Southern District of Texas. I suspect that Judge Isgur already knows this, but this recently released Texas A&M University study reports that the Southern District of Texas leads all 94 United States federal judicial districts with the highest percentage increase in personal bankruptcy filings in 2003. Personal bankruptcy filings increased 5.3 percent in the United States, but they increased 23.2 in the Southern District of Texas.