One of the most important — yet most difficult — things for an attorney to do in private practice is to advise a valuable client not to do something that the client really wants to do. As Jeffrey Toobin brilliantly relates in this New Yorker article on the downfall and trial of Martha Stewart, that dilemma was one of the primary reasons that Ms. Stewart’s case went awry. Mr. Toobin details the questionable representation that Ms. Stewart received from Wachtell Lipton during, and in preparation for, her initial interview with the Justice Department, and the disastrous effects of her co-defendant attorney’s cross-examination of the prosecution’s main witness during trial:

On the scale of highly publicized misdeeds in the past decade, Stewart’s trade must rank among the most trivial. She netted only about fifty thousand dollars more on the deal than if she’d held the stock for another day, and, as she told me, her ImClone holding constituted .03 per cent of her assets. It seems almost implausible that such a misstep could send Stewart to prison and lead her company to ruin, and that this happened with the help of the best and most loyal people that money could buy.
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On February 4th, . . . [Wachtell Lipton partner John] Savarese and an inexperienced associate at Wachtell, Lipton accompanied Stewart to her interview at the U.S. Attorney’s office in Manhattan. Confident that she could truthfully refute the charge that Waksal himself had tipped her, Stewart told investigators the fabricated story about the pre-existing agreement to sell ImClone at sixty. Worse, Savarese allowed a second interrogation, on April 10th, during which Stewart again lied about the sixty-dollar agreement and asserted, falsely, that she couldn’t remember whether she was told on December 27th that the Waksals were selling. To be sure, it was Stewart, not her lawyer, who lied to the investigators, but Savarese had allowed his client to take an immense legal risk
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Through the early part of the trial, Peter Bacanovic’s lawyers generally deferred to Morvillo, much as their client did to Stewart. Bacanovic’s lead lawyer, Richard Strassberg, a former Assistant U.S. Attorney in Manhattan, who is now with the firm of Goodwin Procter, presented Bacanovic’s opening statement, but he shared substantial responsibility for the defense with David Apfel, a Boston-based partner at the firm. Apfel, who is fifty-one, had a distinguished career as a federal prosecutor in Massachusetts, where in 1997 he won the John Marshall Award, the Justice Department’s highest award for trial work. In the late nineties, he turned to private practice, and, at the lectern on February 4th, he proceeded to give life to the courtroom adage that the best prosecutors do not always make the best defense lawyers.
Apfel organized his notes, stared down Faneuil on the witness stand, and snarled at him, “Mr. Faneuil, let’s get a few things straight right away.”
Thus began a catastrophically ineffective cross-examination. . .

I continue to agree with Professor Bainbridge that prosecutorial discretion should have mitigated against a prosecution of Ms. Stewart in this case. But as this article points out, Ms. Stewart and her advisers’ failure to address her actions in selling the ImClone stock in a forthright and honest manner bears much of the responsibility for Martha’s demise.
Thanks to Evan Shaeffer for the link to the New Yorker article.

Following on this post from yesterday, here is U.S. District Judge Sim Lake’s opinion continuing the freeze on former Enron CEO Jeff Skilling’s assets pending further order of the Court in Skilling’s criminal case. Essentially, Judge Lake rules that the freezing of assets does not amount to a forfeiture, which can only be done after a conviction. Moreover, Judge Lake reasons that Mr. Skilling is free to make a motion that the frozen assets are not the ill-gotten gains of his alleged wrongdoing and are necessary to pay his defense and living expenses.

This Eleventh Circuit decision affirmed the trial court’s exclusion of an accountant’s testimony on lost profits, which is a common way in which business plaintiff’s attempt to prove economic damages. In this particular case, the accountant’s estimates were based gross sales and gross profits without any deduction for expenses (one wonders how he could have testified as to profits without deducting expenses?). At any rate, the trial court and the 11th Circuit ruled that the accountant’s opinion was inconsistent with the law of lost profits under applicable Georgia law and that it relied on methods not generally accepted in the accounting community. Interestingly, the 11th Circuit upheld the trial court’s exclusion of the testimony even though the defendant’s Daubert objection was not raised until trial. Waiting until trial to raise a Daubert objection is risky and generally not a recommended strategy.

Houston-based geophysical seismic company Seitel, Inc. obtained Bankruptcy Court confirmation of its chapter 11 reorganization plan in Delaware yesterday. Seitel filed a chapter 11 case last year after a change in accounting rules relating to valuation of its library of geophysical seismic resulted in a substantial writedown in the value of that library, which is the company’s main asset. The case was also spiced by some colorful allegations regarding the company’s former CEO, and Warren Buffet‘s failed takeover attempt during the chapter 11 case.

U.S. District Judge Sim Lake refused today to lift a freeze order that the Enron Task Force had obtained on $55 million of former Enron CEO Jeff Skilling‘s assets pending further order of Judge Lake. I will be interested to review Judge Lake’s opinion on this issue. Given the government’s sledgehammer approach to the criminal case against Skilling, freezing his new worth while he defends himself appears to be an unfair restriction. On the other hand, Judge Lake is a very fair judge, so I expect good reasoning in this opinion. I will post it when I get a copy.

Here is Justice Scalia’s opinion refusing to recuse himself in the Supreme Court case involving his hunting buddy, Vice-President Cheney. Here is the Sierra Club’s motion to recuse that prompted Justice Scalia’s opinion.

This Chronicle story reports on the comments of Texas GOP chairperson Tina Benkiser‘s statement Wednesday that Travis County District Attorney Ronnie Earle‘s (a Democrat) failure to investigate former Democratic Attorney General Dan Morales proves that Mr. Earle’s current investigation into Republican House race financing is politically motivated. Earlier posts on this investigation can be reviewed here.
However, there is one big problem with Ms. Benkiser’s allegation: Mr. Earle deferred to the Justice Department in Mr. Morales’s case, which investigated, indicted, and convicted Mr. Morales.
This earlier post criticized the Texas Democratic Party chairperson’s comments regarding Governor Perry. These statements by the GOP chairperson are just as bad. I know several Republican prosecutors in Texas, and they all have high regard for Mr. Earle. Ms. Benkiser should have checked with them first before making her disingenuous public statement.

The Chronicle leads with a misleading headline today regarding the $23 million that former Enron CEO and COO Jeff Skilling has set aside to pay the cost of his defense in Enron-related matters. The Chronicle article suggests that the $23 million is absurdly high, which it is not. Mr. Skilling is the subject of a 35 count criminal indictment that could lead to effectively a life prison sentence if he is convicted. Moreover, Mr. Skilling is a defendant in dozens of civil cases arising from the ashes of Enron. The review of documents alone relating to his criminal case is a monumental task. And to make matters more complicated, the prosecution in Mr. Skilling’s criminal case is attempting to constrict Mr. Skilling’s ability to pay his defense team.
$23 million may be extraordinarily high defense costs, but Enron is an extraordinary case. This is an example of the Chronicle leading with a story where there really is not one. The Chronicle would be much better served by addressing the Enron Task Force‘s highly troubling “sledgehammer” approach to prosecuting former Enron insiders, in which the prosecution files so many duplicative criminal counts against the defendant that the defendant has to risk what amounts to a life prison sentence in order to defend himself. That approach raises important issues of fairness and due process that the media covering the Enron prosecutions have ignored to date.

This San Antonio Express article reports that long-time U.S. Federal District Judge Filemon Vela, who has taken senior status, is waging a personal battle against stomach cancer at M.D. Anderson Cancer Center in Houston. Thanks to Bradley Clark over at the Texas Law Blawg for the pointer to this article.

Anyone who has ever pursued business litigation against foreign companies or their advisors in a U.S. court knows that it’s not a picnic. However, this recent First Circuit opinion provides some hope for weary plaintiffs.
KPMG-Belgium was the auditor for Lernout & Hauspie Speech Products NV, the Belgian software maker that collapsed in 2002 under allegations of accounting fraud. A securities fraud class action was filed against KPMG-Belgium and others in Masschusetts federal court.
KPMG-Belgium refused to comply with the plaintiffs’ discovery requests on the grounds that producing the papers would violate Belgian law. The plaintiffs moved to compel the production of the documents, which the federal magistrate handling discovery matters in the lawsuit approved. KPMG-Belgium then mounted a collateral attack of that discovery order in the foreign court. They filed a ex parte petition with a Belgian court seeking to enjoin the plaintiffs from proceeding with the requested discovery, and requested a mere 1 million euros fine for each violation of the proposed injunction.
The plaintiffs fought back and persuaded the Massachusetts federal district court to issue issued an antisuit injunction enjoining KPMG-Belgium from pursuing the Belgian injunction action, which KPMG-Belgium appealed to the First Circuit. The First Circuit affirmed the district court injunction order, holding that when “a party institutes a foreign action in a blatant attempt to evade the rightful authority of the forum court, the need for an antisuit injunction crests.”
As I write this, KPMG-Belgium has not decided how to respond to the First Circuit’s decision. However, non-compliance could result in severe sanctions, such as entry of judgment or a fine. This will be an interesting case to follow.
Thanks to the 10b-5 Daily blog for the pointer to this case.