Monthly Archives: May 2006

New York’s dockside bully

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Spitzer58.jpgIn the movie A Man for All Seasons, Sir Thomas More had the following exchange with King Henry VIII’s henchman, Thomas Cromwell, when Cromwell threatened Sir Thomas for relying on his common law right to remain silent regarding the reasons for his refusal to take the King’s oath of allegiance to the then new Church of England:

Sir Thomas: You threaten like a dockside bully.
Cromwell: How should I threaten?
Sir Thomas: Like a minister of state. With justice.
Cromwell: Oh, justice is what you’re threatened with!
Sir Thomas: Then I am not threatened.

In this devastating Opinion Journal op-ed, the Wall Street Journal’s Kimberly Strassel conjures memories of the Sir Thomas-Cromwell exchange as she surveys the alleged threats that New York AG (“attorney general” or “aspiring governor,” take your pick) Eliot Spitzer has made over the past couple of years as he has demonized unpopular businesspeople to further his political career. As noted in this earlier post, Spitzer’s bullying of businesspeople is but one aspect of the dubious tactics that he used to regulate business in whatever manner he deems appropriate.
As noted earlier here, Spitzer is certainly not alone in using the power of his political office to criminalize easy targets for his own benefit. In fact, Spitzer’s approach is not even particularly original — he is essentially doing the same thing that Rudy Giuliani did 20 years ago in prosecuting Drexel Burnham and Michael Milken out of business. Back then, the politically ambitious Giuliani mounted a well-coordinated propaganda campaign (which, ironically, was facilitated by the Wall Street Journal reporter, James Stewart) that demonized Milken’s revolutionary financing techniques that unlocked billions in shareholder wealth during the 1980’s. Daniel Fischel brilliantly exposed Giuliani’s duplicity with regard to Milken and Drexel in his 1995 book, Payback: The Conspiracy to Destroy Michael Milken and his Financial Revolution, yet Spitzer and others continue to use the Giuliani model for abusing prosecutorial power to criminalize unpopular businesspeople for political or personal gain.
Interestingly, Fischel may take the witness stand as early as this afternoon as an expert witness for the defense in another case involving the demonization of unpopular businessmen, the Lay-Skilling trial. Although Enron’s collapse was the result of market forces, an American accounting icon was illegitimately prosecuted out of business as a result of Enron, causing huge job losses for multiple communities and untold financial hardship to thousands of employees throughout the country. Meanwhile, the lead prosecutor in that case parleyed his role in contributing to that economic hardship into a cushy partner position with a leading New York law firm.
Ms. Strassel’s piece is a powerful reminder that the Giulianis and Spitzers of the world have created — as Larry Ribstein has pointed out — a prosecutorial agency cost problem that is at least as troubling as the corporate agency cost problem that they prosecute. As Sir Thomas also reminds us, “do you really think you could stand upright in the winds [of abusive prosecutorial power] that would blow” if that power were to set its sights on you?

S.A.’s bid for the Marlins appears dead

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marlins3.jpgIt appears that San Antonio’s flirtation with the Florida Marlins is dead, according to this My SA.com article. Apparently, the Marlins’ management has been ignoring San Antonio officials since mid-April after Bexar County Judge Nathan Wolff set a May 15th deadline for the Marlins to commit to relocation.
Meanwhile, Maury Brown over at the Hardball Times chimes in with this analysis in which he concludes that current financial conditions strongly mitigate against relocation of any Major League Baseball franchise:

Relocation only comes with a stadium tied up in a shiny bow. Given the fact that more and more municipalities are latching on to the facts that I outline, they see that providing heavy public subsidy as not favorable, nor possibly needed. With that, MLB clubs will, most likely, continue to reference relocation in one manner or another, and work to try and get funding in their current markets, the relocation threat ever present.
So, for you fans of the franchises that have been discussed here today, remember: your team, at least for the time being, isnít going anywhere. Not, at least, when markets are, for the time being, not offering up enough to make it attractive. As I said, clubs may be threatening, but the gunís not loaded.

Did John McClain just call himself a charlatan?

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mcclain_sm.jpgChronicle sports columnist John McClain makes the following rather odd observations at the outset of his column today on the quality of the Texans’ picks in the just-completed NFL draft of college football players:

“First of all, let’s reiterate that our first two choices were Vince Young and Bush, but that being said, it’s clear to anyone who knows anything about the NFL that the Texans had a terrific draft on paper.”

McClain then follows that prediction with the following observation:

“No one can accurately judge this draft until several years down the road, and anyone who pretends he can is a charlatan.”

McClain then proceeds to pretend to judge the Texans’ draft.

The ugly case of Carl Wayne Buntion

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buntion_carl_wayne.jpgTexas has no shortage of ugly death penalty cases, and one of the ugliest is that of Carl Wayne Buntion.
Buntion had 11 felony convictions and had been in and out of prison multiple times at the time that he was passenger in a car stopped at the intersection of I-45 and Airline for a minor traffic violation on June 27, 1990. Buntion got out of the car and shot Houston Motorcycle Patrol Officer James Irby in the forehead with a .357-caliber Magnum, destroying Irby’s brain. Buntion contended that he was acting in self-defense.
During Buntion’s 1991 trial on capital murder charges, State District Judge William Harmon told the defendant that he was “doing God’s work” in making sure that he was executed. According to a subsequent law review article by Brent Newton: “Harmon taped a photograph of the ‘hanging saloon’ of the infamous Texas hanging judge Roy Bean on the front of his judicial bench, in full view of prospective jurors. Harmon superimposed his own name over the name ‘Judge Roy Bean’ that appeared on the saloon, undoubtedly conveying the obvious.” During the trial, Judge Harmon laughed at one of Buntion’s character witnesses and attacked an appeals court as “liberal bastards”and “idiots” after it ruled that he must allow the jury to consider mitigating evidence. Not surprisingly, Buntion was convicted and sentenced to death.
This past Friday, U.S. District Judge Kenneth Hoyt issued an opinion (downloadable here) overturning the conviction of Buntion. In the decision, Judge Hoyt found that Judge Harmon had deprived Buntion of his Constitutional right to a fair trial by bullying his lawyers, meeting privately with prosecutors and deferring to their wishes, hanging the Judge Roy Bean postcard from his bench, and by making remarks such as the “doing God’s work” one referred to above. Judge Hoyt concluded that, even before hearing the evidence, “Judge Harmon decided that Buntion was guilty and should die.”
The issues that arise from the Buntion case are not ones with easy answers. However, as noted in this earlier post, the state’s administration of the death penalty is questionable enough without questions arising in regard to the independence of the judiciary in the process. Judge Hoyt’s decision in this troubling case is a powerful reminder of that truth.

The special problems of criminalizing agency costs

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Last week, I noted UCLA law professor Stephen Bainbridge’s excellent explanation of corporate agency costs and why shareholders deserve protection from theft, but not from risk-taking.

In this typically insightful post, University of Illinois law professor Larry Ribstein follows up on Bainbridge’s article and provides an equally lucid summary of the risks to justice and the rule of law that result from a policy of criminalizing corporate agency costs. After listing seven such problems, Professor Ribstein concludes as follows:

All of this means that in order to prosecute corporate agency costs we have necessarily given lots of discretion to prosecutors. The result is a potential prosecutorial agency cost problem that threatens to rival the corporate agency costs being prosecuted.

First Enron Broadband re-trial begins today

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EBS50.jpgThe three-month trial last year of five former Enron Broadband Services (nicknamed “EBS”) executives on fraud and insider trading charges ended in a disastrous mix of acquittals and a mistrial for the Enron Task Force. So, this time around, U.S. District Judge Vanessa Gilmore has split the previous case into three seperate trials, and jury selection cranks up today in Houston federal court on another floor from the ongoing Lay-Skilling trial.
H’mm. I wonder whether any of those prospective jurors have heard about Enron over the past several months? ;^)
At any rate, in this first re-trial, Kevin Howard, the former EBS CFO, and Michael Krautz, the former EBS senior accounting director, will be tried together on four counts alleging that they conspired to commit wire fraud and falsify books and records in connection with a sale of video-on-demand profits. The Task Force contends that the sale was phony and was performed in order to inflate EBS earnings falsely. Howard and Krautz respond that the sale was an entirely legal and creative structured finance transaction that allowed EBS to generate earnings in an industry that was undergoing a huge shakeout amidst intense competition and fast-changing technology. The Sixth (yes, that’s sixth) Superseding Indictment against Howard and Krautz is here.
Well-known Houston criminal defense attorneys Jack Zimmerman and Jim Lavine represent Howard and Krautz is represented by Washington, D.C. lawyer Barry Pollack. The Task Force has assembled a new team to handle the re-trial of Howard and Krautz led by Assistant U.S. Attorneys Van S. Vincent of Nashville and Jonathan E. Lopez of Washington, D.C.
Initial estimates are that the re-trial will last about a month.

Anna Nicole’s a winner

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Anna Nicole3.jpgAs predicted earlier here, the U.S. Supreme Court ruled unanimously Monday that Anna Nicole Smith could pursue a tort claim in federal court that Anna Nicole’s bankruptcy estate owned and asserted against her late husband’s son and executor, J. Howard Marshall III.
The Court’s syllabus is here, Justice Ginsburg’s opinion is here, and Justice Stevens concurrence is here. Bankruptcy guru Steve Jakubowski breaks down the decision here and don’t miss Peter Lattman’s post on Dahlia Lithwickís clever Slate article on the opinion.

The bloom is definitely off the USC rose

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pete_carroll_300.jpgAlthough the University of Southern California football program has had a pretty good run under Coach Pete Carroll over the past several years, there is little question that events over this past weekend have confirmed that the USC program is in full-blown retreat mode.
The warning signs began appearing immediately after the Texas Longhorns beat the Trojans in the BCS National Championship Game in early January. This hilarious Bill Simmons article after that game revived the “Coach Fredo” (after the frustrated oldest son of the Corleone Family) nickname for Carroll that East Coast pundits had tagged him with during his less-than-stellar coaching stints with the New York Jets and New England Patriots.
But that was nothing compared to what has occurred over the past couple of weeks in the run-up to this year’s NFL draft of college football players. As this NY Times article reports, it started about a week ago with various media outlets reporting that Reggie Bush’s family had been in a house owned by a San Diego man who was hoping to handle Bush’s marketing work, which prompted Bush and his handlers to make some ill-advised public comments. That resulted in the owner of the house disclosing publicly that he had made over $100,000 in cash payments to the Bush family and that he plans to file a $3.2 million lawsuit against Bush for fraudulently inducing Michaels to spend more than $300,000 under the premise that his sports marketing company would be representing Bush.
Inasmuch as those allegations, if even half-true, would be major violations of multiple NCAA rules and regulations, that giant sucking sound you hear is the Trojans’ 2004 National Champtionship Trophy beginning to be pulled back to NCAA headquarters in Indianapolis.
But that wasn’t all.

Continue reading →

Former Patterson-UTI CFO cops plea deal

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Pattersonlogo6.jpgThese previous posts reported on the unusual case of Jonathan D. “Jody” Nelson, the former chief financial officer of Snyder, Texas (between Abilene and Lubbock)-based Patterson-UTI Energy, Inc., one of the largest land-based drilling contractors in the U.S.
Early last November, the 36 year-old Nelson resigned for “personal reasons” and, a day later, he made a regulatory filing of his intent to unload about $13 million of Patterson stock. That disclosure prompted the company to make a public announcement that it was investigating a “former executive” in connection with the alleged embezzlement of over $70 million from the company, which was followed a week or two later by the Securities and Exchange Commission commencing a lawsuit to freeze Nelson’s assets. A day later, Nelson was named in a federal criminal complaint accusing him of falsely certifying an SEC report.
Well, Clear Thinkers favorite Peter Henning reports that Nelson has finally admitted to the scam and entered into a plea deal with federal prosecutors. This press release from the U.S. Attorney’s Office for the Norther District of Texas confirms that Nelson pled guilty last Thursday in Lubbock federal court to one count of wire fraud and aiding and abetting, and one count of engaging in monetary transactions derived from specified unlawful activity and aiding and abetting. Nelson faces a maximum sentence of 30 years in prison and a $500,000 fine.
Nelson’s scam was accomplished through through a bogus invoice scheme that had shell companies under his control receive Patterson-UTI money, which Nelson then spent on an airplane, an airfield, a cattle ranch, a truck stop, homes and vehicles. In case you were wondering, PriceWaterhouseCoopers, LLP. were the auditors who failed to notice that a 36 year-old CFO of the company was living rather large, at least by Snyder, Texas standards.

OTC.2006

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OTC.jpgIt’s not easy finding a hotel room in Houston this week, and the reason is not the influx of media-types for the Lay-Skilling trial.
The Offshore Technology Conference — one of Houston’s oldest and largest annual conventions — begins today at the Reliant Park convention facilities. As over 50,000 engineers and industry executives descend upon Houston this week for the conference, more than 2,000 exhibitors from about 30 countries will fill nearly every cranny of the almost 500,000 square feet of exhibit space at Reliant Center.
The OTC covers state-of-the-art technology for offshore drilling, exploration, production, and environmental protection, and it is the world energy industry’s foremost event for the development of offshore resources. This is the 37th straight year that industry engineers, technicians, executives, operators, scientists, and managers have gathered in Houston for the OTC, and the conference’s exhibit floor on the floor of Reliant Stadium — including massive and specialized equipment and technological devices used in the extraction of oil and gas from offshore locations — is one of the more fascinating that you will ever see at any convention.
Although the OTC is an industry conference rather than one that caters to the masses, the OTC has always been interesting in that it tends to mirror the state of the local Houston economy. During the early 1970’s through the early 1980’s, the conference boomed as increased global demand for energy and Middle East embargoes ratched up the price of oil. After conference attendance topped out at almost 110,000 in 1982, the prolonged bust in the energy industry in the mid-1980’s resulted in substantially decreased attendance, as in 1984 when the conference was held without an exhibition of equipment and technology at all. In the late 1980’s, the expense of putting on the conference even prompted some industry participants to question whether the convention had become an overpriced luxury.
Nevertheless, over the past 15 years or so, the OTC has grown steadily to regain its stature as one of the key annual oil and gas industry conferences, and last year’s attendance of more than 50,000 was the highest since the 1982 record. A pass to the exhibit hall is usually easy to obtain, so check it out if you have a chance. It’s well worth the effort.