Monthly Archives: January 2010

We sure have progressed, haven’t we?

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fire_3 Larry Ribstein points us to the abstract of a new Peter Leeson paper, Ordeals:

For 400 years the most sophisticated persons in Europe decided difficult criminal cases by asking the defendant to thrust his arm into a cauldron of boiling water and fish out a ring. If his arm was unharmed, he was exonerated. If not, he was convicted. Alternatively, a priest dunked the defendant in a pool. Sinking proved his innocence; floating proved his guilt. People called these trials ordeals.

No one alive today believes ordeals were a good way to decide defendants’ guilt. But maybe they should. This paper investigates the law and economics of ordeals. I argue that ordeals accurately assigned accused criminals’ guilt and innocence. They did this by leveraging a medieval superstition called iudicium Dei. According to this superstition, God condemned the guilty and exonerated the innocent through clergy conducted physical tests.

It sure is comforting to know that we sophisticated modern folk no longer believe that such ordeals are a good way to decide the guilt of a defendant.

On the other hand .   .   .

The growing threat of prosecutorial power

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white-collar-crime A frequent topic on this blog is the overcriminalization of American life, particularly in regard to taking business risks that create jobs for communities and wealth for citizens.

One of the most lucid writers on this disturbing trend is William Anderson (prior posts here), an economics professor at Frostburg State in Maryland. In this recent Regulation magazine article for the Cato Institute, Professor Anderson provides an excellent overview of how the federal government has gradually imposed police state-type laws on us that allow prosecutors to target citizens for a criminal case and then rationalize a crime from any number of vague criminal statutes:

The numbers tell a harsh story. In 1980, there were about 1,500 federal prosecutors and approximately 20,000 federal prisoners. Today, there are more than 7,500 U.S. attorneys and more than 200,000 federal prisoners, according to an October 2009 count. About 52 percent of federal prisoners are drug offenders, reflecting the emphasis of the ìWar on Drugs,î and while there is no specific ìwhite collarî crime category, one estimates, using Federal Bureau of Prisons statistics, that about 5 to 10 percent of the federal prison population consists of people convicted of white collar crimes.

The federal criminal code is growing. In the early days of the republic, there were three federal crimes: piracy, treason, and counterfeiting. Today, there are more than 4,000 federal criminal laws and more than 10,000 regulations that prosecutors easily can fold into the criminal statutes.  .   .  .

In surveying this sad state of affairs, Anderson notes one of the perverse incentives driving these dubious prosecutions:

The resulting near-free reign that prosecutors have in federal court is an open invitation to abuse of the law and the legal system. To make matters worse, federal prosecutors enjoy almost total legal immunity and are unlikely to face any sanctions no matter how dishonest or abusive their behavior might be; the rules that apply to everyone else do not apply to U.S. attorneys. [.  .  .]

The only thing that stands between almost any American and doing a stretch in federal prison is the choice of whom prosecutors will target. This is a serious problem that shows no signs of disappearing.

The fact that one such prosecutor in Massachusetts was even seriously considered by many in that state for a position in the U.S. Senate reflects that citizens still have not grasped the extent of this awful trend in American society.

It makes one wonder what itís going to take for Americans to stand up and put a stop to this?

Did Rice blow it?

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RiceU_BaylorCollegeMedicine So, Rice University last week finally decided to pass on the proposed merger with Baylor College of Medicine.

In theory, the deal makes sense. Both are top-notch academic institutions with campuses within a stoneís throw of each other. Each institution would have given the other something that it needs. Baylor would have gotten the financial support of Riceís multi-billion dollar endowment, while Rice would have landed a strong scientific research and clinical care center in one of the nationís leading medical institutions, the Texas Medical Center.

Although Rice President David Leebron supported the merger, large segments of the Rice faculty and alumni opposed the deal, primarily on financial and cultural grounds. Indeed, my sense is that Leebron quit pushing the Rice Board of Trustees to approve the deal when it became apparent that a consensus of Rice constituencies were opposed to the marriage.

And Baylor clearly finds itself in precarious financial condition, not completely of its own doing. After its 54-year teaching hospital relationship with Methodist Hospital soured in 2004, and a subsequent deal with St. Lukeís Episcopal Hospital did not work out, BCM decided on a plan to go it alone and build its own teaching hospital.

However, the ambitious deal has been pretty much a disaster from the start. After floating almost $900 million in bonds to finance construction of the hospital, Baylor announced last year that it was temporarily suspending construction of the hospitalís interior as it works through its financial problems.

Meanwhile, BCM has lost over $300 million since the split with Methodist. Inasmuch as Baylorís endowment is less than a billion, those kinds of losses have placed BCMís financial condition at risk. Already in in technical default on multiple bond covenants, BCM is now facing the prospect of hiring a bondholder-required ìchief implementation officerî to oversee an overall financial reorganization. That would have been avoided if the Rice merger had succeeded.

Thus, Rice certainly had understandable reasons for passing on the deal.

Nevertheless, I wonder ñ did Rice make the right decision?

Despite its financial woes, BCM remains one of the elite medical and research institutions in the U.S. The merger would have undoubtedly brought a substantial increase in research funds in such fields as bioengineering, neurobiology, nano-biotechnology, stem cell biology and gene therapy. Although Rice would have been subsidizing BCMís financial problems in the short term, my sense is that the increase in research resources flowing to Rice over the years would ultimately make that bailout well worth it.

But even more importantly, Rice passed on an opportunity to take a calculated risk that could well have elevated Rice, BCM, the Texas Medical Center and Houston to the forefront of medical and scientific research in the world.

Despite the risks, that kind of upside doesnít come around very often. Failing to realize that is one of the key reasons why Texas has lagged badly behind states such as California and New York in the development of Tier 1 research institutions and all the benefits that such institutions provide to the state and its communities.

Thus, Rice is keeping its chips and betting that it can develop its scientific research just fine without BCM. But if I were to place a bet on which institution is closer to the cutting edge of such research after the next 25 years, Iím still putting my chips on Baylor.

So, you want to be a big-firm deal lawyer?

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Collins_3 Continuing to fly well beneath the radar screen — probably because lawyers don’t want to talk about it except in hushed tones — is the seven-year prison sentence that former Mayer Brown partner Joseph P. Collins was handed late last week.

As this earlier post explains in detail, Collins was the former outside deal lawyer for Refco, Inc., which unraveled back in 2005 under the weight of public disclosure of a series of insider transactions that were apparently designed to hide millions in liabilities from customers and investors.

As the earlier post notes and as the Memorandum of Law in support of a new trial for Collins explains, whether Collins even knew about the allegedly fraudulent nature of the transactions is highly questionable and whether he hid those transactions from anyone is even more dubious. But that hardly matters in this era of “let’s hammer the white-collar defendant.”

Meanwhile, Collins’ family will be deprived of the presence of their father for seven years.

What is it going to take for this madness to stop? A truly civilized society would find a better way.

Memorandum of Law in Support of New Trial for former Refco, Inc outside counsel, Joseph P. Collins

Tech update

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79404-CurseWordSymbols Sorry about the problems accessing the blog over the past couple of days. The blogís host server went down, so everything had to be migrated to a new server. It looks as if things are working reasonably well now.

Be sure to check out Fridayís post on the developments in the Enron-related Nigerian Barge case. What a strange, wild ride it has been.

Thanks for the patience and for reading HCT.

One Step Forward, a Big Step Back

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Well, the Department of Justice finally did the right thing and dismissed the remaining criminal charges against former Merrill Lynch banker, Dan Bayly, in connection with the shameful Enron-related Nigerian Barge prosecution.

Even in the heavily-littered landscape of failed Enron-related prosecutions, the Nigerian Barge prosecution stood out for its sheer brazen nature. As noted in this post from over five years ago (!), the Nigerian Barge prosecution was baseless from the start and, as later developments revealed, trumped-up to boot.

After prosecuting Arthur Andersen out of business in the intensely anti-business post-Enron climate of Houston in 2004, the Enron Task Force threatened to do the same to Merrill Lynch unless the firm served up some sacrificial lambs, which it did by offering Mr. Bayly, Robert Furst, James Brown and William Fuhs.

Through a deferred prosecution agreement with Merrill, the Task Force then proceeded to hamstring the Merrill defendants’ defense by limiting access to other Merrill Lynch executives who were involved in the barge transaction. To make matters worse, the Task Force then intimidated other potentially exculpatory witnesses by threatening to indict them if they cooperated with the Merrill defendants’ defense.

Thus, after bludgeoning a couple of plea deals from former key witnesses Ben Glisan and Michael Kopper, the Task Force proceeded to put on a paper-thin case against the defendants, which was good enough to obtain convictions.

Of course, most of the convictions were vacated on appeal (and in Fuhs’ case, thrown out completely), but not before each of the Merrill defendants had served over a year in prison and their families had incurred the incalculable human cost of these misguided prosecutions.

Incredibly, over the past couple of years, the Department of Justice (the Enron Task Force has, mercifully, been disbanded) actually has been threatening to pursue a re-trial of the Merrill defendants. Accordingly, the dismissal of the remaining charges against Mr. Bayly was good news. A similar dismissal of charges against his remaining co-defendants — Messrs. Furst and Brown — would certainly follow, right?

Apparently not, at least for the time being. Inexplicably, the DOJ announced yesterday that it is continuing to pursue charges against Mr. Furst.

So, Mr. Furst unloaded on the DOJ yesterday with the filing of this motion to dismiss on the grounds of pervasive and egregious prosecutorial misconduct. You can review the motion here, but if you go ahead and download it, then you can review a version of the motion that is bookmarked in Adobe Acrobat to facilitate ease of review. Inasmuch as the 45 page motion includes about 350 pages of exhibits, bookmarks are helpful.

The summary of the motion gets right to the shocking point:

The American criminal justice system is built upon the principle that the government’s interest is not that it shall win a case, but that justice shall be done. Berger v. United States, 295 U.S. 78, 88 (1935).

The Enron Task Force (the “ETF”) team of prosecutors and investigators formed in 2002 to address the public demand for individual accountability in the aftermath of Enron’s collapse investigated, indicted, and prosecuted Defendant Robert Furst and his co-defendants with the goal to win at all costs.

And the ETF “won.” Mr. Furst spent almost a year in prison before his conviction was overturned on appeal.But to secure victory, the ETF engaged in a campaign of misconduct which violated Mr. Furst”s constitutional rights to due process and a fair trial.

This misconduct was necessary because the case the ETF indicted and hoped to prosecute, which would involve a sordid tale of a well-organized conspiracy to defraud Enron and its shareholders, was not supported by the facts.

The ETF could not prove that Enron or its shareholders lost any money in the barge transaction, because they did not. The form and mechanics of the transaction were thoroughly vetted through hundreds of hours of negotiation by dozens of highly-competent attorneys. Witnesses interviewed by the ETF undercut its theory of the case.

In short, the barge transaction had all the markings of a legitimate business transaction, because it was.

But legitimate business transactions do not generate convictions, and the ETF needed convictions. So, in order to ensure victory, the ETF withheld volumes of exculpatory, case-dispositive evidence which nullified its theory of criminal liability; manipulated and misstated exculpatory testimony in pretrial disclosures to make it appear inculpatory; silenced witnesses by indiscriminately designating nearly all material witnesses as unindicted co-conspirators; and sponsored inculpatory testimony that it knew was false.

The ETF’s conduct did not end with the return of the verdict.

After trial, but before sentencing, the ETF received additional case-dispositive, exculpatory evidence from one of the key witnesses in the case. This evidence further nullified the ETF’s theory of criminal liability, and exculpated Mr. Furst.

Rather than disclosing this evidence to the Court, the ETF instead withheld the evidence and brazenly asked this Court to enhance Mr. Furst’s sentence for conduct which was negated by this and other evidence in the ETF’s possession.

This misconduct eliminates all faith in the integrity of the jury’s verdict and warrants dismissal of the Indictment.  .   .   .

The mess that is the Nigerian Barge prosecution is a quintessential example of what happens when government is given the leeway to bastardize charges to criminalize a merely questionable business transaction and then appeal to juror resentment against wealthy businesspeople to procure politically popular convictions.

The damage to the defendants, their careers and their families that this abuse of power has caused is bad enough.

But the carnage to justice and respect for the rule of law is even more ominous. Does anyone really think that they could stand upright in the winds of such abusive governmental power if that gale turned toward them?

The remaining charges against Messrs. Furst and Brown should be dismissed. Not only for their protection, but for ours, too.

Why bother?

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texas-bowl-logo-295 After enduring another holiday season of mostly bad college football bowl games, Iíve been thinking about Houstonís own Texas Bowl.

Frankly, why bother with it?

As this recent University of Missouri release notes, Mizzou not only got its collective ass kicked by a feisty Navy team in the game, but the university also lost money in participating in the game even after cutting corners.

That Missouri lost money is not surprising given that the Texas Bowlís payout is among the most paltry of any of college footballís post-season bowl games.

The Texas Bowl pays out a total of $1.250 million, which puts the bowl game in the bottom third among the 34 bowl games in terms of payout (ìTier 3î in bowl genre). That compares to the $2.2 million and $3 million payouts that Tier 2 bowls such as the Alamo and Cotton Bowls pay to its participants and the $17 million that each of the BCS Bowl games pays to its participants.

Due to its limited payout, the Texas Bowl has no negotiating leverage in attempting to persuade conferences to send one of their better teams. Accordingly, they usually get the sixth or seventh best team from one of the major conferences.

Houstonís bowl game has always struggled for funding. Even back during the days of the Astro-Bluebonnet Bowl in the Astrodome, the folks running the bowl game have never been able to snare the big-fish title sponsor necessary to elevate the bowlís stature. The Houston Open golf tournament found itself in a similar position for years until it persuaded Shell to become the tournamentís title sponsor. Despite a few blips, the Shell Houston Open has become a solid second tier tournament on the PGA Tour schedule.

Whatís too bad about the Texas Bowlís problems is that it really could be a good bowl experience, at least on par with San Antonioís Alamo Bowl or Dallasí Cotton Bowl.

My old friend Dan McCarney, who currently is one of Urban Meyerís top assistants at Florida, coached Iowa State in the Texas Bowl several years ago. He said that the Reliant Park facilities were as good as any bowl game that he had ever seen ñ the teams used one locker room the entire week for their practices and the game. The teams loved not having to practice at a different site and then move to the stadium on gameday.

Moreover, the Houston business community routinely buys large blocks of tickets to the game (even if most of those tickets go unused). Finally, with the Johnson Space Center, the Medical Center, the Museum District, the Theater District and many fine restaurants and clubs, Houston certainly fits the bill of a place that would be a fun destination for a bowl game.

But whatís the purpose of promoting a bowl game that has mostly second-rate participants who view the game as a booby prize?

If the Texas Bowl canít find a title sponsor that would elevate the game at least to the second tier of bowl games, then itís time to pack it in.

There is nothing wrong with declining to waste time on being an afterthought. 

Update: Kevin Whited passes along this Chronicle article from several years ago on Houstonís bowl history.

Game, Set, Match — Houston

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mcgrady-dunk O.K., so the Cowboys are doing alright so far in this seasonís NFL playoffs and the Texans, as usual, are in their annual ìwait until next seasonî mode.

But there are other areas in which Houston simply throttles Dallas, hands down.

For example, in connection with its mandate to promote Houston, the Greater Houston Convention and Visitorís Bureau released the video below late last year. Featuring the edgy local band The TonTons, the video does a very nice job of providing an attractive introduction to Houston:

But I didnít realize just how good the GHCVBís video was until I came across the abominable video below that the City of Dallas recently produced for the Professional Convention Management Association:

Key tip to Dallas ñ you are trying way too hard.

2009 Weekly local football review

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crimson longhorns (Previous weekly reviews for this season are here).

Alabama 37 Texas Longhorns 21

Unless you have been living under a rock, you already know that the Horns (13-1) lost the national championship game to Alabama (14-0) after losing star QB Colt McCoy to what looked like a severe pinched nerve in the first five minutes of the game.

Itís really a shame McCoy wasnít able to play because, as I thought going into the game, the Tide looked as if it could have been had. The Horns could only parley two turnovers in Bamaís first two possessions into six points and, frankly, neither backup QB Garrett Gilbert nor the Hornsí coaching staff was ready when Gilbert was called upon to play in the first half (Gilbert had on thrown .

As a result, the second quarter was a disaster for the Horns, as Bama used short fields to ring up 17 points and then punctuated its dominance with a gift defensive TD off of an ill-advised shovel pass on the last play of the first half.

The Horns staff and Gilbert re-grouped at halftime and gamely made a game of it in the second half, pulling to within three with six minutes left to go using a well-designed short passing offense that did not give Bamaís ubiquitous blitz packages time to confuse and pummel Gilbert. 

But forced to take risks late in the game to get back in scoring position, the Horns coughed up the ball a couple of times in the closing minutes to give Bama a two cheap, but clinching, TDís.

crimson-tide1 The disappointing finish detracted from an another otherwise successful season for the Horns. Moreover, the future is bright. Although Texas loses such stars as QB McCoy, WR Jordan Shipley and Safety Earl Thomas, Garrett and several other young Longhorns look to be ready to step up so that there will not be a big drop-off in performance next season. In particular, the defense this season became the dominant unit that has been the missing element of consistent national championship contention during Mack Brownís tenure.

However, not all is well in the Longhorn Nation. Stated simply, this season has established with certainty that Texas has lost the capacity to pound the rock.

With increasing reliance on the spread offense, the Horns no long have an effective power running game that they can turn to when defenses put 7 and 8 players in coverage and allow their safeties to forget about run support. That deficiency was painfully apparent in the Hornsí three biggest games this season, this one, the OU game, and the Big 12 Championship game that they should have lost to Nebraska.

There are many reasons for the demise of UTís rushing attack, but the primary cause has been a steep decline in the performance of the offensive line. Although Texas routinely has its pick of the litter of Texas high school football prospects, offensive linemen are notoriously difficult to project from high school to big-time college football. Thus, sound development in that particular area is essential to a well-balanced offensive attack. For whatever reason, it appears that UTís coaching staff is having problems in that key development area.

With the better defenses making it increasingly difficult for spread offenses to throw the ball down the field, Coach Brown is going to have to figure out a way to re-establish a power rushing game or the Horns are at high risk of falling off from the top tier of big-time college football (see LSU). Itís going to be difficult at first and there are going to be some hiccups along the way. But the chances of the Horns returning to the BCS National Championship game in the near future are far higher with a balanced offense than the current version.