This post from awhile back noted one of the by-products of the current trend toward criminalizing merely questionable business transactions — i.e., the government’s destruction of good reputations in its quest to obtain convictions against unpopular defendants.
Along those lines, this U.S.A. Today article from yesterday catches up with Mark Belnick, the former Paul Weiss partner and Tyco general counsel who was indicted and acquitted in connection with the prosecutions of former Tyco executives after he had coordinated the company’s cooperation with the criminal investigation of former Tyco executives Dennis Kozlowski and Mark Swartz. Here is a longer New York Magazine article on Mr. Belnick’s ordeal.
In the article, Mr. Belnick discusses with the reporter the misery that he endured during a prosecution that was based upon grand larceny charges for compensation that was Tyco’s CEO and CFO indisputably approved:

“When I was threatened with grand larceny, I thought, ‘What did I steal — my stock bonus?’ ” says Belnick. “I didn’t even understand what the theory of grand larceny could be here.”

During the trial, the prosecution described Belnick as a “man who lost his moral compass” and accepted excessive compensation that he knew was a payoff for his silence about wrongdoing committed by Messrs. Kozlowski and Swartz. This, of course, after the same prosecutor had received Mr. Belnick’s assistance in uncovering the alleged wrongdoing by Messrs. Kozlowski and Swartz.
So it goes in the continuing criminalization of agency costs.

Vic Fleischer over at the Conglemerate blog continues his campaign to increase the business of the white collar criminal defense bar with a couple of posts (here and here) in which he suggests that “financial engineering” of the type that KPMG was involved with in regard to its tax shelters should be criminalized. Vic differentiates such financial engineering from transaction cost engineering, which creates value by reallocating risk and, in Vic’s world, is just fine. Vic’s theory is really just an extension of one that was propounded by former Enron Task Force prosecutor-turned-law professor John Kroger in a law review article, Enron, Fraud and Securities Reform: An Enron Prosecutor’s Perspective.

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J.P. Morgan Chase & Co. and Toronto-Dominion Bank announced yesterday that they had agreed to pay about $420 million to settle their parts of the “Megaclaims” lawsuit that the Enron bankruptcy estate filed against 10 banks for allegedly aiding and abetting accounting fraud that Enron alleged prompted the company’s collapse into chapter 11 at the end of 2001. Morgan Chase will pay $350 million of the total and Toronto-Dominion the balance.
Three other banks have already settled the Megaclaims litigation, so with the most recent settlements the aggregate amount of settlements in the litigation is approaching three quarters of a billion dollars for the Enron bankruptcy estate. The settling banks have also agreed to waive claims against the Enron estate in an aggregate amount in excess of $3 billion. The five banks that remain in the Megaclaims litigation are Citigroup Inc., Credit Suisse Group’s Credit Suisse First Boston Inc., Deutsche Bank AG, Merrill Lynch & Co. and Barclays PLC.
The Megaclaims litigation is seperate from the Enron securities fraud class action case against the same banks that is pending in Houston and has already resulted in settlements in excess of $7 billion. Frankly, compared to the amounts that the settling banks have paid to date in that litigation, the amounts being paid to settle the Megaclaims litigation are practically nuisance value.

The highly-publicized lawsuits by California-based utilities against Houston-based Reliant Energy Inc. over allegations that Reliant pumped up trade volumes and revenues during the 2000-01 energy crisis in Western states died with a whimper yesterday as Reliant agreed to pay $150 million cash and waive another $300 million in claims to settle the utilities’ lawsuits.

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