Election map analysis

Posted on by
Reply

William J. Stuntz is a smart professor at Harvard Law School, and in this Tech Central Station article, provides an excellent and non-biased analysis of the voting patterns from Tuesday’s Presidential election, including the following observation:

The best way to see how the two sides stack up is to look at one of those red-and-blue maps that seem to breed these days. Divide the country into three parts: Kerry’s base, Bush’s base, and the Midwest. Kerry’s base is the Northeast — everything North of the Potomac River and East of Ohio — together with the Pacific Coast and Hawaii. (They don’t call it the “left coast” for nothing.) Kerry swept his base 194-0. Bush’s base is the South and the rest of the West. Bush swept his base too, by an electoral score of 237-0, assuming the New Mexico vote holds up. But Bush’s base is bigger. Which means Kerry needed to nearly sweep the Midwest to catch up. He did carry the Midwest, but not by much: 58-49 in the electoral college. Bush carried Ohio, Indiana, Missouri, and Iowa — and he could have lost any of the last three without changing the result.

Read the entire article.

Perilous Times

Posted on by
4

In this New York Times review, Michiko Kakutani reviews Perilous Times, the new book about American restrictions on civil liberties and free speech by Geoffrey R. Stone, the Harry Kalven Jr. distinguished service professor of law at the University of Chicago. As the review notes, the restrictions of civil liberties under the recent Patriot Act are not unusual in time of war in the United States, regardless of whether the President is a Republican or a Democrat:

Impassioned yet methodical, [Professor Stone] lays out the vital role that free speech plays in a healthy system of self-governance, using lots of case studies to illustrate his arguments while creating a devastating portrait of those public figures whose commitment to free speech has been weak or hypocritical. Woodrow Wilson, who tried to squelch any disharmony that might impede his mission of making “the world safe for democracy,” comes off especially poorly, and Franklin D. Roosevelt emerges as a president who would support civil liberties in the abstract, “but not when they got in his way.”

However, Professor Stone is reassuring that America’s commitment to civil liberties is strong, and that each period of restriction has been followed by a period of stronger restoration:

After each period in which the nation went too far in restricting civil liberties, Mr. Stone argues, “the nation’s commitment to free speech rebounded, usually rather quickly, sometimes more robustly than before.” A Congressional report declared that the Sedition Act of 1798 had been passed under a “mistaken exercise” of power and was “null and void.” The Sedition Act of 1918, which was repealed two years later, helped give birth to the modern civil liberties movement. And in 1976, President Ford formally prohibited the C.I.A. from using electronic or physical surveillance to collect information on domestic activities of Americans, and the new F.B.I. director, Clarence Kelly, publicly apologized for F.B.I. abuses under J. Edgar Hoover.
Such developments buttress Mr. Stone’s argument that “the major restrictions of civil liberties of the past would be less thinkable today than they were in 1798, 1861, 1917, 1942, 1950 or 1969,” and that “in terms of both the evolution of constitutional doctrine and the development of a national culture more attuned to civil liberties, the United States has made substantial progress.” Mr. Stone writes that in its 1971 Pentagon Papers decision (which held that the government had not met its “heavy burden of showing justification” for a prior restraint on the press), “the Supreme Court, for the first time in American history, stood tall – in wartime – for the First Amendment.” That case was only one in a series of Vietnam-era decisions in which the court suggested its understanding, in Mr. Stone’s words, “that dissent is easily chilled, that government often acts out of intolerance when it suppresses dissent, and that it is essential to protect speech at the margin.”

Read the entire review.

Justice goes after doctor accounts in tax avoidance investigation

Posted on by
2

This New York Times article reports on a San Diego federal judge’s order on Thursday that froze almost $600 million in investment accounts as the Justice Department probes charges of illegal tax avoidance involving California-based xÈlan, a company that markets tax-savings plans to doctors. The company’s Web site says it was founded 32 years ago by doctors to help other physicians with financial matters, ranging from pension plans to disability and long-term care insurance. It calls itself “the Economic Association of Health Professionals.”
The Internal Revenue Service estimates that some 4,000 doctors are involved in what it alleges is a fraudulent tax-reduction scheme, and they could owe as much as $420 million in taxes, interest and penalties. The Justice Department alleged that “persons and entities affiliated with xÈlan” have advised thousands of doctors and other medical professions to invest in “various fraudulent tax avoidance schemes,” including purported supplemental-insurance products and improper charitable-deduction schemes involving a xÈlan-related foundation. The government’s complaint said more than $500 million is held in investment accounts controlled by xÈlan-related and Barbados-based Doctors Benefit Insurance Co.
I don’t know whether the government’s charges against xÈlan have any validity, but it has been my experience that doctors are generally easy prey for promoters of investment scams and tax avoidance schemes. With a lot of money and not much time to analyze such matters, doctors are tailor-made for making bad investment decisions. As a result, I have represented many doctors over the years in extracting them from poor investment decisions that they have made.
My first experience with this phenomena is instructive. Over 25 years ago, while still in law school, my late father — noted Professor of Medicine Walter M. Kirkendall — called me one day to ask me to accompany him to a breakfast meeting at Houston’s old Shamrock Hilton to advise him regarding an investment “opportunity” that was going to be pitched to him and a number of other Texas Medical Center doctors at the meeting.
So, my father and I attended the meeting, along with about 50 other Medical Center doctors. During the meeting, a group of slick promoters from Dallas promoted limited partnership interests (at $75,000 a pop) in an entity that would own the rights to a movie. The movie was being filmed at the time and was called “Coming Back,” a preposterous tale about the adjustments that several Dallas Cowboy football stars had to make in playing professional football after returning home as Vietnam veterans. The promoters even played a few film clips from the movie, which were absurdly bad.
“We expect this to be hit throughout the country, particularly among professional football fans,” commented the promoters. But the real money to be made, the promoters assured in hushed tones, was in the overseas markets. “The Dallas Cowboys are simply huge in Japan,” they exclaimed breathlessly.
Through the presentation, my father and I were actually having a wonderful time, enjoying the free breakfast while rolling our eyes at each other and chortling about the absurdity of it all. At the conclusion of the meeting, the promoters asked that any doctor interested in investing to come up to the front of the conference room and they would make arrangements for giving them a discount on their investment in the film. That pitch brought a final chortle from my father and me, as we simply could not believe that anyone would be so gullible to invest any money in such a surefire scam as this movie. So, as the meeting concluded, we stood up and proceeded to leave.
As my father and I made our way out of the conference room, we were almost stampeded by the dozens of doctors literally sprinting to the front of the conference room to make their investment in the film.
About a year and a half later, the promoters of the film were convicted of securities fraud in federal court in Dallas.
To this day, no word on how “Coming Back” ever did in the Japanese market. ;^)

Herskowitz on Stros GM’s

Posted on by
3

Longtime Houston sportswriter Mickey Herskowitz, who I have mentioned frequently in these earlier posts, is my favorite sportswriter. Mickey’s blend of insight, humor and historical perspective is sadly lacking in much of the sportswriting that we must endure these days.
Earlier this week, fellow Chronicle sportswriter Richard Justice blasted Stros’ owner Drayton McLane for Gerry Hunsicker’s recent resignation as the Stros’ general manager. Although most everyone agrees that Hunsicker was the Stros’ best GM in history, I believe that McLane had reasonable reasons for not providing him a long term deal (noted in this earlier post). So, I thought that Justice’s piece disparaging McLane as the “boss from hell” was way out of line, particularly given the fact that McLane is also the best owner that the Stros have ever had.
In this column, Herskowitz — without mentioning Justice’s blast at McLane — places the decision to let Hunsicker go in historical perspective and reminds us that McLane’s support of Hunsicker was the best that any Stros owner has ever provided for any Stros GM. In so doing, Herskowitz gives us this entertaining and brief “GM tree” of Stros general managers over the past 43 years:

The Astros have an interesting history with general managers. Does anyone remember Gabe Paul? He was their first, coming and going the year before the team took the field. Gabe had held the same position in Cincinnati, but left Houston when he did not want Judge Roy Hofheinz breathing on his neck.
But Gabe left a legacy — two bright, young staffers named Tal Smith and Bill Giles. The latter would one day become the owner of the Phillies.
Paul Richards drafted and molded the team that finished ahead of the Cubs and Mets in its first season, 1962. Richards signed the first wave of prospects, including Rusty Staub, Larry Dierker and Joe Morgan.
The torch was passed to Spec Richardson, who had paid his dues with the Houston Buffs but did not have a big imagination. Smith returned from New York, after getting a graduate degree at the Steinbrenner Institute for Pain.
Tal hired Bill Virdon as his manager and raised the Astros out of the primeval muck, 43 games out of first place (in 1975) to within three outs of the World Series in 1980. The Sporting News would name Smith as the executive of the year for ’80, but John McMullen, the new owner, fired him anyway.
McMullen lived in New Jersey, but he knew how to use a phone. He wanted a general manager who would not make moves or express an opinion without consulting him.
Into the breach came Al Rosen, who had set home run records as a third baseman in Cleveland. Rosen was good-natured and considerate. He lasted until 1985 and received the news of his dismissal not with anger but puzzlement.
“I don’t understand why I was fired,” he said to a friend.
The friend did not offer him sympathy.
“If you don’t know,” he said, “imagine how Tal Smith must have felt.”
Replied Rosen: “I don’t know why he fired Tal, either.”
At that point, there seemed to be something in the air that created turmoil among Houston’s sports teams, possibly spillage from the chemical plants in Pasadena.
But turmoil appeared to be our destiny. In this context, the new GM was Dick Wagner, the man who dismantled the Big Red Machine and fired Sparky Anderson in Cincinnati.
The Astros did not leave the plantation for Bill Wood, an intense, studious type whose life was baseball. Wood gave way to Bob Watson, a slugging first baseman and fan favorite in the 1970s.
Feeling he had not suffered enough here, Watson went to New York, guided the Yankees to a world championship and resigned. He is now with the commissioner’s office.
Hunsicker filled the opening in Houston, . . .

And with the depth of having seen many Stros GM’s and owners come and go, Herskowitz notes the bottom line of Hunsicker’s resignation:

After nine years, Gerry Hunsicker leaves on a high note, and by his choice — which is the best way.

Dan Cogdell profiled

Posted on by
Reply

After winning the only acquittal for any of the defendants in the Enron-related Nigerian Barge trial, Houston-based defense attorney Dan Cogdell is profiled in this Houston Chronicle article. Cogdell did a magnificent job in the trial and clearly was the one lawyer in the crowded courtroom who won over the jury. As noted in this earlier post, Cogdell is one of a group of local criminal defense attorneys that gives Houston as formidable a Criminal Defense Bar as any city in the United States.

The Nigerian Barge market loss hearing

Posted on by
Reply

After convicting four former Merrill Lynch executives and a former Enron executive of wire fraud and conspiracy charges yesterday, the jurors in the Enron-related trial known as the Nigerian Barge case heard from opposing expert witnesses today regarding the market effect that the Nigerian Barge transaction had on Enron.

Today’s hearing was held to allow the jury to consider the evidence of market loss that is used in determining sentences under the federal sentencing guidelines. As noted earlier in these posts, the U.S. Supreme Court’s recent decision in Blakely v. Washington has called the Constitutionality of the federal sentencing guidelines into question, particularly if the jury is not allowed to consider the issue of market loss.

Anthony Saunders, chairman of the finance department at New York University testified on behalf of the prosecution and estimated — with a straight face — that Enron’s sham sale of three power-generating barges to Merrill Lynch led to damages suffered by Enron shareholders of about $43.8 million.

Professor Saunders came up with this damage assessment despite the fact that Merrill Lynch booked only a $12 million profit on the deal, Enron lost no money on the transaction, and the alleged sham nature of the transaction was not even discovered until a year and a half after Enron’s equity value had become worthless upon the company filing bankruptcy.

At any rate, Professor Saunders speculated that the 1 cent per share that the barge deal contributed to Enron’s 1999 earnings translated to about 47 cents per share of the company’s stock price of $53.50 at the time the company’s financial result were announced in January 2000. Take that 47 cent figure times the number of outstanding Enron shares at the time and wallah — you get a $43.8 million figure.

Of course, whether that number bears any reasonable resemblance to the value that the barge deal contributed to Enron’s stock price is another issue entirely.

The prosecution’s market effect reasoning here is so flawed that it borders on the preposterous. In reality, the fact that Enron did not account for the Nigerian Barge transaction properly made Enron’s earnings look better than they really were. Thus, that accounting increased Enron’s share value for the benefit of investors who were buying and selling the stock.

Moreover, the prosecution has presented no evidence — because there is none — that he decline in Enron’s share value during its demise into bankruptcy in 2001 had anything to do with revelations regarding the accounting on the barge transaction. This is because the alleged improper accounting for the barge deal was not even discovered until well over a year after Enron went into bankruptcy and its equity value had become essentially worthless.

At any rate, Dan Fischel, a law professor at the University of Chicago who testified for the defense, countered with a more realistic market loss evaluation and concluded that the loss was closer to $120,000. He also noted that Professor Saunders’ methods were “inconsistent with the real world,” and that Professor Saunders’ methodology relied too heavily on academic models that are not generally used in evaluating a company’s value in the business community. That is a charitable understatement, to say the least.

The market loss hearing will conclude on Friday, and the jury is expected to present its findings to U.S. District Judge Ewing Werlein shortly thereafter. If the jury buys Professor Saunders’ absurd market loss calculation, the defendants could be facing the equivalent of life sentences under the applicable federal sentencing guidelines.

If that occurs, then this prosecution will officially cross the line from being a “mere” injustice to becoming a modern day witch hunt.

Scandal in the House of Representatives

Posted on by
4

This Washington Post editorial examines the scandal that is the self-perpetuating nature of the House of Representatives:

Out of 435 House races, incumbents lost only seven — an even more impressive survival rate than that of two years ago, when eight incumbents were defeated. In nearly all House races, moreover, there was no serious doubt about the outcome: 95 percent of races were decided by a margin of more than 10 percent, according to the Center for Voting and Democracy, and an astonishing 83 percent were decided in 20-point-plus landslides.

How has this happened? Just take a look at the way in which we allow our Congressional districts to be established:

The main cause of the incumbents’ success is the country’s scandalous system for designing voter districts. Instead of entrusting the design to nonpartisan technocrats, the U.S. system entrusts it to state legislatures, allowing the majority party to promote partisan ends. The partisans feed demographic and polling data into their computers and come up with district boundaries that give their sides as many safe seats as possible. Because this process involves crowding opposition voters into a handful of opposition districts, it creates safe seats for both parties and an incentive for incumbents on both sides not to rock the boat.

And who has been at the forefront of this wrangling of Congressional districts? Of course, Tom DeLay and his friends:

The darkest wizardry occurred in Texas. There, the state Republican Party redrew the districts of five white Democrats, hoping to unseat all of them so that the Democrats would become identified as the party of minorities. The plan succeeded in four cases (outside Texas, a grand total of three incumbents were defeated anywhere). Rep. Charles W. Stenholm, a long-serving conservative Democrat who had been forced to run in a Republican-leaning district against a Republican incumbent, went down in defeat, as did three others who had pulled the Democratic caucus toward the center.
The Texas redistricting faces a court challenge. But whatever the legal outcome, it’s clear that these schemes are an inversion of democracy: Politicians get to choose their voters, rather than the other way around. Incumbent members of Congress face little threat of being unseated and so have little reason to be responsive to voters; their chief vulnerability lies in the threat of a primary, which encourages them to play to party activists.

The upshot of all of this is increased polarization in the political process:

[I]ndependent moderates are a shrinking force in the House of Representatives. In the 1970s, on the partisan roll calls, the average member backed the party position 65 percent of the time. In the 1980s, the average degree of partisan loyalty rose to 73 percent; in the 1990s, 81 percent; and in 2001-02 the partisanship index hit a remarkable 87 percent.

Quare: Is it time for judicial intervention over the legislative gerrymandering of Congressional districts?

Calvin Murphy goes to trial

Posted on by
Reply

Former Houston Rockets star and Basketball Hall of Famer Calvin Murphy trial on sexual assault charges stemming from claims he molested five of his daughters when they were children cranks up today in Judge Mike McSpadden‘s criminal state district court in Houston. Here are the earlier posts on the case.
The trial is expected to last about two weeks. Murphy, 55, is charged with three counts of indecency with a child and three counts of aggravated sexual assault. Each charge is punishable by up to life in prison, so Murphy’s freedom for the remainder of his life is literally at stake.
This trial is going to be ugly and very sad.

Nigerian Barge Jury Convicts Five Out of Six Defendants

Posted on by
Reply

The federal jury in the Enron-related criminal case known as the Nigerian Barge case acquitted a former Enron accountant today and found her five co-defendants guilty of wire fraud and conspiracy charges.

The jury cleared former Enron accountant Sheila Kahanek of all charges, but returned guilty verdicts on all charges against former Enron Vice President Dan Boyle and four former Merrill Lynch bankers, William Fuhs, Robert Furst, James A. Brown and Daniel Bayly. Messrs. Brown and Boyle were also convicted of lying to investigators.

Ms. Kahanek’s acquittal is not surprising. The prosecution’s case against her was extremely weak and relied almost entirely on testimony regarding an alleged argument that Ms. Kahanek had with another Enron employee regarding the Nigerian Barge transaction.

Moreover, Ms. Kahanek testified during the trial, something that three of her co-defendants chose not to do.

Finally, Ms. Kahanek’s attorney — Houston-based criminal defense lawyer Dan Cogdell — performed brilliantly during the trial and clearly connected with the jury better than any other criminal defense attorney involved in the trial.

The conviction of Mr. Fuhs is somewhat surprising. By all accounts, he did a good job of testifying during the trial and the prosecution’s case against him was not much stronger than its case against Ms. Kahanek.

However, Mr. Fuhs was undoubtedly prejudiced by the failure of the three higher-ranking Merrill executives — Messrs. Bayly, Furst, and Brown — to testify during the trial.

The bottom line is that juries in white collar criminal cases generally expect to hear what defendants have to say and the failure to address that jury desire is a huge risk.

Finally, the conviction of Mr. Boyle was not particularly surprising. His defense was a curious mix of appealing for jury sympathy (a questionable tactic given the public animus toward Enron) and relying on his seemingly poorly-prepared testimony during the trial.

At one point during his testimony, Boyle said he knew the deal was wrong even as he continued working on it. If a white collar criminal defendant is going to testify during trial, then it helps to do so effectively. Mr. Boyle did not.

Now, the trial moves on to its second phase, in which the government will attempt to prove the effect on the market of the fraudulent transaction in which the defendants participated. Included in the indictment against the Nigerian Barge defendants is an allegation that the transaction caused the loss of more than $80 million, which is an allegation that can add years to a sentence under existing federal guidelines.

This allegation was recently included in a superseding indictment of the Nigerian Barge defendants as a result of the U.S. Supreme Court’s Blakely decision, which held that the state of Washington’s sentencing laws were unconstitutional because they allowed only judges (and not juries) to consider factors that increased sentences. Some legal experts have speculated that the decision calls the Constitutionality of federal sentencing guidelines into question for the same reason.

The Enron Task Force has not yet explained how the Nigerian Barge deal — which was a relatively small transaction involving about $12 million in allegedly illegal profit for Merrill Lynch — could have possibly caused $80 million in market loss to investors in Enron.

In fact, neither Enron nor Merrill Lynch lost a dime on the transaction, and the allegedly questionable accounting on the deal was not even discovered until well after Enron had filed bankruptcy and its equity value had already become worthless.

Where does the prosecution come up with $80 million in market effect from that?

During his distinguished legal career as a defense attorney before becoming a federal judge, Nigerian Barge Judge Ewing Werlein often defended corporate clients against dubious damage claims in civil cases. It will be interesting to watch how he deals with the government’s equally questionable market loss allegations in this trial.

Stay tuned.

Houston’s Great Wall of China

Posted on by
Reply

Gordon Marino, a philosophy professor at St. Olaf College, writes this Opinion Journal article on the Houston Rockets’ center Yao Ming. It’s an interesting look at Yao, in which Mr. Marino observes:

I asked Yao to compare his life in China with the one he leads in the U.S. He observed: “In China everything was taken care of for me, and every day was planned out. Here I am more on my own.” Though he does not warm to the task of talking about his inner life, Yao acknowledges that his two years in the NBA “have made me more open about my emotions both on and off of the court.” The language difficulties notwithstanding, Yao has gelled well with his American teammates; nevertheless, the basketball version of the Great Wall of China has a shy streak that cannot make it easy for him to be one of the most famous people on the planet. According to his revealing memoir, Yao has often found succor in the invisible world of cyberspace. And true to his book’s word, Yao ended our conversation with a polite handshake and a fast break for the computer.

Under extraordinary pressures ever since he arrived in Houston to begin his NBA career, Yao has acted in an exemplary and classy manner. His parents have done a wonderful job in raising him and should be extremely proud of the way in which Yao has handled the adjustment to the American and NBA lifestyle.