Legal Pad

Haag Says Callaway Will Head Beefed-Up White Collar Unit

[Ginny LaRoe]

U.S. Attorney Melinda Haag today confirmed she’s tapped San Jose branch chief David Callaway to head up the new Economic Crime and Securities Fraud unit.

Haag earlier this week announced she’s merged several smaller units as part of a reorganization of the criminal division in the San Francisco office.

It’s unclear if it actually means more manpower to combat financial fraud. (An office spokesman earlier this week said he didn’t have exact figures on line prosecutors and staff.) But she said putting white collar and securities fraud together “adds flexibility and resources to how we fight fraud.”

Haag’s remarks came at the start of the Financial Fraud Enforcement Task Force West Coast summit that her office is hosting today. With U.S. Attorney General Eric Holder sitting at her side, Haag told an audience of federal officials that she’s proud of a number of cases brought in recent years, under her predecessor, involving insider trading, Ponzi schemes and investment scams.

“I would expect more indictments are on the way,” she said.

She noted that current securities fraud unit chief Adam Reeves will remain in that role, now serving as a deputy chief under Callaway. Same thing for Doug Sprague, who most recently headed white collar.

Haag also went out of her way to show some love for the former San Diego U.S. attorney recently tapped to serve as the deputy chief in the fraud section of the DOJ’s criminal division.

In recognizing Chuck La Bella, she called him an “old friend.”

Holder also addressed the crowd before officials went into closed-door sessions to strategize about parallel criminal and civil enforcement efforts.

The AG continued his PR campaign on “Operation Broken Trust,” the results of which the DOJ announced on Monday. Seemingly in response to criticism in the media that the operation failed to result in prosecutions of high-level officials of the biggest companies, Holder said they can “hardly be described as going after small fish.”

 

Haag Nomination Clears Senate Committee

[Greg Mitchell]

The Senate Judiciary Committee OK'd Obama's nomination of Melinda Haag for Northern District U.S. attorney. She and two others were approved on a voice vote Thursday morning. No indication yet of when a floor vote might be scheduled, but the easy committee vote suggests the Orrick partner hasn't aroused significant opposition.

Feds' Latest Catch: Big Fish or Small Potatoes?

[Dan Levine]

Today, at 2:44 p.m., another in a reliable stream of press releases from the Northern District U.S. Attorney’s office landed in my inbox: twelve defendants from Salinas pleaded guilty to gun and drug charges. The federal effort boasts a name designed to be like candy for TV reporters: “Operation Money Train” (an homage to The Shield?), and the feds seized stolen cars, guns and drugs.

Of course, a quick look at the docket reveals that none of these Big Fish defendants could afford their own lawyer. And the drug amounts in question -- 1361 grams of meth (translation: 1.3 kilos), 180 grams of heroin (way less than a kilo) and 320 grams of cocaine (barely enough to keep Legal Pad staff churning out blog items through the end of the month) -– can’t be much more than a fraction of the local market. Clearly these defendants were no angels, and no disrespect to the agents who put their safety at risk, but: Why trumpet a bunch of lower level functionaries while the real captains of industry always seem to be at large?

A spokesman for U.S. Attorney Joseph Russoniello declined to comment on the operational details of Money Train, but said the effort achieved “specific and general deterrence.”

Would-Be U.S. Attorney Haag's Financials Are Released

[Dan Levine]

Every U.S. attorney nominee has to fill out a financial disclosure form, and the Senate Judiciary Committee released Northern District hopeful Melinda Haag’s over the weekend. Haag is a white collar partner at Orrick, Herrington and Sutcliffe in San Francisco, where she made $1,059,740 last year, according to the document. Average profits per equity partner at Orrick in 2009 were $1.36 million (sub. req.).

MoFo Partner Who Interviewed Brocade's Reyes Last Witness for Prosecution

[Dan Levine]

Today the feds wrapped up their case against former Brocade CEO Gregory Reyes by calling their final witness: Morrison & Foerster partner Craig Martin, who led a key internal investigation of backdating at the company. Martin is important because of an interview he conducted in which Reyes claimed he didn’t backdate stock options (now, Reyes claims he did backdate, but didn’t intend to break the law).

When I dropped in, Cooley Godward Kronish partner Stephen Neal was into his cross exam, asking whether Martin looked at documents from Brocade’s outside auditors at KPMG (he didn’t); whether KPMG was a client of MoFo (Martin didn’t know); and whether Brocade’s litigation committee ever accused Reyes of committing fraud (it didn’t).

The defense starts its case tomorrow, and then breaks for a week while Judge Charles Breyer attends a Judicial Conference meeting.

A.G.-Hopeful Cooley to Challenge L.A. Pot Dispensaries

[Cynthia Foster]

L.A. County District Attorney Steve Cooley, who recently announced his intent to run for California attorney general, may be trying to gain some political capital among conservative voters by waging war against medical marijuana dispensaries.

Cooley's office announced today that it is charging noted dispensary owner Jeff Joseph, of popular Organica in Venice, with 24 felonies related to the unlawful sale of marijuana. Cooley "warned that state law does not allow dispensaries to sell medical marijuana," according to LAT.

Joseph's case, which was intensely investigated by police and federal agents, has the potential to test whether state law permits dispensaries to sell marijuana.

A court commissioner set Joseph's bail at $520,000, which his sister and mother tearfully announced he does not have. Joseph's attorney, Eric Shevin, says that the charges are political and that Joseph was targeted due to his pot club's notoriety. Cooley's office denies these claims and says that other dispensary owners are facing charges as well.

WHEN THE SEC CALLS, DON'T DISSEMBLE

Message to Silicon Valley execs: If the Securities and Exchange Commission calls with questions, don’t try to answer them on the spot, especially if you are going to try stuff like denying you know someone that you live with. Lawyer up immediately.

At a panel on insider trading Wednesday night, SEC San Francisco branch chief Marc Fagel and Berkeley defense lawyer Cris Arguedas agreed that making a case on illegal money making becomes much, much simpler when the target is caught lying about it. Proving a lie to the SEC is relatively easy, Fagel said, and is much more likely to draw the interest of the Justice Department.

In general, Fagel said he doesn’t call in federal prosecutors when individuals are cooperating and sharing documents. But when the information isn’t flowing, Fagel said the FBI is much better at pressuring lower level people to flip and lead them up the chain. Also, the feds might be called if the facts are particularly egregious and paying a penalty is insufficient, Fagel said, as in the case of lying, or if the illegal trading involves a general counsel or board member.

Still, Fagel characterizes those cases as very rare. Sometimes, though, the SEC might file something publicly without notifying prosecutors ahead of time, and Fagel will get a call from Adam Reeves, securities chief in the U.S. Attorney’s office, expressing interest.

Arguedas smiled. “He thinks, ‘Oh, that looks like fish in a barrel,’” she said.

Wiretaps also came up, because prosecutors in the huge Galleon insider trading case used them to great effect. Arguedas expressed extreme skepticism at defense lawyers’ challenges to the taps. But even if they’re successful, the government still has recordings made consensually by witnesses, she said, which are also very difficult to toss out of court.

— Dan Levine
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SEC Lawyers and Porn: Do the Tax Dollars Buy Offices or Cubicles?

Now we finally have the real answer about why the SEC didn’t catch Bernie Madoff. It seems they were busy probing other things.

The Washington Times reports that two dozen SEC employees have been caught looking at porn on the taxpayer’s dime over the past few years.

Indeed, one higher up seemed far more eager to be investigating money shots than money trails.

The work computer of one regional supervisor for the U.S. Securities and Exchange Commission showed more than 1,800 attempts to look up pornography in a 17-day span: "It was kind of distraction per se," he later told investigators.

The Times, which got its info from a public records request, said the government wouldn’t give the names of the offending SEC lawyers. But lest you think they were wasting your hard-earned tax dollars, listen to this:

One employee caught snooping estimated that he had been spending part of his workday looking up pornography for more than a year, though he added that he tried not to let it affect his work.

"I justified it because I would work late and I rarely would put in for any kind of comp time or anything like that.”

— Zusha Elinson

San Jose Hedge Fund Partners Settle With SEC

Two partners at San Jose-based Spherix Capital have agreed to pay $2.1 million to settle an SEC lawsuit that was filed by the agency in connection with the ongoing investigation of an insider trading ring centered at Galleon Group in New York.

Ali Far and Richard Choo-Beng Lee pleaded guilty to criminal charges and will pay $667,809 in civil penalties and over $1.4 million in interest. The SEC estimates that the civil penalties account for 50% of the their trading profits/losses avoided. The penalty was discounted due to the individuals' continuing cooperation with a federal probe of more than 21 traders.

Lee's lawyer, when contacted for comment by the Wall Street Journal, stated that Lee himself did not receive many of the insider trading profits.

"If approved [the settlement] will include full disgorgement for the trades alleged in the SEC complaint as it relates to Mr. Lee. Much of the proceeds subject to disgorgement were not retained by Mr. Lee or Spherix but were instead distributed to investors."

— Cynthia Foster

New Century Case: What Took So Long?

A long awaited lawsuit from the Securities and Exchange Commission against former executives from mortgage giant New Century arrived Monday. It left Legal Pad a bit underwhelmed.

Like Countrywide, New Century was one of the first subprime lenders to go belly-up, heralding the economic Armageddon the country may or may not be emerging from now. New Century’s bankruptcy spawned a months-long investigation by a court appointed examiner, who released an encyclopedic 581 page report on the calamity — all the way back in March 2008.

So after nearly two years, we were expecting something really explosive from the SEC. Perhaps counts against those executives that made exceptionally lucky stock trades after it was clear the business was circling the drain? Or some exquisite liability theory against KPMG, the company’s outside auditor that was intimately involved in its accounting practices?

See the goods, after the jump ...