Regular D & O Diary readers will recall my discomfort (as reflected here) with the Enron civil action plaintiffs’ leniency pleas on Andrew Fastow’s behalf at his September 26, 2006 sentencing. This week’s Fortune Magazine has an article entitled "Why Enron’s Fastow May Only Serve Five Years" (here), that explains how it came about that representatives of the lead plaintiffs in the civil action appeared at Fastow’s criminal sentencing.
It turns out that John Kekar, Fastow’s criminal defense attorney, has another prominent client – Bill Lerach, of the Lerach, Coughlin firm. Kekar represents Lerach in connection with the criminal investigation that has so far resulted in the indictment of the Milberg Weiss firm and two of its partners. Lerach also happens to be counsel for the Univeristy of California, the lead plaintiff in the Enron civil action.
According to the article, in an "11th hour deal," Fastow agreed to aid Lerach in the civil case, by providing detailed debriefings (the 175-page declaration Fastow supplied the plaintiffs’ counsel can be found here) and also agreeing to sit for a deposition. In return, Fastow received "the formal support of the Enron investors in a plea for leniency (a factor the Judge explicitly noted)." Fastow was also dismissed as a defendant from the civil suit and "even got the plaintiffs’ lawyers to pay his legal fees for his deposition." As a result of the plea for leniency, the 10-year sentence to which Fastow agreed when he first entered his guilty plea was reduced to 6 years. According to the article, if Fastow is accepted into a prison drug-treatment program for his claimed addiction to anti-anxiety pills, he could be out of prison in five years.
As the article points out, Fastow’s cooperation provides a "massive windfall" for Lerach. Not only does Lerach get fresh evidence aiding the civil claims against the remaining Investment Bank defendants, but Fastow’s assistance could help "enrich Lerach, adding $100 million or more to the contingency fee for the plaintiffs’ lawyers and raising the prospect that they could walk away with close to $1 billion from the case." (Readers will recall that it was this enormous potential fee benefit that made me so uncomfortable with the civil plaintiffs pleading for leniency at Fastow’s sentencing.)
Lerach’s involvement in the ongoing Milberg Weiss investigation may also be causing him problems in the Halliburton securities fraud lawsuit. According to a December 13, 2006 post on the Legal Pad blog entitled "Lerach Firm Will Fight Client to Stay in Halliburton Case" (here). The lead plaintiff in that case, the Archdiocese of Milwaukee Supporting Fund (AMS Fund), has filed a motion to remove the Lerach Coughlin firm, and its co-lead counsel Scott + Scott, as lead plaintiffs’ counsel and to substitute David Boies of the Boies, Schiller & Flexner firm. Apparently, Lerach’s involvement in the criminal investigation was a factor in the AMS Fund’s decision to file the motion.
The Halliburton case has an "unusal procedural history." An early agreement to settle the case for $6 million was scuttled when the AMS Fund, represented at the time by Scott + Scott alone, opposed the settlement as inadequate. The court agreed, and the case went forward. The Lerach Coughlin firm then intervened in the case on behalf of three public pension funds. The Lerach Coughlin firm was appointed co-lead counsel with Scott + Scott. However, the departure from Scott + Scott of Neil Rothstein seems to have been a turning point in the case. Rothstein remained "special counsel" to the AMS Fund, and in fact filed the motion to substitute Boies for Lerach on the AMS Fund’s behalf. Lerach has opposed his client’s motion, on the ground’s that the substitution would be disruptive and that Boies has a conflict of interest. The court has not yet ruled on the motion.
There is a certain symmetry here; at least according to Wikipedia (here), David Boies also represented Andrew Fastow.
Rothstein now runs Truth in Coporate Justice LLC, which appears to maintain a website (here) about the Halliburton case. Rothstein’s account (here) of his unsuccessful attempt to attend the May 17, 2006 annual meeting of Halliburton makes for some interesting reading. Not every annual meeting has a SWAT team on the roof of the meeting building.
Another Backdating List: One of the byproducts of the options backdating scandal has been the proliferation of lists. For example, my ongoing tally of options backdating related lawsuits may be found here. Jack Ciesielski of the AAO Weblog (here) recently published a very thorough list of the all of the companies that have mentioned investigations of option granting practices in their filings, or have been mentioned in the news. The list, which can be found here, identifies over 200 companies (including 45 members of the S & P 500).
Little Blog Horn: As I can attest, maintaining a blog is a lot harder than it looks. So there should be little surprise that even in the few short months I have been contributing to the blogosphere that several other blogs have emerged, briefly breathed, and then blinked out of existence. The Vangal blog (here) is one of the many to meet that fate. Two more recent departures from the blogging scene, the Governance News Watch blog (here) and the Securities Litigation Watch blog (here) will both definitely be missed. But for those of you who, like me, had become fans of the Governance News Watch during its brief but interesting existence will be pleased to learn that the blog’s author, Janice Brand, has moved on to a new blog, Brand on Business, which may be found here. The new blog looks promising and we here at The D & O Diary wish Janice well.
PLUS D & O Symposium: It may be hard to believe, but the 2007 Professional Liability Underwriting Society (PLUS) D & O Symposium is only a few weeks away. The 2007 Symposium will take place on January 31 and February 1, 2007, at the Marriott Marquis in New York City. I will be co-Chairing this year’s Symposium with my good friends Ivan Dolowich and Jeffrey Lattman. Among the many panelists and speakers will be such luminaries as Linda Thomsen, the head of the SEC Enforcement Division; Nell Minow, the founder and editor of the Corporate Library; and Charles Elson, Director of the John L. Weinberg Center for Corporate Governance at the University of Delaware, as well as many other distinguished speakers and guests. The keynote speaker will be former Senator and Secretary of Defense George Mitchell. The entire program schedule can be found here. The Registration materials are here. I look forward to seeing everyone there.