Martha Stewart Round Two

She lost the first bout to federal prosecutors, and round two is now beginning. Some folks may have forgotten that on the same day that she was indicted by a federal prosecutor Ms. Stewart was also named in an SEC civil case.

The SEC case is now moving forward, and this should be an interesting case. In the criminal case Ms. Stewart was not accused of insider trading, presumably because the insider trading case is weak against her, and the burden of proof high in a criminal case.

In the SEC case, the burden of proof is lower on the government, and the SEC did in fact sue for violation of the insider trading laws. I suppose there could always be a settlement, but I don't see her settling charges now, after all that she has gone through.

Plus, there is not much of a downside for her. If she wins the SEC case, she would give herself great press and clear her name a bit. She might even get back her positions as chairwoman and chief executive of Martha Stewart Living Omnimedia. If she loses, she pays a fine and continues to remain out of corporate management.

Given her public relations successes during the criminal trial, and after sentencing, and the legal issues surrounding this dubious charge, it wouldn't surprise me at all to see this one go all the way to trial.

U.S. Expands Inquiry Into Stock Options

The LA Times is reporting, through Bloomberg, that the US Attorney's office in New York, and the SEC are expanding their investigations in to back dated opton grants and have sent requests for information to Juniper, F5, Brooks and Openwave.

It is unclear whether those requests are informal document requests or subpoenas, but the issue of back dating options may be more widespread than initially thought. According to press reports, at least 15 issuers have recevied information or document requests.

Ameriprise Unit Loses 22 Million Dollar Arbitration

Accoding to a Seattle newspaper, and NASD arbitration panel has awarded a group of Exxon employees 22 million dollars in an arbitration proceeding against Securities America, which is a division of Ameriprise.

The $22 million award includes $11.6 million in compensatory damages, $3.5 million in punitive damages and $4.7 million in attorneys' fees according to the article, and is said to be one of the largest of its kind ever levied against a brokerage firm.

According to the article, the issues in the arbitration case were Securities America's sales to the Exxon Mobil employees of variable annuities and Class B mutual fund shares.

Milberg Weiss Defends Itself

Perhaps taking a cue from Martha Stewart and some other high profile defendants, Milberg Weiss has created a web site regarding its indictment this week. The site, www.milbergweissjustice.com opens with

Now, the Justice Department charges the firm with an indictment that is unjust, misguided, and misinformed. We dedicate this website to communicating the truth about their accusations and about how this unjust investigation only helps corrupt corporations escape accountability.

There is also a statement, in print and video, from Mel Weiss. The statement offers a peek into the negotiations leading up to the indictment, which should trouble most businessmen, and most attorneys:

The government's insistence that the firm waive attorney-client privileges as a condition to avoiding indictment is in derogation of one of the bedrock principles of American law and extended to parties the firm did not control. Governmental insistence on such broad waivers has been criticized by the American Bar Association and the U.S. Chamber of Commerce, and is currently being reviewed by Congress. The prosecutors also insisted that the firm make unfounded statements accusing its own partners of crimes and otherwise become an agent for the government. Unfortunately, the prosecutors insisted on indicting the firm unless it made these impossible concessions.

Increasingly we are seeing this demand to waive the attorney client privilege. While I obviously know nothing about the events that lead to the indictment in this case, Mr. Weiss' prepared statement certainly raises concerns regarding the prosecutor's conduct in the pre-indictment phase of this proceeding.

The White Collar Crime Professor Blog weighs in here. The Criminal Law Professor Blog links to the American Bar Association article that says that this tactic is not fair.

Milberg Weiss and Two Partners Indicted

Law.com is reporting that Milberg Weiss, the class action law firm, and two of its partners have been indicted in LA for activities related to their class action work:

Specifically, a Thursday indictment charging Bershad, partner Steven Schulman and, most notably, the firm itself with illegally paying clients to be lead plaintiffs, said the firm "kept cash used to make such payments in a safe located in a credenza in Bershad's office at Milberg Weiss, to which access was strictly limited."

In charging the firm and its two partners with using that stash as part of more than $11.3 million paid in illegal kickbacks to lead plaintiffs, the L.A. prosecutors made the argument that a plaintiffs firm that's made its name -- and earned Republicans' ire -- by suing America's biggest companies for fraud was itself a corrupt operation.

Morgan Stanley Fined Over Missing Emails

Document retention is important. Document retrieval is more important. I have this discussion with clients all of the time. We spend tons of money storing documents, but put a summer intern in charge of document retrieval. What good is it to store the documents if you can't find the documents when an arbitration or regulatory investigation takes place

Morgan Stanley is learning the lesson the hard way. After losing a significant litigation matter over their failure to retrieve emails, and then being smacked with a class action lawsuit by investors who have sued, and not received emails during their arbitrations, the SEC has now fined Morgan Stanley $15 million for failing to turn over thousands of internal emails sought in two major investigations.

The Securities and Exchange Commission said the big Wall Street firm failed to produce "tens of thousands of emails'' that were repeatedly demanded by regulators over a five-year period, beginning in 2000. The firm's failure to comply with the SEC's demands "compromised'' the two investigations.

The lesson - spend some money on retrieval systems!

Morgan Stanley Offering 200% of Trailing 12

Morgan Stanley is offering high-producing financial advisors a bonus of up to 200 percent of their trailing twelve if they jump ship from competitors to join the firm. According to the AP, the payment will be made over time, and although the AP didn't mention it, you can be sure the payments will be tied to a promissory note for each payment, which will continually extend the time of forgiveness, and therefore the time of service.

But, for a million dollar producer, a two million dollar "bonus" might not be a bad thing. Just make sure that an attorney reviews the hiring documents BEFORE you resign, and make sure that you understand what you are getting into. Promissory notes, restrictive covenants, and an agreement that your clients become their clients could destroy your book.

NASD Fines Merrill Lynch Over Call Center Problems

This past March, the NASD hit Merrill with a $5 million fine for alleged violations at the firm's two Financial Advisory Centers from 2001 to 2004. The call centers also have been prohibited from holding sales contests for three years after Merrill was found to have violated the NASD rule against giving noncash sales incentives.