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Saturday, January 31, 2009

Ethics Experts Say Former Partners Could Face Liability

Ethics Experts Say Former Partners Could Face Liability
The New York Law Journal by Noeleen G. Walder - February 2, 2009

When partners at Dreier LLP heard in early December that the firm's jailed sole equity partner, Marc S. Dreier, might have been dipping into escrow accounts, many quickly abandoned ship. "The firm was over in two or three days," according to former Dreier partner Bruce F. Bronster, who is now a member of Windels Marx Lane & Mittendorf. In the last month, "everybody's found new homes in a shotgun manner. It's kind of like finding a spouse with a gun to your head . . . you date as much as you can," Mr. Bronster remarked.

But while Dreier partners might have hoped to make a clean break with their disgraced former partner, they could face legal issues arising from their time at the firm, according to some attorneys who are familiar with bankruptcy law, professional responsibility and law firm partnerships. The departed partners might be held liable for any of the firm's debts, and also face disciplinary action for any missing escrow funds. Further, they might be asked to return income they received from clients for work on unfinished matters they took with them when they left the now-defunct firm. Mr. Dreier was indicted last week by a federal grand jury on charges that he had cheated hedge funds and other investors of more than $400 million. He has been held without bail since his Dec. 7 arrest in New York on wire and securities fraud charges, which followed a Dec. 2 arrest for criminal impersonation in Toronto.

The 58-year-old Mr. Dreier, a Harvard Law School graduate, allegedly was "sole signatory on all of the firm's thirteen to fourteen escrow accounts," according to court papers.  Some firm attorneys and its comptroller expressed concern to the Securities and Exchange Commission in the wake of Mr. Dreier's quickly developing legal problems that client escrow accounts had been depleted (NYLJ, Dec. 11). The indictment made public last week alleged that Mr. Dreier had misappropriated client funds, including funds placed into an escrow account and money obtained in the settlement of a client lawsuit.  Like Mr. Bronster, many of Dreier's contract partners have either been absorbed by new firms or have hung out their own shingles. And they have taken their clients with them, according to several ex-Dreier lawyers.

Brad Lowary, a legal secretary who worked at Dreier for 18 months earning close to six figures, said that when attorneys learned that client money was missing "the smart partners just immediately left." (Read Mr. Lowary's account of life at the firm.) Led by Seth H. Ostrow, the intellectual property group was the first to organize and leave the firm, he added. Other practice groups quickly followed suit.  Only two attorneys remained at the firm immediately following its bankruptcy filing, according to court papers filed in the proceeding, one of whom Mr. Lowary said is associate Marc H. Simon. "One of the things about Dreier, people came in various groups and left in various groups," said Eric Osterberg, a partner in Dreier's former 15-attorney Stamford, Conn., office.  According to Mr. Osterberg, Mr. Dreier formed a group of affiliated firms, which essentially operated under one umbrella. Approximately 160 of its 238 attorneys worked out of the main office, Dreier LLP, at 499 Park Ave., while others were based in Stamford, Pittsburgh, Albany, and California.

Except for Mr. Dreier, other partners received a base compensation plus a bonus based on the amount of business they generated.  Mr. Osterberg was in the midst of a trial in Boston when he and Joseph M. Pastore III heard about Mr. Dreier's arrest in Canada. At the time, Mr. Osterberg was "too busy" to think much about it, but when the firm failed to make payroll, he realized he and his colleagues had "better form some type of entity" to continue serving their clients. By Dec. 15, Pastore Osterberg was up and running in Stamford.  Mr. Osterberg said he has kept the clients he had at Dreier. However, it is unclear whether his new firm will continue as a stand-alone or merge with a larger firm. Steven R. Gursky, who came to Dreier with his own group of lawyers and left for Olshan Grundman Rosenzweigh & Wolosky with "substantially the same core" of attorneys, said that what once seemed like a major upheaval now almost feels like a "momentary inconvenience."

Authority Issue

But partners looking to put the Dreier debacle behind them might be in for a rude awakening, according to some sources knowledgeable about law firm partnership. "When law firms dissolve, the court wants one thing and one thing only. They want money put back in the estate to pay back the creditors," especially when there are clients who have lost money, said an attorney who specializes in law firm ethics and professional responsibility who asked to remain unnamed.  "In connection with partners in law firms, the interplay between the limited liability statute and the bankruptcy law is not entirely clear so that any partner who was being held out to the public as a partner is under some risk of having liability," he added. Robert W. Hillman, a professor at University of California Davis School of Law, who specializes in ethics and partnership law, agreed that the issue comes down to one of "apparent authority." "The problem is many firms hold [contract partners] out to the world as partners and the consequences of that is that they assume liabilities they don't know they have," Mr. Hillman explained. "If they are truly partners," they have an obligation to monitor each other to make sure there are not crooks in their midst and a fiduciary obligation to protect clients, Mr. Hillman said.

Former Dreier attorneys will counter that they were employees, not partners. And even assuming they were partners, they will maintain that since Dreier was a limited liability partnership, they cannot be held liable for the misdeeds of Mr. Dreier, Mr. Hillman suggested. Roy D. Simon Jr., a legal ethics professor at Hofstra University School of Law, said that the limited control ex-Dreier partners reportedly had over the firm could go a long way to shield them from exposure to liability. "Based on my limited understanding . . . it's very difficult to say that they should have known [about Dreier's alleged fraud] since the structure of the firm made them a lot like associates," Mr. Simon said. According to Les D. Corwin, who chairs Greenberg Traurig's business dispute group, to truly assess liability, the bankruptcy trustee will have to understand the "corporate structure" and the "nature of the underlying agreements" between Mr. Dreier and the contract partners.  "The key is in the agreement," he said.

Leonard J. Elmore, who played professional basketball before becoming an attorney and joined Dreier just three months prior to its collapse, said his contract clearly states he was a firm employee.  "How do you go after people who had no input into how the company was run?" asked Mr. Elmore, who had none of his own clients at Dreier and is now working as an ESPN analyst. But this argument might not fly, particularly when clients make certain assumptions about partners and their responsibilities, according to Mr. Hillman. And while an LLP might shield a partner from liability when another partner commits malpractice, it "doesn't relieve partners of responsibility to ensure that assets are controlled and escrow accounts are properly monitored," Mr. Hillman said. The legal ethics expert who asked to remain unnamed agreed that missing escrow funds could be a cause for concern.

"The place where so-called partners have the greatest exposure is with respect to money belonging to clients and held in the firm's client, trust or escrow accounts, and especially so when it involves lawyers' own clients and transactions," the ethics lawyer said in an e-mail. "In those circumstances, at least in connection with professional discipline, and possibly even with respect to fiduciary duty liability, the limited liability law probably does not operate to protect those lawyers, even if they were not themselves signatories on the accounts," he added.  Citing the case of Matter of Robert J. Ponzini, the expert said that attorneys who held themselves out as "partners" could face disciplinary action if the loss of client money is shown. In Ponzini, 268 A.D.2d 478 (2000), the Appellate Division, Second Department, suspended an attorney because he "knew or should have known that a negative balance existed" in the firm's escrow account.  Under that theory, "anyone held out as a partner may be treated as his brother's keeper," the ethics attorney explained.

Creditor Claims

In addition, partners could be on the hook for client fees they bill as a result of ongoing matters they took with them to other firms. Although the bankruptcy proceeding against Dreier LLP is still "in its infancy," Tracy L. Klestadt of Klestadt & Winters, who serves as counsel to the creditors' committee in the Chapter 11, said there is precedent under the California case of Jewel v. Boxer, 156 Cal. App. 3d 171 (1984), that "the profits of an unfinished business in the absence of a partner agreement" belong to the partnership that originated the business. Creditors in the Coudert Brothers bankruptcy have invoked that theory, said Mr. Klestadt, who served as debtor's counsel in that case.  Mr. Klestadt said there would be no need for the bankruptcy trustee to target the former contract partners if the firm's assets exceed its liabilities. But the unnamed ethics expert said that was highly unlikely. "Let's be real," he said. The only way the firm would wind up not being insolvent is if "someone finds a pot of gold."

Lawyer Tells Truth in Mayor's Corruption Arrest

Hartford Mayor Arrested On Bribery Charges
The Hartford Courant by JEFFREY B. COHEN And MATTHEW KAUFFMAN - January 28, 2009

Mayor Eddie A. Perez sat in his office at city hall on a late June day in 2007 and assured a pair of state criminal investigators that the rumors weren't true, that he had long ago paid in full for the $20,000 renovation at his home by city contractor Carlos Costa. He could even get them the canceled check to prove it. But barely an hour and a half after Perez said goodbye to the investigators, the mayor was in the offices of the Hartford Federal Credit Union filling out an application for a $25,000 home equity loan. It fell to Perez's lawyer nine days later to tell investigators that the mayor, in fact, had never paid Costa for the work that had begun more than two years earlier. On Tuesday, as Perez was arrested and charged with bribery, falsifying evidence, and conspiring to falsify evidence, he continued to say what he has long said — that he always intended to pay Costa for the kitchen and bathroom renovation work, and that his wife's health problems simply distracted him. There was no quid pro quo between the mayor and Costa, and there was no crime, Perez said. But that's not the story Costa tells. 

In arrest warrants supporting criminal charges filed against both men, Costa said he never expected a penny for what he says was a $40,000 renovation job — twice what Perez eventually paid — and says he considered the freebie "the cost of me doing business with the City" and the price for keeping easy access to the mayor. That access, Costa told investigators, paid off. At the same time Costa was doing what he considered free work for Perez, the mayor was doing Costa "a big favor" — overruling city employees who had all but decided to yank Costa off a multimillion-dollar city job on the Park Street streetscape. Costa says Perez helped him out; Perez's attorney says the mayor's goal was to save the city money. Now, two men who called one another friend find themselves pitted against each other in a legal battle that is already threatening to claim political victims. On Tuesday, three city councilmen called for the removal of the city council President Calixto Torres — a longtime Perez ally. It will be up to lawyers to parse the state's bribery statutes, as the mayor and his lawyer launched a vigorous verbal defense Tuesday. But regardless of the spin and explanations, the 25-page arrest warrant includes potentially damaging revelations:

•Perez, the warrant says, misled state investigators about whether he paid for Costa's work.
•Perez paid Costa nothing until after he was confronted by state investigators.
•When he did pay Costa, Perez only paid half of what Costa told investigators the job cost.

And there may be more revelations to come, as the investigation continues. Prosecutors say more arrests are expected. The mayor of the state's capital city is due in court Feb. 3 to begin his formal legal defense. But his attorney, Hubert J. Santos, wasn't waiting for a courtroom to refute the allegations in the arrest warrant. "In my judgment, it doesn't allege a crime," said Santos, who belittled state prosecutors' record on corruption cases at a 1 p.m. press conference for his client Tuesday. "If you're going to destroy an administration, particularly one run by one of the few minority mayors in the state of Connecticut, the least we could ask of the prosecutor's office is to allege a crime." In the arrest warrants, Costa told investigators he feared he would have been "black balled"as a city contractor if he had not done the work for Perez for free.

Costa testified that the first time he and Perez ever talked about the cost of the job was in late 2006 — long after most of the work was done — when Perez complained of rumors circulating in the city about renovation work performed for free at his house. Concerned that the rumors could spell trouble, Perez asked Costa to prepare a bill for the work, the contractor told investigators. That bill — cobbled together from various supplier receipts and comprising 11 general line items — was bogus, Costa testified, totaling a little more than $20,000 for what the contractor said was probably a $40,000 job. Those receipts, from Home Depot and other building-supply companies, show that Costa billed the mayor at cost for a steam shower, whirlpool bath, marble floor tiles, granite countertops and other materials. But while Perez has repeatedly maintained that the receipts covered all work done at the house, investigators say thousands of dollars' worth of materials are missing from the bills, other supplies were charged at artificially low prices, and Costa's invoice dramatically underreports the cost of labor associated with the job.

Investigators, who inspected Perez's home in July 2007, said a nearly 9-foot marble vanity top in the bathroom is not accounted for in the bill Perez paid. The vanity top, in the color Emperador Dark, matches a raw slab of marble purchased at the time by Costa's company for $426 — but typically sold to homeowners at several times the cost. But Perez never paid for that bill, or for what would typically be hundreds of dollars more in fabrication costs, such as cutting holes for sinks. There are also no bills for some electrical fixtures used in the bathroom, some tile and backsplash in the kitchen and for a custom-made granite threshold installed between the kitchen and dining room, the arrest warrant alleges. Investigators also say Perez underpaid for granite kitchen countertops and a custom-made bathroom vanity. Perez was eventually billed $45 a square foot for 50 square feet of Juparana Bordeaux granite. A Costa employee told investigators that Costa typically charged homeowners $70 to $75 a square foot for the granite, indicating Perez saved $1,250 to $1,500 on the slab.

The mayor also paid $371 for a bathroom vanity custom-built by a high-end cabinetmaker, who told investigators the vanity required about $1,200 worth of labor to create. It appears the cabinetmaker, Woodworks Retail & Architectural, never charged Costa for the work until early 2007, and co-owner John Gajewski testified that he sent Costa a bill for $350 plus tax because that's the price Costa told him to charge. In return for his work on Perez's home, Costa benefited in various ways from the mayor's influence at city hall, prosecutors say. Perez had checks expedited for Costa, something city employees told the grand jury was a rare occurrence. He arranged for a performer at Costa's Carioca Club to receive a key to the city. And when city employees wanted to declare Costa in default of a multimillion-dollar city contract and put his insurer on notice, Perez stepped in and ordered a subordinate to back off, prosecutors say. Prosecutors Tuesday also brought bribery charges against Edward Lazu, a former city contract compliance supervisor accused of trading favorable treatment of Costa for a new driveway at Lazu's Hartford home.

Lazu said he paid Costa $1,100 — in cash, with no receipts — for work USA Contractors did removing nearly 40 feet of sidewalk and putting down part of a stone driveway. But Costa testified the job was worth at least $5,000, and that Lazu never paid him. He told investigators that money only came up after Lazu received a grand jury subpoena, at which point Costa said Lazu asked him to provide a cash receipt for $1,000. Costa refused. Prosecutors allege that Lazu certified USA Contractors to perform demolition and asbestos-abatement work, even though the company's state licenses to perform that work had expired, and blocked efforts by subordinates to compel Costa to abide by prevailing-wage laws for employees. Tuesday began with hordes of reporters clustered both at Perez's house on Bloomfield Avenue and at the Troop H state police barracks in Hartford. At 9:20 a.m. on a cold morning, a grim-faced Perez opened his garage door, got into his blue Mercury Mountaineer, started the ignition and quickly drove toward his attorney's office, just blocks from the state police barracks.

Shortly after 10 a.m., Perez and Santos arrived at the barracks, and Perez was arrested. With Perez walking alone and well ahead of Santos, the two entered the building without speaking to reporters. Less than 30 minutes later, they emerged. Again, Perez walked well ahead of Santos. All Perez said before he got into a waiting Cadillac was, "one o'clock." At 1 p.m., Perez reappeared in the function room at city hall. Now he stood surrounded by friends, family, supporters and city employees who gathered to cheer their mayor, and who applauded when he told them that he was staying put. "The people of Hartford have voted for me twice since I made these allegations public, and I remain humbled that they have selected me to work with them to make the city of Hartford a better place," Perez said. "That is why I intend to serve out my term and complete the job I was hired to do." Courant Staff Writer Steven Goode contributed to this report.

Manhattan Lawyer Steals $396,000 from Client

The New York Post by JAMIE SCHRAM - January 31, 2009

A Manhattan real-estate lawyer stole $396,000 from a client who had hoped to use the money to buy a house in Brazil, authorities said yesterday. When the client went to close on the house last October, Robert Barsch 'fessed up - admitting that he had looted the escrow account to take care of "a personal emergency," prosecutors said. Barsch, 48, of Levittown, LI, returned $175,000 but cost the client the chance to get the home, prosecutors said. Barsch is charged with grand larceny and was being held last night on $20,000 bail. He is due back in court on Monday.


Bloomberg News by TOM LIDDY - January 31, 2009 

Bernie Madoff's lawyer served up a sweet deal for a convicted fraudster - who moonlights as a chef - keeping him free on bail so he can help cater the Academy Awards. Vincent Montagna, who is represented by Ira Sorkin, pleaded guilty to defrauding his hedge-fund investors of $10 million in 2006, but has been out on bail ever since. In December, Montagna, 36, who freelances for celebrity chef Wolfgang Puck, was sentenced to just a third of the nine-year maximum and is being allowed to begin his sentence after he caters an event for the Oscars.


Madoff's banks to hand over $535M in assets

THE ASSOCIATED PRESS - January 30, 2009

JPMorgan Chase & Co. and Bank of New York Mellon Corp. agreed to transfer a combined $534.9 million from accounts owned by Bernard Madoff's investment firm to a trustee overseeing the liquidation of the company's assets. Madoff is accused of running a $50 billion Ponzi scheme. JPMorgan agreed to transfer $233.5 million it held in an account in the name of Madoff's investment firm, Bernard L. Madoff Investment Securities LLC, to Irving Picard, who is overseeing the liquidation of the company. BNY Mellon is set to transfer about $301.4 million from an account at its bank, according to court documents filed Thursday. The transfers will be completed by Feb. 6, according to the documents. The money will likely be used to help settle claims and repay allegedly defrauded investors.

In late December, BNY Mellon agreed to transfer $28.1 million to Picard to help cover expenses tied to the liquidation of the company. The $28.1 million transferred, though, will not affect any potential recovery for investors. Another $883,000 was transferred by BNY Mellon earlier in December to cover expenses as well. Madoff, 70, a former Nasdaq stock market chairman, is accused of running a scheme that paid fictitious returns to certain investors out of the principal received from others. Madoff remains under house arrest in his apartment in New York as part of an earlier bail agreement.

Friday, January 30, 2009

Judge OKs Bail for 'Mini-Madoff'

Judge rules 'Mini-Madoff' Nicholas Cosmo may be freed on bail

The New York Daily News bY SARAH ARMAGHAN AND DAVE GOLDINER - January 29, 2009

Ponzi scheme con man Nicholas Cosmo may be freed on bail soon but he'll have to come up with more cash first, a judge ruled Thursday. The judge declared Cosmo, dubbed "Little Bernie Madoff," is not a flight risk, even as he rejected a defense proposal for $750,000 in bond and sent him back to jail. "Bail must be substantial," said Federal Judge E. Thomas Boyle, who also suggested Cosmo be placed under intense surveillance. The judge set a hearing for next week to set bail conditions for Cosmo in the $350 million fraud case. Cosmo, 37, squirmed nervously in an orange prison jumpsuit throughout the hearing, then sat still as the judge rejected his lawyer's bail proposal. Boyle judge revealed that prosecutors are investigating whether Cosmo tried to wire cash from his doomed Agape World investment company to relatives as the firm imploded.

His brother and other relatives offered to put up their houses to secure his release, but prosecutors say they may have little equity in them. Prosecutors say Cosmo bilked 1,500 mostly middle-class investors out of millions with promises of 4% a month in returns on loans to companies. He blew millions on bad commodity bets and paid middlemen brokers $50 million more. Investigators still don't know what happened to more than half the $350 million regular folks poured into Agape over the last couple of years. Cosmo's victims filled the Long Island courtroom and told wrenching stories of vanished nest eggs and deferred dreams. NYPD cop Frank Ingrao said he invested his entire $63,000 life savings in Agape to take advantage of what seemed like an extraordinary business opportunity. The Iraq war vet was planning to buy a home. Now he's broke. "I'm turning 28 next week," said Ingrao, of Williston Park, L.I. "I wanted to start my life." John Jay College student Norma Mendoza planned to pay for graduate school with the $20,000 she invested. "I don't know what the future holds," said Mendoza, 24, of Queens.

Thursday, January 29, 2009

Worthy of Review: A Chief Judge For Silver?

A Chief Judge For Silver?
The New York Daily News by Elizabeth Benjamin - January 13, 2009

A source close to Gov. David Paterson confirmed, as is now being widely reported, that the governor is indeed poised to name Chief Administrative Judge Jonathan Lippman to fill the chief judge post left vacant on the state's highest court by the retirement of Judith Kaye. The deadline for Paterson to fill Kaye's seat is Thursday (Jan. 15). This is a very unusual decision. According to one observer, there has not been a single chief judge selected by a governor in 100 years who wasn't already sitting on the court. But Lippman was widely believed to be the favorite of Kaye, who tapped him for the administrative judge job in 1996.

His selection by Paterson is also a win for Assembly Speaker Sheldon Silver, who is a childhood friend of Lippman and has reportedly been pulling for him to land the chief judge job. It had been speculated that the inside track for this appointment was held by Court of Appeals Justice Theodore Jones, the lone African American on the list of recommended chief judge candidates that sparked an outcry by Paterson and others due to its alleged lack of diversity. If Paterson had opted for Jones - or even Eugene Pigott, another sitting Court of Appeals justice on the list - he would have created another vacant spot on the high court, thereby enabling himself to assuage the critics of the Commission on Judicial Nomination and tap a woman or a Latino - or, better yet, a Latina! - and make everybody happy. Everybody, that is, except, Silver. And The Times, which editorialized in favor of Lippman and called him Kaye's "partner in reform." So, why would Paterson opt not to pick Jones and give himself an out?

The speculation machine has cranked into high gear, with some noting Silver's abrupt turnaround on Caroline Kennedy's bid for Hillary Clinton's US Senate seat. Others have suggested that perhaps Paterson really does want to see a complete overhaul of the way high court judges are selected, and it would defeat his purposes to make this controversy go away. Interestingly, earlier today Sen. John Sampson, who is now chairman of the Senate Judiciary Committee, announced the committee's first order of business will be to hold hearings concerning "the criteria" employed by the Commission on Judicial Nomination during its selection of chief judge candidates. Sampson said he intends to ask members of the commission and its chairman, John O'Mara (a Pataki appointee), how they decided on their final list of candidates and the methods they employed throughout the selection process. "I find it incomprehensible and deeply disturbing that not a single woman appeared on the list of qualified judicial candidates to succeed Judith Kaye, our first female chief judge of the Court of Appeals," Sampson said. "As the birthplace of women's suffrage and civil and political rights, the Commission failed to meet the high standards and great tradition of our state when it failed to include a woman on its list of candidates for our highest court." "Any process that ignores the substantial role women have played in the history of our state and the judicial process is flawed. We need to show a true commitment to providing opportunities for all qualified candidates, particularly women. As Chair of the Judiciary Committee I want to know what went wrong and why, so it cannot be permitted to happen again."

Wednesday, January 28, 2009

Senator Sampson Urged to Issue Subpoenas Into Court Corruption

Senator John L. Sampson, Chairman of the New York State Judiciary Committee, heard testimony yesterday on the review of the current process to choose justices of the state's highest court, the Court of Appeals. The State Commission on Judicial Nomination has been under attack recently for failing to provide the governor with a suitable list of nominees from which to choose.

Initial reports confirm that during open testimony Senator Sampson was asked to hold hearings and issue subpoenas into the corrupt practices of the New York State Commission on Judicial Conduct and the statewide attorney ethics committees. It was noted that the Nomination Commission relies upon reports from the various ethics committees in its vetting process in deciding who to place on the list presented to the Governor.

More on this story soon....... below are two stories on yesterday's hearings......

Supporters of Court of Appeals Nominating System Urge Caution

The New York Law Journal by Joel Stashenko - January 28, 2009

ALBANY - State legislators were urged yesterday to proceed cautiously as they consider changes in how candidates are selected for the Court of Appeals, despite the dissatisfaction of some with the all-male list of nominees for the next chief judge. New York City Corporation Counsel Michael A. Cardozo and former state Senator John Dunne, speaking at a hearing on behalf of the Committee for Modern Courts, defended the track record of the Commission on Judicial Nomination and argued against making sweeping statutory changes in a system that has been in place for more than three decades. "In my opinion, the system has served the state well and represents a huge improvement over the previous elective system," Mr. Cardozo told the Senate Judiciary Committee.

No minority or woman was elected to the Court of Appeals between the Court's inception in 1846 and 1977, when voters adopted a constitutional amendment halting judicial campaigns to the high court in favor of a system under which governors have picked members from commission lists. Since then, Mr. Cardozo noted, four women, three blacks and one Hispanic have been elevated by governors to the Court. When Mr. Cardozo told Judiciary Committee Chairman John L. Sampson, "We have a huge way to go" Mr. Sampson finished the sentence with, "We have come a long way." "We have come a long way," agreed Mr. Cardozo, "and the fact that until Judith [Kaye] retired, in the last six years there were four women out of seven sitting judges on the Court, a distant cousin of mine name Benjamin Cardozo would have been shocked. So we have to be careful not to throw the baby out with the bath water."

Still Mr. Sampson, D-Brooklyn, argued, "Once you've finally arrived, all of a sudden the curve ball is thrown." He said the latest list sent to Governor David A. Paterson by the commission (NYLJ, Dec. 2) represented just such a troubling sign that progress toward diversity on state court benches is not guaranteed. Mr. Cardozo pointed out that barring an unexpected resignation, it will be nearly four years until the next opening will occur with the mandatory retirement of Judge Carmen Beauchamp Ciparick at the end of 2012. He suggested forming a "study committee" to look at what other states have done with appointive judicial systems in recent years to formulate improvements instead of acting precipitously in response to the recent search for a chief judge.

Mr. Paterson and Attorney General Andrew M. Cuomo both complained that the commission's list of candidates contained six white males, including chief judge-nominee Jonathan Lippman, presiding justice of the Appellate Division, First Department (NYLJ, Jan. 14). It also included the name of Court of Appeals Judge Theodore T. Jones Jr., who is black. There were no women or Hispanics on the list even though Judge Ciparick, an Hispanic who is senior associate judge on the Court, applied to and was interviewed by the commission. Two other women were among the 12 candidates interviewed by the commission, New York City Civil Court Administrative Judge Fern A. Fisher and Brooklyn Supreme Court Justice L. Priscilla Hall, but they also did not make the final cut. Mr. Sampson said yesterday he would likely schedule Justice Lippman's confirmation hearing before his committee within the next few weeks, but wanted to improve the nomination process going forward.

"The purpose is not to challenge the nomination of Judge Lippman, but to deal with the process so we won't run into problems like this again," Mr. Sampson said as he closed yesterday's hearing. "The system, as indicated, has worked before. We were improving. But now we have hit a bump in the road. Hopefully we can make some modification, whether it be with a rule change or statutorily." Mr. Dunne and Mr. Cardozo both suggested that more diverse candidates would be advanced by the commission if more diverse commission members were selected by state leaders. Four members of the commission are appointed by the governor, four by the state's chief judge and one each by the four majority or minority leaders of the Legislature. Currently, four of the commission members are white women and two others are black men. There are no Hispanics.

"The answer is not to change the system, but for our elected officials, the governor and legislative leaders, who are empowered to appoint members of the Commission on Judicial Nomination, along with the chief judge, to appoint those who reflect the diversity of our state and also make their expectations clear to their commission appointees that diversity considerations must be a factor in the process," said Mr. Dunne, of Whiteman Osterman & Hanna in Albany. About 73 percent of the state is white, 17 percent black and 16 percent Hispanic. About 51 percent of the population are women. Mr. Cardozo said he is somewhat biased about the commission because, as a counsel to a task force on court reform appointed by then-Governor Hugh L. Carey in the mid-1970s, he helped write the statute under which the commission was created. He suggested that the commission's proceedings be made more transparent, perhaps by releasing the numbers of applications the commission receives and how many candidates it interviews for openings.

'Lack of Applicants'

Commission Chairman John F. O'Mara said in an interview yesterday that the commission has decided to do just that as part of an effort to open up its process. He declined to give the exact numbers yesterday, but said applications have been declining for years for Court of Appeals openings. "The real problem is the lack of applicants," Mr. O'Mara said. Sources familiar with the 2008 screening process for Chief Judge Kaye's seat said the commission received only about 20 applications. Mr. O'Mara was appointed to the commission by then-Governor George E. Pataki. His term expires at the end of March. As he has since the commission announced its list on Dec. 1, Mr. O'Mara yesterday continued to defend the panel's work.

"I think you'll see a lot of defenders, if you see what the process has produced," said Mr. O'Mara, a partner with Davidson & O'Mara in Elmira. "In spite of the complaints this time about the lack of a woman on our list, under our recent lists, the majority of the Court of Appeals judges have been women. I do believe the process works." Mr. O'Mara said he did not receive an invitation to appear before Mr. Sampson's committee until late on Jan. 22 and could not work it into his schedule. But he said he would be happy to appear before the committee at one of the other public hearings Mr. Sampson said he would schedule in New York City and upstate. "It works," Mr. O'Mara said of the commission. "Without question, I think that any rational person that looks at the process and looks at what's happened under the process would come to the same conclusion."

Mr. Sampson acknowledged that Mr. O'Mara has indicated his willingness to appear before his committee. Still, Mr. Sampson said yesterday he was "disappointed" that neither Mr. O'Mara nor members of the commission appeared at the Albany hearing. "They should have been here so my colleagues could question them," Mr. Sampson said. "But hopefully, within the not-too-distant future, we will have that opportunity." Attorney Ravi Batra, a former member of the Brooklyn Democratic Judicial Screening Committee, told Mr. Sampson's committee that nominating commissions such as Mr. O'Mara's panel can be rife with petty personal or political divisions that can prevent excellent candidates from being recommended for appointment.

The fact that neither Judge Ciparick, now acting chief judge of the Court of Appeals, nor Justice Fisher were on the final list shows how "tainted" the nomination process was, Mr. Batra contended. "Two women, two superstars," agreed Judicial Committee member Ruben Diaz Sr., D-Bronx. "They were called not qualified? The system is broken." Brooklyn Bar Association President John Lonuzzi said that "some eyebrows were raised" within the legal and judicial communities when the commission's list omitted the names of Judge Ciparick and Justice Fisher. "Was this an aberration . . . or was this something that is broken, has failed and now needs to be fixed?" Mr. Sampson asked him. "It's certainly something that's broken," Mr. Lonuzzi replied. "It's certainly something that's failed and it's certainly something that needs to be fixed."


Lawmakers fault top court selection process
The Albany Times Union by MICHAEL VIRTANEN, Associated Press - January 27, 2009

ALBANY -- Several New York senators and attorneys Tuesday urged reform in choosing judges for the state's top court. They criticized the recent closed-door selection of seven potential nominees for chief judge, saying the process lacked diversity, openness and outreach.
Senate Judiciary Committee Chairman John Sampson said only 12 candidates applied to the Commission on Judicial Nomination to replace Chief Judge Judith Kaye, and three were women, all qualified. However, the seven names submitted to Gov. David Paterson were all men, only one a minority. Paterson raised the same concern before nominating Justice Jonathan Lippman, a midlevel appeals court judge and the former chief administrative judge of the sprawling court system. "The purpose is not to challenge the nomination of Justice Lippman," Sampson said at the close of Tuesday's hearing, which he said would be followed by others in New York City and upstate. "It's to deal with the process so we don't run into this problem again."

Sampson, a Brooklyn Democrat, said he and other lawmakers will meet with Lippman before the committee holds confirmation hearings he hopes will follow within 30 days. Sampson noted that 18 percent of New Yorkers are African-American, but only 9 percent of its judges are; 16 percent of its people are Hispanic, but only 4 percent of the judges are. He said 18 percent of the state's law students are Asian, but only 1 percent of its judges are. There is a problem of public perception that politics came into play in the judge selection process, he said. Lippman's nomination requires Senate approval. "I'm not talking about any issue of quota," Sampson said. Sen. George Winner, an Elmira Republican, said lawmakers should make sure "the highest qualified individuals" are put on what he called the most important state court in the nation.

Sen. Ruben Diaz, a Bronx Democrat, said that while New York now has a black governor who could have appointed a well-qualified and well-prepared woman or minority as the state's top judge, the commission "tied his hands." "Let's untie the governor's hands and give the governor the power to say to the committee what you did was wrong," Diaz said. One applicant was Court of Appeals Acting Chief Judge Carmen Beauchamp Ciparick, a longtime associate judge on the Court of Appeals, and a Hispanic woman Diaz said was obviously qualified, but her name wasn't on the list. The other women considered by the commission were Judges Fern Fisher and Priscilla Hall in New York City, both experienced and well qualified, Sampson said.

John Dunne, a former lawmaker who helped author the law that substituted the appointment process for the Court of Appeals instead of elections, urged the senators not to change the system. He said it has worked for 30 years and made the process less political. Dunne said the governor, chief judge and four lawmakers who choose members to the 12-member nomination commission, in staggered terms, can emphasize to those appointees that diversity is important and needs to be considered. Dunne said the court, which until Kaye's retirement had four women, one of them Hispanic, and an African-American judge, became far more diverse with this process. Judge Theodore Jones was on the commission's short list. But Dunne acknowledged the commission's "failure to meet expectations of a great many of its citizens" with a list that included no women.

Attorney Ravi Batra said the system is "badly broken," that the commission approves nominees with a two-thirds majority, allowing a bloc of five to hijack the process. He suggested changing the rules so only a majority vote is enough, expanding the list of nominees to 12, making public the names of applicants, having 15 commissioners, and letting lawmakers choos eight. Brooklyn Bar Association president-elect John Lonuzzi said the commission should include bar association representatives and the number of potential nominees should b expanded. Sampson said he will talk to Commission Chairman John O'Mara to discuss lawmakers' concerns.

Tuesday, January 27, 2009

Lucky Week: Two More Madoff Copycats Arrested

Feds: NYer ran $370m Ponzi scheme
The Albany Times Union by FRANK ELTMAN - January 27, 2009

CENTRAL ISLIP, N.Y. -- The owner of a New York investment firm ran a $370 million Ponzi scheme, luring in clients with promises of astronomical returns while secretly blowing tens of millions of dollars on bad trades and conspicuous spending, federal authorities said Tuesday.
Nicholas Cosmo, who was arrested Monday by FBI and U.S. Postal Inspection Service agents, did not speak or enter a plea Tuesday to mail fraud charges during a brief court appearance on Long Island. Magistrate Judge Thomas Boyle ordered him held until a bail hearing on Thursday. Prosecutors had argued Cosmo was a flight risk, claiming he had not lived at home for the past several days. They also conceded that although some of the money had been accounted for, vast sums were still missing. The missing money is "a big issue," the judge said. "I'm very concerned."

Defense attorney Steven Feldman told the judge his client had left home merely to avoid the wrath of irate investors. "Things have gotten heated in Mr. Cosmo's life," the lawyer said. A criminal complaint says Cosmo, who runs Agape World Inc. and Agape Merchant Advance in Hauppauge and Queens, took in more than $370 million from about 1,500 investors since 2006. The investors believed they would make returns as high as 80 percent a year from interest collected on short-term loans to businesses. But the complaint said an investigation revealed that "much of the money paid back to investors ... was actually money provided by subsequent investors" -- a Ponzi scheme similar to the one alleged in the Bernard Madoff case. In cheating investors, Cosmo, 37, "not only understated the risk, he completely misrepresented the underlying investments," Joseph Demarest, head of the FBI's New York office, said in a statement. "When you lie about what you're selling people, that's fraud."

Investigators say less than $10 million in loans were made. Aside from compensating prior investors, the remainder was used to pay $55 million to brokers who recruited new investors. Since 2003, the firm also had transferred $100 million into commodities futures trading accounts controlled by Cosmo. About $80 million of that was lost on trades, the complaint said. Cosmo also spent investor money on jewelry, hotel rooms, limousines, payments to his wife and a private baseball league. About $212,000 was used to pay restitution from a previous mail fraud conviction. As of last Thursday, Cosmo's firm had only $746,000 in the bank, prosecutors said. "I was suckered just like the next guy," said Ray Diserio, one of a handful of investors who attended Cosmo's court appearance. "I guess the bottom line is that if it's too good to be true, don't do it. You're better off putting your money in the bank." If convicted, Cosmo faces up to 20 years in prison. Associated Press Writer Tom Hays in New York City contributed to this report.

Feds Arrest Another Missing Money Manager
NBC - January 27, 2009

Who's next? Another missing money manager suspected of fraud has turned himself in to authorities.

Bernard Madoff pulled off what's being called "the biggest financial scandal, probably, in the history of the markets," taking investors -- including some... Arthur Nadel, a Florida hedge fund manager who disappeared this month just as he was due to pay investors $50 million surrendered in Tampa Tuesday to face federal securities and wire fraud charges, the FBI said. Nadel was due in federal court later Tuesday afternoon. The FBI did not provide additional details about his surrender or where he has been for the past two weeks. Nadel's attorney, Todd A. Foster, did not immediately respond to a telephone message left with his office.

Federal regulators last week sued Nadel for fraud, saying he misled investors and overstated the value of investments in six funds by about $300 million. The Securities and Exchange Commission also won a court order freezing his assets. A criminal complaint unsealed Tuesday in federal court in Manhattan alleges Nadel has been defrauding investors since 2004. Nadel, 76, disappeared Jan. 14 after telling his wife in a note that he felt guilty. He also threatened to kill himself, according to the Sarasota County Sheriff's Office. Police found his green Subaru the next day in an airport parking lot. In a lawsuit filed in federal court in Tampa, the SEC said Nadel recently transferred at least $1.25 million from two funds to secret bank accounts that he controlled.

Two investment companies co-owned by Nadel, Scoop Capital and Scoop Management, agreed last week in a settlement with the SEC to injunctions and an asset freeze. They neither admitted nor denied wrongdoing. According to Scoop Management's internal accountant, the six funds have between 500 and 600 investors nationwide. Earlier this month, many were told that the funds were empty. Sarasota investigators have been fielding inquiries from investors from around the country and as far away as France.  The SEC said Nadel's funds appeared to have assets totaling less than $1 million, while he claimed in sales materials for three of the funds that they had about $342 million in assets as of Nov. 30. The materials also boasted of monthly returns of 11 to 12 percent for several of the funds last year, when they actually had negative results.

The investigation came on the heels of two other high-profile financial fraud cases. Investigators say Wall Street's Bernard Madoff cost investors some $50 billion late last year in what may be the largest Ponzi scheme in history. And Indiana money manager Marcus Schrenker was apprehended in Florida earlier this month after allegedly trying to stage his death in a plane crash as investigators probed his businesses. On Monday, the owner of New York investment firm Agape World, Nicholas Cosmo, surrendered to FBI in Long Island. He’s accused of cheating investors of about $140 million.

Monday, January 26, 2009

Chief Judge Nominee Lippman Celebrates Bench and Bar Collaboration

Celebrating Collaboration of Bench and Bar
The New York Law Journal by Jonathan Lippman - January 26, 2009

Over the years, I have had the privilege of serving the Judiciary in varying roles that have given me a bird's-eye view of the positive changes that have taken place throughout the profession. In many respects, the legal world today is a much different place than it was 15, or even 10, years ago. Both the courts and the practice of law have been transformed on a broad range of issues.  Many of the advancements that have made the practice of law more convenient, such as the ability to view court calendars and court decisions online, have been the result of courts and practitioners taking full advantage of the technological innovations that are changing the nature of everyday life. Indeed, much of the progress in shaping our profession for the better has been the result of the spectacular partnership between the courts and the bar.  I thought it would be instructive during State Bar week to highlight just a few of the most successful collaborations that have now become staples of the court system and the profession in New York.

The Commercial Division

The existence of the Commercial Division of the Supreme Court in New York, today so often the parties' venue of choice to resolve commercial disputes, is a prime example of the outstanding things that bench and bar can accomplish together.  The impetus behind the creation of the Commercial Division was a report with recommendations by the Commercial and Federal Litigation Section of the New York State Bar Association. A joint bench-bar task force then worked to implement the Section's proposal and, as we know, the results have been strikingly effective in attracting and retaining business in our state.  The creation of a part of the Supreme Court devoted to commercial matters has improved the business community's confidence in our courts and allowed us to become a desirable and worthy forum for the litigation of complex commercial issues.  Another example of important changes generated by a joint bench-bar committee were the recommendations made by the Committee on the Profession and the Courts, more commonly known as the Craco Committee.

Work of Craco Committee

That panel was organized to examine public attitudes toward the courts and the legal profession. The combined perspectives of both attorneys and judges helped provide a comprehensive view of the profession and a superb opportunity to achieve consensus on meaningful reforms that better serve the public in our state. One such development has been the implementation of mandatory continuing legal education for all attorneys. The CLE requirement was instituted in 1998, with a more intensive "bridge-the-gap" component for newly admitted attorneys.  Initially the subject of some controversy and anxiety, CLE quickly became a valued part of the professional landscape in New York, enabling attorneys to hone their legal skills and stay abreast of recent developments in the law. The establishment of New York's mandatory, statewide Attorney-Client Fee Dispute Resolution Program has been an important tool in helping to resolve issues between attorneys and clients in a more informal, expeditious fashion and in an atmosphere conducive to producing satisfactory results for all concerned.

Fee arbitration helps ease the burden on the courts by resolving these cases through ADR while providing clients with a convenient, inexpensive means to address fee disputes, which are one of the main sources of public dissatisfaction with the legal profession. In certain jurisdictions, including the First Department, the program is administered by local bar associations. Thus, the cooperation of the legal community is critical to the program's success. Another notable outgrowth of the Craco Committee's recommendations was the creation of the letter of engagement rule (Part 1215), which requires that, prior to undertaking representation, an attorney provide a client with a letter of engagement explaining the scope of services to be rendered and detailing his or her fees, expenses and billing practices. This requirement allows clients to see up front exactly what types of charges they will incur and in this way helps to avoid misunderstandings and fee disputes.

Other significant developments arising out of the Committee's recommendations included: adoption of aspirational Standards of Civility for lawyers, judges and court personnel; amendments to court rules (Part 130) authorizing the imposition of costs and sanctions for frivolous conduct in civil litigation; and the requirement that each attorney's office post a statement of client's rights.  All of these reforms are enhancing public trust and confidence in the legal profession by promoting accountability and mutual respect. The success of the many specialized court parts that have been introduced in the New York courts over the last several years would not have been possible without the active cooperation and support of the bar.

Specialized Courts

In this regard, the introduction of Integrated Domestic Violence (IDV) Courts has had a significant impact on the court system and those who practice family law. These courts have greatly improved the legal experience for parties who are no longer shuttled from court to court, but instead have their issues addressed in a single court before a single judge who is aware of all aspects of the parties' situation.  Other types of problem-solving courts, like our drug courts or community courts, have also taken a more practical approach to justice by simplifying the court structure and adjusting the disposition to fit the realities of the situation, whether that involves incarceration or, where appropriate, drug treatment, community service or a mentoring program. These unconventional courts required considerable flexibility by and coordination with the institutional and private bars in our state in order to achieve better outcomes for litigants and society.

Jury Reform

Jury reform has likewise brought about a great improvement in the public perception of the courts.  It is by now well-documented that back in the early 1990s the jury system was greatly flawed and inefficient. The system is now vastly improved thanks in large part to the early support of the organized bar, which was so helpful in achieving the legislative elimination of automatic exemptions, including those for lawyers and judges. The profession recognized the importance of such change to improving the public's view of the fairness of the system.

Further, the cooperation of the bar has been necessary to the goals of commencing voir dire and trials without delay and reducing the perception that the impanelment of the jury is used solely to induce settlement. The continued success of jury reform in the state can in large measure be attributed to bench-bar collaboration in upgrading this bedrock of our justice system. Most recently, our Code of Professional Responsibility was substantially revised and adapted to the format of the ABA Model Rules. The new Rules of Professional Conduct harmonize New York's ethical standards with those in place throughout the majority of the country.

The State Bar issued a proposal, after exhaustive study and analysis, for a new Code in keeping with the ABA Model Rules. The Administrative Board then undertook its own process of review and revisions, ultimately resulting in the adoption of our new Code by the Appellate Divisions. There could not be a better example of the Judiciary and the organized bar collaborating productively on a matter of great significance to the entire legal community. We should all take pride in the many positive changes that have come about in recent decades due to the partnership between the members of the bench and bar. We have been able to transform the courts and the profession in so many enduring ways. Without question, this fruitful relationship will be the recipe for many more important advances in the years to come.

Jonathan Lippman
Presiding Justice, Appellate Division, First Department and
Nominee for Chief Judge Of the State of New York

Sunday, January 25, 2009

EDITORIAL: Bruno's indictment should spur ethics reform

EDITORIAL: Bruno's indictment should spur ethics reform
The Tonawanda News - North Tonawanda, NY January 25, 2009

— It’s time for a quick check on the definition of the verb “to consult.” Average Americans might consult a friend about the merits of a particular shirt or blouse: “Does this make me look fat?” They could fairly consult an attorney when drafting a will. It would be reasonable to consult a physician if having persistent medical problems, or a trusted mechanic if buying a used car. All legitimate consultations to be sure. Sometimes the advice is free; sometimes it comes at minimal cost. One does not, however, seek the paid “consultation” of a major political figure if they have business before this person, on say, how best to ensure the favorable advancement of said business. And average Americans certainly don’t pay millions for the “advice.” But in New York politics, words don’t even mean what they’re supposed to, so this should come as no shock. Take retired state Senate Majority Leader Joseph Bruno, whose political consulting charade netted him some $3.2 million in “consulting fees” from interested parties with lucrative businesses under Bruno’s control — when he wasn’t dispensing advice on how to get things passed. 

As one of Albany’s infamous three men in the room, hardly a penny spent by this state didn’t require at least his knowledge, if not outright backing. Bruno, of course, was finally indicted Friday by federal prosecutors who allege he took the huge sums of money improperly and without disclosing to the public his personal financial ties to the very interests he was tasked with overseeing. The only surprising thing about Friday’s news is that it took this long for prosecutors to slap him with the charges.

Joe Bruno was and always will be an embarrassment. A professional huffer-and-puffer, he fawned outrage in front of television cameras any time someone he didn’t like did something he didn’t approve of — an almost daily occurrence for the better part of two decades in office. All the while, he was peddling his own power and parlaying it into lucrative “consulting” fees in the back room. We find it hard to believe that any advice from such a world-class blowhard was worth $3.2 million, except for the tremendous influence he had over the way our money was spent. 

Joe Bruno should get his day in court, then he should get his term in prison. Gov. David Paterson should take this as only the most recent example of rampant corruption in the state capital and force the issue of ethics reform. Public servants shouldn’t also be private consultants. Lawmakers should be made full-time and a law should force them to declare all non-state business to the public. The law should go even further, allowing for the ouster of members found in violation by a bipartisan ethics committee. Otherwise, we’re just waiting for the next Joe Bruno to come along.

The State of New York Under Indictment

Legislative system under indictment
Federal case against Bruno spotlights weak state ethics laws
The Albany Times Union by JAMES M. ODATO - January 25, 2009

At the end of his news conference Friday, after the court appearance that followed his indictment on federal corruption charges, former Senate Majority Leader Joseph L. Bruno suggested that if what he did could be seen as a crime, then other lawmakers may be equally guilty. In fact, in the eyes of good-government groups, Bruno's indictment is equally an indictment of New York's weak government ethics laws. After a three-year investigation, the indictment accused Bruno of dishonest public service over 13 years. The eight counts lay out the case that he enriched himself with $3.2 million from people and organizations seeking his influence in state government. Bruno pleaded not guilty. Federal officials who brought the case, in their own post-indictment news conference, strongly suggested that New York's government ethics laws need to change to prevent dishonesty by lawmakers and to reveal conflicts of interest. It echoed what government reform advocates in Albany have argued for years.

"This is an indictment of not only Joe Bruno, but New York state's ethics laws," said Susan Lerner, executive director of Common Cause, the citizen lobbying organization that promotes open government. "Joe Bruno's indictment emphatically highlights the shameful state of New York's ethics laws, graphically demonstrating why the Legislature should not be expected to police the ethics of its own members." Lerner said the only officials able to root out corruption in state government in recent years are those with federal subpoena power. Even with such tools, federal officials said Friday, it was difficult to assemble a case against a man who was the most powerful legislative leader in Albany from 1995 to 2008. "Mr. Bruno exploited his office by ... not revealing his business relationships and potential conflicts of interest," Acting U.S. Attorney Andrew Baxter said. The indictment filed by Baxter asserts that Bruno made millions from companies for which he was working, and from a consulting firm he created, by helping individuals, unions and other entities pursue state business. It alleges he reported the sources of his income on his required annual financial disclosure forms, but incompletely, by purposely masking details and without telling the Legislative Ethics Committee, which reviewed the disclosures, who was paying him for what. Even if Bruno is not guilty, as he energetically insists, the allegations suggest how easily a New York lawmaker could conceal profiteering.

Law enforcement agents in the three-year Bruno probe had to overcome "the lack of transparency in state government," FBI Special Agent in Charge John Pikus said. The backroom dealing was difficult to penetrate, added Steven Perez, a special agent in charge of investigating racketeering for the U.S. Department of Labor. Bruno was charged with federal mail and wire fraud for allegedly depriving the public of the honest services of a government official — a statute commonly used to pursue public corruption without evidence of actual bribery. In his news conference Friday, Bruno maintained that the "honest services" provisions of federal law could put a target on all legislators who have to work for a living. "I did nothing wrong. I broke no laws," he said. "We are a part-time Legislature. That's what this legislature is. . . . Most of the people in the Legislature work. This is a threat to everybody in government." The former Senate leader said he checked with unspecified "counsel" and "ethics people" to assure his business dealings were legal. Several Senate staffers who worked for Bruno were called as witnesses before the grand jury that indicted him. Despite repeated pronouncement of "ethics reform" laws in recent years, New York's rules for public officials are widely viewed as among the weakest of any large state. Dollar amounts on state financial disclosure forms, which are not published on the Internet, exist as only broad ranges of value — and even those vague range values are withheld from the public. Descriptions of income or gift sources are allowed to be similarly opaque.

Public officials in New York are not required to disclose conflicts of interest. Such conflicts, when they are discovered, are actionable only if ethics officials, who operate in secrecy, deem them to be "significant." And state prosecutors cannot bring criminal charges under the state's ethics laws without a referral from an ethics panel, which consists of members appointed by the very politicians they regulate. Even if prosecutors clear those hurdles and bring charges, a violation of the ethics law is only a misdemeanor, not a felony. What Bruno did — according to the federal indictment against him — is easily concealed by lawmakers because no independent monitors are keeping watch, government reform advocates say. That's one reason, critics say, why it took a federal probe to uncover a similar scheme recently alleged against Assemblyman Anthony Seminerio, D-Queens, who, like Bruno, awaits trial.

The federal indictments are offering reform groups, which repeatedly call New York state government dysfunctional, more ammunition to call for an oversight body to police the Legislature. "There is no watchdog," said Blair Horner, legislative director for the New York Pubic Research Interest Group. "You've had an astonishingly long list of lawmakers getting into trouble. We haven't reached the tipping point yet." Horner said it isn't surprising Bruno didn't take ethics oversight seriously: The ethics panel, chosen by him and Assembly Speaker Sheldon Silver, has never charged any lawmakers with wrongdoing. A reform agreement two years ago resulted in a reconstituted panel — nine members, mostly non-elected appointees of the legislative leaders. However, the ninth member, meant to be a tie-breaker chairman agreed upon by both the Senate and Assembly, has never been named. The panel is currently led by one Assembly member and one Senate member in what one seasoned state official called an "elegant deception" of real reform.

Assemblyman Michael Gianaris, D-Queens, whose district is flanked by lawmakers recently convicted of or charged with fraud — former Assemblyman Brian McLaughlin and Seminerio, respectively — said the image of his profession is getting tarnished. A lawyer with aspirations of becoming attorney general, Gianaris said he is unsure if the Bruno case will spur change. Assembly leaders have been mum on the indictment and Senate leaders issued terse news releases suggesting that Bruno is simply confronting another of life's challenges and it's time to move on. "If someone wants to break the law they're not going to disclose they're breaking the law," Gianaris said. "The disclosure laws need improvement in New York. But that won't solve the problem, because people who want to do bad things will find a way to do bad things." James M. Odato can be reached at 454-5083 or by e-mail at

Saturday, January 24, 2009

Albany Politics: An Unethical Three-Ring Circus

Week's political turmoil reveals the three-ring circus that is Albany
The New York Daily News by Elizabeth Benjamin - January 24, 2009

Only in Albany could the selection of a new U.S. senator turn into a two-month free-for-all. Only in Albany could a once-powerful lawmaker get indicted for stealing $3 million, hold a table-pounding press conference calling the charges "sleight-of-hand," and hardly bat an eye. And only in Albany could all this happen on the same day. Reporters were in a tizzy. Should we go to the press conference where ex-Senate Majority Leader Joseph Bruno is indicted or the one in which he accuses the U.S. attorney of a politically-motivated "fishing expedition"? Or should we race over to Gov. Paterson's announcement that — finally, after 53 days — little-known upstate Rep. Kirsten Gillibrand will fill former U.S. Sen. Hillary Clinton's high heels? For us, it's an embarrassment of riches. For the public, it was just another day of madness in Albany. A day that's enough to make us wonder why we voted for these people. Things haven't been this wacky at the state Capitol since, well, since March. Sure, it seems like a lifetime has passed since then. But it really was just 10 months ago that New York's former governor, Eliot Spitzer, was forced out of office for frolicking with high-priced, tattooed call girl Ashley Dupre. Less than 24 hours after he was sworn in to replace Spitzer, former Lt. Gov. Paterson was standing in the Capitol's Red Room, his shell-shocked wife by his side, fielding questions about their respective infidelities. Only in Albany.

Later came the two-month leadership stalemate in which a trio of renegade Democrats — known either as the Gang of Three or the Three Amigos — held up their party's historic takeover of the state Senate for the first time in more than four decades. Why? So they could get the committee chairmanships they wanted. Of course, those little posts come with five-figure stipends that come right out of our tax dollars. Top this off with the high-profile meltdown of Caroline Kennedy's noncampaign for Clinton's seat and Paterson's love-her/love-her-not routine that climaxed in a he-said, she-said mudsling fest between the Kennedy camp and the Paterson administration. Is anything getting done while all this is going on? No. What is happening while these political sideshows are playing out? The state's multibillion dollar budget deficit continues to grow and grow and grow and.... Yup. That's Albany.

Here's a Related New York Post article

By ANDY SOLTIS, AP - January 24, 2009

Former Senate Majority Leader Joseph Bruno, one of the state's three most powerful officials for more than a dozen years, was indicted yesterday for allegedly taking $3 million in bogus consulting fees and other scams - including selling a "worthless" racehorse for $80,000 to a fat-cat friend. The upstate Republican's schemes to use his public position to enrich himself began even before he landed the Senate's top post on Thanksgiving Day 1994, and they eventually involved 16 labor unions and more than a dozen companies, the eight-count indictment alleged. The 79-year-old former boxer - who quit the Senate last year as the probe was drawing to a close - pleaded not guilty and declared he was the victim of a "politicized" probe and a "fishing expedition that smells really, really bad."

His indictment had been expected for months. It capped a three-year investigation that began with an FBI probe of flights Bruno took on private jets to Florida vacation spots and a Kentucky horse farm thanks to businessmen. The probe mushroomed into wide-ranging inquiry into Bruno's network of wealthy friends, business contacts and a suspicious consulting firm he ran out of his home. According to the 35-page indictment handed up in Albany, Bruno signed an agreement in March 1994 to steer business to Wright Investors' Service, a Milford, Conn.-based adviser to trade unions. The agreement allegedly said Wright would pay Bruno a fee for each union he got to hire the firm. Bruno contacted 16 union benefit funds, the indictment said.

Eleven unions, ranging from Teamsters to corrections officers, agreed to let Wright manage their assets, according to the indictment. In return, Wright allegedly paid Bruno more than $1.3 million over 12 years. But he allegedly concealed the money in a bogus consulting firm, Business Consultants Inc., and by getting Wright's parent company to hire him as a consultant. Bruno was also paid $632,000 over 11 years by an Albany banking and brokerage firm, McGinn, Smith & Co., which received fees for handling trades of union assets. He allegedly misled the firm by saying he cleared the work with the Legislative Ethics Committee.

Bruno created Capital Business Consultants LLC to receive those fees, even though it "did not perform any function," the indictment said. In fact, Bruno never did any "legitimate work," it said. Bruno also received more than $1 million in gifts from three pals doing business with the state, the indictment said. He again hid the money as consulting fees and, in one 2005 case, sold a "virtually worthless" horse from his Mountain View Farm outside Troy to Albany-area millionaire Jared Abbruzzese. None of the companies, unions or other individuals cited in the indictment was accused of wrongdoing. "If Mr. Bruno engaged in illegal activities, Wright was not aware of them," the firm said.

Bruno faces a maximum of 20 years in prison and $250,000 in fines on each of the counts. "Bruno exploited his office by concealing the nature and source of substantial payments that he received from parties that benefited from his official actions and the resulting conflicts of interest," acting US Attorney Andrew Baxter said. But Bruno said federal prosecutors don't have a case. "After being hounded for three years, I am being indicted on a prosecutorial sleight of hand because, after years of effort, they cannot find one example of criminal activity or illegal intent," said Bruno, who represented his Rensselaer County district for 32 years. "I'm going to fight this and I'm going to win."

Friday, January 23, 2009

Bruno indicted, Traded Power for Money

Bruno indicted
Grand jurors accuse Bruno of trading power for money
The Albany Times Union by BRENDAN J. LYONS AND JAMES M. ODATO - January 23, 2009

ALBANY - A federal grand jury today indicted former state Senate Majority Leader Joseph L. Bruno on felony charges alleging he used his position to extract $3.2 million in private consulting fees from clients who sought to purchase his influence. A defiant Bruno blasted the U.S. Attorney's Office, calling it "politicized," and described FBI as "overzealous." Bruno described the 8-count indictment handed up today as "a three-year fishing expedition that . . . stinks." The 79-year-old Republican faces corruption charges that carry a maximum sentence of 20 years in prison.

Bruno pleaded not guilty at his arraignment in U.S. District Court in Albany and was released without bail. In a 35-page indictment filed at noon, grand jurors asked Bruno to forfeit much of his fortune and assets for his alleged crimes. Bruno, who reigned for years as one of the most powerful lawmakers in New York, is charged with using his office to deprive the public of the honest services of government. The indictment marks the culmination of a three-year FBI investigation into the shadowy public and private dealings of the Brunswick politician who rose through the ranks of state government and became arguably the Capital Region's most iconic political leader. Bruno retired from his state Senate seat in July after 32 years in legislative service. He is now a lobbyist, chief executive of friend Kay Stafford's Latham company, CMA Consulting.

The indictment lays out Bruno's alleged deceptions, such as not disclosing his dealings to ethics authorities. It describes "schemes" involving use of his public office to do business with labor unions, who he steered to Wright Investors Service, a Connecticut firm that paid him nearly $1.4 million from 1994 to 2006, and McGinn, Smith & Co., an Albany investment firm that paid Bruno $632,116 from 1993 to 2005. The firms ended up receiving investment advisory fees or brokerage fees paid by the union benefit funds. People named in the indictment were Bruno's friends Leonard J. Fassler, Jared E. Abbruzzese and Russell C. Ball who paid Bruno hundreds of thousands of dollars for alleged consulting services, even though Bruno provided virtually no consulting. Only Bruno was charged, although the actions of his associates were unflattering.

In one case, Abbruzzese paid Bruno $80,000 for a nearly worthless horse raised by Bruno at his thoroughbred breeding business at his farm and home in Brunswick. The investigation had dogged Bruno during the last two years of his political career as information surfaced publicly about the FBI's deep foray into his real-estate dealings, investments, political decisions and his ownership and breeding of thoroughbred horses. The ''honest services'' provision of federal statutes has been used repeatedly by federal prosecutors to take down some of the nation's corrupt government officials and lobbyists. The broadly written law, which was inserted into federal statutes 20 years ago by Congress, prohibits public officials from using the mail or interstate communications to deprive the public of an inherent "right to honest services." Democratic Assemblyman Anthony Seminerio of Queens is awaiting trial under a similar indictment.

The law has become a favored weapon of many prosecutors because it does not require a quid pro quo, which is often difficult to prove in the world of pay-to-play politics where multimillion-dollar deals and campaign fund payoffs are known to be arranged with winks and nods. Bruno maintained that the federal prosecutors invented a crime to stick on him while letting former Gov. Eliot Spitzer off the hook for what Bruno called admitted felonies. The former Democratic governor, a foe of Bruno, resigned in 2008 after he was identified as a patron of an expensive call-girl service. "This is not the first time we have seen deeply flawed, dysfunctional or even illegal behavior by those with prosecutorial power," Bruno said. He said looks forward to a public trial. The investigation began three years ago, when FBI agents from a white-collar crime unit in Albany began examining a series of private jet flights provided to Bruno by people with whom he did business both politically and privately, a source close to the case said. The chartered jet flights, in some cases worth thousands of dollars per hour, ferried Bruno to private vacations in South Florida, political fundraisers, government functions and at least once to Kentucky horse country.

The FBI's interest in the flights was triggered, in part, by a related inquiry by the state's now-defunct lobbying commission, according to a source familiar with the investigation, and focused on Abbruzzese, a Loundonville businessman, race horse enthusiast and jet owner. The FBI's examination quickly expanded and agents began sifting through bank records related to a private consulting firm Bruno ran from his Brunswick home. The hundreds of thousands of dollars that Bruno was paid through that firm serve as the foundation of many of the counts listed in the indictment. 

Bruno abruptly resigned from that firm, Wright Investors Service of Milford, Conn., last year. He has repeatedly declined to disclose how much he was paid as its employee and has refused to identify his personal consulting clients. Five months ago, Bruno resigned from the Senate seat he held since 1976. To many, he left a legacy as an iconic Capital Region politician who rose from an impoverished childhood to become one of the three most powerful elected officials in state government. But he had developed a taste for fine things nice cars, jet travel and expensive suits.    Brendan J. Lyons can be reached at 454-5547 or by e-mail at; James M. Odato can be reached at 454-5083 or at


Former N.Y. Senate Leader Bruno Charged With Fraud
Bloomberg News by Martin Z. Braun - January 23, 2009

Jan. 23 (Bloomberg) -- Joseph Bruno, the former leader of the New York State Senate, was indicted on federal corruption charges. Bruno, a Republican who retired last year after almost 32 years as a state lawmaker representing Rensselaer and Saratoga counties, failed to disclose he was paid more than $2 million to solicit union pension funds on behalf of two brokers, according to an eight-count indictment unsealed in Albany. He is also accused of lobbying for three individuals pursuing state business, receiving $1.2 million. The indictment said Bruno exploited “his official position for personal compensation and enrichment, knowing and believing that his reasonably perceived ability to influence official action would, at least in part, motivate those he contacted to enter into financial relationships beneficial to his personal financial interests.” 

From March 1994 to December 2006, Wright Investors’ Service of Milford, Connecticut paid Bruno $1.37 million after 11 union pension or annuity funds hired the firm to manage a portion of their assets. Bruno “routinely” didn’t disclose to the unions that he was working for Wright nor disclose to the public or lawmakers he was being paid by the firm, the indictment said. He is also accused of taking unspecified actions to benefit the unions. He was arraigned earlier this afternoon before U.S. Magistrate Judge David Homer in Albany. If convicted, Bruno faces a maximum sentence of up to 20 years in prison and fines of up to $250,000 on each count of the indictment.

‘Been the Target’

“I have been the target of a “Get Joe Bruno Campaign,’” Bruno said in a statement issued after he was indicted. Bruno said a jury will find him innocent and politically motivated federal prosecutors overreached in their accusations. Charges that he defrauded the state and citizens of their right to his “honest services” will send “a frightening message to all elected officials who are not wealthy.” Lawmakers could “become target practice with a statute that can infer, insinuate, and imply because they can’t find the facts to make a criminal case.” Bruno, 79, disclosed in December 2006 that the Federal Bureau of Investigation was probing his private business dealings. At a June 2008 press conference in Albany, Bruno said he was retiring and the probe wasn’t part of his decision. “I’ve never been accused of anything and don’t expect to be,” Bruno said. “I’ve never done anything wrong.”

Outside Interests

Since selling a telecommunications business in 1990 he helped found, Bruno worked with Capital Business Consultants of Albany, offering business development and strategy advice. From the Senate, Bruno guided state government along with Sheldon Silver of Manhattan, the Democratic leader of the Assembly, and former Governor George Pataki, a Republican whose 12-year tenure ended in 2006. The Brennan Center for Justice at New York University School of Law ranked the Legislature as the most dysfunctional in the U.S. during a four-year period ending in 2004. To contact the reporters on this story: Martin Z. Braun in New York at

To Read the Indictment CLICK HERE

BREAKING NEWS: Bruno Federal Corruption Indictment Expected Today

Bruno indictment expected
Details not yet known as federal officials assemble in Albany
The Albany Times Union by BRENDAN J. LYONS AND JAMES M. ODATO - January 23, 2009

ALBANY — A federal grand jury investigating former state Senate Majority Joseph L. Bruno is expected to vote today to indict Bruno on public corruption charges, according to numerous sources with knowledge of the case. Grand jurors have assembled inside the federal courthouse in downtown Albany. Acting U.S. Attorney Andrew T. Baxter, who is based in Syracuse, arrived at Albany's federal building just after 10 a.m. carrying two large briefcases and an easel. The work of the grand jury is secret; however, a possible press statement or press conference is being discussed by federal officials for later today. Bruno, who reigned for years as one of the most powerful lawmakers in New York, is expected to be charged with using his office to deprive the public of the honest services of government, though the details of the charges being considered remain a closely held secret. Action today by a federal grand jury in Albany likely marks the culmination of a three-year FBI investigation into the shadowy public and private dealings of the Brunswick Republican who rose through the ranks of state government and became one of the Capital Region's most iconic political leaders. Bruno, 79, who retired from his state Senate seat in July after 32 years in the post, will likely be asked to make his initial appearance on the indictment before a U.S. magistrate. The investigation had dogged Bruno during the last two years of his political career as information surfaced publicly about the FBI's deep foray into his real-estate dealings, investments, political decisions and his ownership and breeding of thoroughbred horses. Bruno's ties to labor unions, and his secretive work as a private business consultant for an unknown number of private clients, including a Connecticut investment firm, were at the heart of he probe.

The charges expected to be detailed in the indictment are believed to be built entirely on an ''honest services'' provision of federal statutes that has been used repeatedly by federal prosecutors to take down some of the nation's most corrupt government officials and lobbyists. The broadly written law, which was inserted into federal statutes 20 years ago by Congress, prohibits public officials from using the mail or interstate communications to deprivethe public of an inherent "right to honest services." The law has become a favored weapon of many prosecutors because it does not require a quid pro quo, which is often difficult to prove in the world of pay-to-play politics where multimillion-dollar deals and campaign fund payoffs are known to be arranged with winks and nods. The investigation began three years ago, when FBI agents from a white-collar crime unit in Albany began examining a series of private jet flights provided to Bruno by people with whom he did business both politically and privately, a source close to the case said. The chartered jet flights, in some cases worth thousands of dollars per hour, ferried Bruno to private vacations in South Florida, political fundraisers, government functions and at least once to Kentucky horse country. The FBI's interest in the flights was triggered, in part, by a related inquiry by the state's now-defunct lobbying commission, according to a source familiar with the investigation.

The FBI's examination quickly expanded and agents began sifting through bank records related to a private consulting firm Bruno ran from his Brunswick home. The hundreds of thousands of dollars that Bruno was paid through that firm serve as the foundation of many of the counts listed in the indictment. Bruno abruptly resigned from that firm, Wright Investors Service of Milford, Conn., last year. He has declined to disclose how much he was paid as their consultant over an approximately 10-year period. Still, the FBI has continued to look closely at Bruno's role in helping Wright secure contracts for investments from New York labor union pension and benefit funds. In September, several New York labor union officials were summoned before the federal grand jury in Albany and peppered with questions about their interaction with Bruno as it related to Wright Investors. Their appearances were part of a flurry of grand jury testimony before the federal panel over the past four months, including as recently as Friday. ''They wanted to know did Bruno recommend them (Wright) and did he disclose that he had an interest,'' an attorney for some of the labor officials, who testified before the panel in September, said. ''He didn't disclose his interest, but he didn't really push. He put in a word for them the same way you might recommend someone try a restaurant.''

At least one of Bruno's consulting customers included Loudonville resident Jared Abbruzzese, a wealthy businessman and horse racing enthusiast who also was behind a consortium that had vied to manage three of New York's storied but financially troubled horse racing tracks, including Saratoga. Abbruzzese, a close friend of Bruno's, bankrolled some of the jet flights, and his name also was listed in federal grand jury subpoenas that have been sent out over the past two years in the probe. Other horse racing enthusiasts and associates of Bruno's were listed in the subpoenas, which sought business records dating to January 2001. The former senator, now CEO for a Latham-based technology firm, CMA Consulting Services, has declined to disclose his income or clients of his home-based private business, Capital Business Consultants. Bruno also has declined to say whether any of his private clients had an interest in state government contracts or funding. The impending conclusion of the 3-year-old investigation has stoked some speculation in federal law enforcement circles that the timing may be tied to next month's change of administration in Washington, D.C., as the Bush era ends and President-elect Barack Obama revamps the Justice Department's leadership. Glenn T. Suddaby was the U.S. Attorney in New York's Northern District for most of the investigation. Suddaby recently was appointed a federal judge and his Justice Department post was filled by acting U.S. Attorney Andrew T. Baxter.

Five months ago, Bruno resigned from the Senate seat he held since 1976. To many, he left a legacy as an iconic Capital Region politician who rose from an impoverished childhood to become one of the three most powerful elected officials in state government. Yet over the past two years Bruno, a Korean War veteran who gained a reputation in the Senate as a hard-nosed fighter, has been dogged by the FBI probe. His former political aides were defensive at times when asked about the investigation, including Bruno's use of private jets. Bruno has repeatedly said he has done nothing wrong. Two years ago, Bruno publicly acknowledged the FBI probe in a hastily called news conference at the Capitol after reporters began asking questions about it. He said he was not a target, that it involved his outside business dealings and that he was cooperating fully. Then, before leaving public office five months ago, he again said he was not concerned by the grand jury investigation and that he's done nothing wrong. ''There is nothing there, and I am told by my lawyers, who I met with yesterday, there is absolutely nothing that we have done wrong,'' Bruno said in July. ''But would it be nice if people would just go on and let me live my life? Yes, that would be very, very nice.'' Brendan J. Lyons can be reached at 454-5547 or by e-mail at

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See Video of Senator John L. Sampson's 1st Hearing on Court 'Ethics' Corruption

The first hearing, held in Albany on June 8, 2009 hearing is on two videos:

               Video of 1st Hearing on Court 'Ethics' Corruption
               The June 8, 2009 hearing is on two videos:
               CLICK HERE TO SEE Part 1
               CLICK HERE TO SEE Part 2
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