Kathrein on Investor Fraud

Morgan Stanley Settles SEC securities fraud over mutual fund fees

CHICAGO (MarketWatch) -- The Securities and Exchange Commission on Tuesday charged Morgan Stanley Investment Management with violations of securities laws for its scheme that charged a fund and its investors for advisory services they never got. An investigation uncovered that Morgan Stanley, as the primary investment adviser to The Malaysia Fund told investors and the fund's board of directors that it was using a sub-adviser to give advice and do research. However, the sub-adviser did not provide the promised services even as the fund annually renewed the contract at an eventual cost of $1.845 million to investors. In order to settle the charges, Morgan Stanley /quotes/zigman/182639/quotes/nls/ms MS -3.82% will pay more than $3.3 million, the SEC said. "We want to take the advisory fee setting process out of the shadows by scrutinizing the role of investment advisers and fund board members in vetting fee arrangements with registered funds," said Robert Khuzami, director of the SEC's Division of Enforcement, in announcing the penalty.

via www.marketwatch.com

It is about time that the SEC turns to protecting mutual fund investors from inflated fees. Last year, in its continuing destruction of investor rights, the US Supreme Court said a fund manager should be liable for charging too high a fee only if that fee is "so disproportionately large that it bears no reasonable relationship to the services rendered." Congress needs to step in and restore investor protections in the mutual fund arena.

Why Investors Need Private Litigation to Protect Their Investments

Investors often question why they need to become involved in private securities litigation. "Isn't the SEC protecting us?" is a common statement. We then point out that the SEC is an underfunded and understaffed (by at least 400 employees), and has other barriers which prevent it from carrying out its mandate, according to a March 10, 2011 report by the Boston Consulting Group.

Now a report released on May 13, 2011 by the Project on Government Oversight questions the SEC's ability to remain independent in light of the a "revolving door" through which SEC staffers leave the agency for jobs at law and accounting firms that advise the public companies they once regulated, according to a Washington Post review of the report .

"The financial meltdown of 2008 brought renewed focus to the integrity and aggressiveness of federal government oversight of the financial system," the report's executive summary states. "One of the most important agencies overseeing financial markets and investor protection is the [SEC]."

The report is based on the groups analyses of hundreds of SEC documents obtained under the Freedom of Information Act—mainly statements that former employees file post-government employment statements if they plan to represent a client before the Commission within two years of leaving the SEC.. According to the report:

• Between 2006 and 2010, 219 former SEC employees filed 789 post-employment statements indicating their intent to represent an outside client before the Commission, with half (403) coming from the Division of Enforcement.
• Some former SEC employees filed statements within days of leaving the Commission, with one employee filing within 2 days of leaving
• There are 131 entities providing legal, accounting, consulting, and other services that were identified as new employers in the statements. Some entities recruited numerous SEC employees during the five-year period.
• POGO identified instances in which former SEC employees may have been required to file statements during the five-year period but did not
• The SEC Office of Inspector General has identified cases in which the revolving door appeared to be a factor in staving off SEC enforcement actions and other types of SEC oversight, including cases involving Bear Stearns and the Stanford Ponzi scheme
• One recent empirical study uncovered several significant and systematic biases in the SEC's enforcement patterns and found indirect evidence to support the contention that "post-agency employment at higher salaries may operate as a quid pro quo in return for favorable regulatory treatment"
• Some statements indicate that the former employee did participate in or have responsibility for a related matter while they worked at the SEC, but that they discussed the matter with an ethics officer who advised them they could contact Commission staff on that issue on behalf of their new client

The Project on says that its findings lend credence to the concerns of SEC critics wary of the commission's ability to remain independent and notes that the troubling traffic moves two ways. "The revolving door also operates in the opposite direction, where individuals come from entities regulated by the SEC to work for the Commission," states the POGO report. "The general concern is that a conflict of interest could bias SEC oversight and undermine public confidence in the SEC's work, as acknowledged by the current SEC Chairman."

But as lawyers who must sympathize with those underpaid SEC staffers, we do feel it is our civic duty to list your "new employers" found in the report. According to the following table, taken from the report, these firms are standing by to offer you a job:

Table 4: Top 11 New Employers Ranked by Number of Mentions in Post-Employment Statements, 2006 – 2010
Firm	Statements Listing Firm as New Employer
DLA Piper[	40
Deloitte & Touche LLP	34
Paul, Weiss, Rifkind, Wharton & Garrison LLP	32
O'Melveny & Myers LLP	30
Merrill Lynch	28
Wilmer Cutler Pickering Hale and Dorr LLP	28
Ernst & Young	27
Davis Polk & Wardwell LLP	21
Reed Smith, LLP	19
Sidley Austin LLP	19
Stradley Ronon Stevens & Young LLP	19

 

 

Reed Kathrein Speaking at Opal Public Pensions Conference

Reed Kathrein, HAGENS BERMAN SOBOL & SHAPRIO, will speak on Legal Issues Facing Public Pensions session at Opal's upcoming Public Funds Summit conference from 12:15 p.m. untill 1:15 p.m. on Thursday, January 13, 2011 The Pheonician in Scottsdale Arizona. The moderator will be Michael VanOverbeke, General Counsel, ANN ARBOR (MI) CITY EMPLOYEES' RETIREMENT SYSTEM. Other panelists include Jonathan Barry Forman, Trustee, OKLAHOMA PUBLIC EMPLOYEES PENSION FUND. Mr. Kathrein will focus his presentation on Pending and Recent Court Decisions and Their Potential Impact on Public Pension Plans in the area of Securities Fraud. Topics include current filing trends, pending Supreme Court decisions and the impact of Morrison on cross-border litigation.

Telenav IPO Fraud and MF Global - What Do the Class Actions and Our Investigation Have In Common

Our firm recently announced an investigation into potential fraud claims against TeleNav Inc. (Nasdaq: TNAV) relating to its May 13 initial public offering. We have now received information that leads us to believe that a strong case exists, worthy of consideration by investors. At the same time, the Second Circuit just issued a decision in  Iowa Pub. Employees' Ret. Sys. v. MF Global, Ltd., that favorably clarifies the applicable law.

 

TeleNav provides cell phone carriers with navigation applications for their cell phones. Sprint Nextel Corp. provided TeleNav with more than 55 percent of its revenues. TeleNav's major competitors include Google, Garman and other companies providing their own navigation services.

 

Just three months after the IPO, TeleNav revealed it was renegotiating a key contract with Sprint that would likely lead to substantially lower revenues. TeleNav's stock immediately plummeted nearly 40 percent.

 

The usual barebones lawsuits were filed by several other law firms alleging TeleNav knew its shares would nosedive before going public in May. However, these lawsuits are the subject of criticism. For example, one blogger argued here that TeleNav disclosed it was renegotiating its contract with Sprint as early as October 2009 in a registration statement with the U.S. Securities and Exchange Commission:

 

"Our current agreement with Sprint expires on December 31, 2011; however, our right to be Sprint’s exclusive provider of Sprint Navigation expires on December 31, 2010. Commencing on December 31, 2010, Sprint may terminate its agreement with us at any time by giving us 30 business days prior written notice. Our failure to renew or renegotiate this agreement on favorable terms or at all, a termination of our agreement by Sprint or our failure to otherwise maintain our relationship with Sprint would substantially reduce our revenue and significantly harm our business, operating results and financial condition."

 

Other risk disclosures in the registration statement warn that the Sprint contract could be impacted by competitors offering equivalent or free competitive service:

 

“Competitors could begin offering (location-based services) that have at least equivalent functionality to ours for free. For example, Google offers free voice guided, turn by turn navigation as part of its Google Maps product for mobile devices based on the Android 1.6 and higher operating system platform, and Nokia announced its latest version of Ovi Maps on its smartphones, which also provides turn by turn navigation functions. Competition from these free offerings may reduce our revenue and harm our business. If our wireless carrier partners can offer these (location-based services) to their subscribers for free, they may elect to cease their relationships with us, alter or reduce the manner or extent to which they market or offer our services, or require us to substantially reduce our subscription fees or pursue other business strategies that may not prove successful.

 

The blogger goes on to write:

 

“It is a common practice for specialized US law firms to seek class action status on such topics (GPS manufacturer SiRF faced the same type of complaint few years ago), but here their case seems particularly weak. It is however a pain in the neck for TeleNav.”

 

Mighty strong risk disclosures, right? Wrong! This is where MF Global and our investigation come in to play.

 

Suppose the facts show that prior to the IPO, TeleNav was so concerned about the upcoming contract negotiations with Sprint and the competition, that it wanted to go public before Sprint pulled the plug on their relationship.  If TeleNav knew nothing more than the risk disclosures above, it is doubtful that they could be held liable for not disclosing their fears and belief so long as they said nothing about their fears and belief.

 

Suppose, however, that TeleNav knew before the IPO that Sprint was complaining about the resources it devotes to TeleNav's product – called "Sprint Navigation" – and told TeleNav management that it was in favor of Google's free navigation services instead of TeleNav's on Sprint's Android devices. Further, suppose Sprint told TeleNav it would not pre-load TeleNav’s product on Sprint's Android devices, but that TeleNav could sell their own services through Sprint Zone, forcing TeleNav to start its own branding efforts.

 

Now we have a case! Just this week a federal appellate court clarified when risk disclosures are material misrepresentations or omissions. In Iowa Pub. Employees' Ret. Sys. v. MF Global, Ltd., the Second Circuit Court of Appeals stated:

 

Investors are interested in issuer statements only insofar as those statements bear on the future. While it is true that predictions about the future can represent interpretations of present facts (and vice versa), there is a discernible difference between a forecast and a fact, and courts are competent to distinguish between the two.

 

A forward-looking statement (accompanied by cautionary language) expresses the issuer's inherently contingent prediction of risk or future cash flow; a non-forward-looking statement provides an ascertainable or verifiable basis for the investor to make his own prediction.

 

The line can be hard to draw, and we do not now undertake to draw one. However, a statement specifying the risk of default is distinct from a statement of present or historical financial instability, even though they both bear upon the same risk. And a statement of confidence in a firm's operations may be forward-looking and thus insulated by the bespeaks-caution doctrine -even while statements or omissions as to the operations in place (and present intentions as to future operations) are not.

 

Thus, the Court found that characterizations of MF Global's risk-management system-that the system was “robust,” for example - invited the inference that the system would reduce the firm's risk. It went on to find that bespeaks caution did not apply insofar as those characterizations communicate present or historical fact as to the measures taken. Cautionary words about future risk cannot insulate from liability the failure to disclose that the risk has transpired.

 

So too with TeleNav, the key question will be whether the "bespeaks caution" doctrine applies to TeleNav's description of its contract with Sprint, the expiration of that contract and the threat of the competitors. Our investigation causes us to believe that the risk of renegotiation of the Sprint contract was not just a possibility, but a current reality in which TeleNav's management knew they were in trouble. It was not a future risk, but one that had already transpired by the time of the IPO.

 

I have lectured to corporate executives over the last 20 some years about this classic type of IPO fraud. It's often the one chance in a lifetime to cash in on millions by selling stock to the public. The temptation to hide or ignore bad news is great and accompanied by the mantra, “just get it done.” Risk disclosures are often written with this in mind, and the lawyers who draft them do a great disservice to their clients and the investors when the risks have already begun to manifest.

 

Hagens Berman continues to investigate this matter, and to represent investors who purchased TeleNav stock before July 30, 2010. You may read more on the Hagens Berman website here, or read the press release here. To be eligible to be a lead plaintiff you must move by November 2, 2010. Contact Reed Kathrein at 510-725-3030 for a consultation or email Hagens Berman at tnav@hbsslaw.com .

The Supreme Court Leaves Domestic Investors Unprotected from Secutiries Fraud

United States investors who  buy or sell securities outside the US, cannot sue in the US or use US law, to recover against foreign fraudsters! Nor can foreign investors trading abroad who are victims of fraud perpetrated in the US by US corporate fraudsters! This dilemma is the new result of the United States Supreme Court's opinion in Morrison v. National Australia Bank. As a result, US investors will now be sent overseas, to forums which are not as investor friendly, to seek recovery.

Over the past 40 years, Courts have followed the "conduct" and "effects" test to exercise jurisdicition over securities fraud if a major portion of the fraud occurred in the US or if foreign conduct produced immediate and substantial effects in the United States. Justice Scalia, writting for the court, held that their was no affirmative indication that the Exchange Act was intended to apply extraterritorially. Its focus in not on where the deception originated, but on purchases or sales of securities in the US.

Justice Breyer concurred in part only so far as the complaint failed to allege that the purchases were "in connection with" either the purchase or sale of a security listed on a national securities exchange" or "any security not so registered" that was purchased or sold in the US. While there is nothing in the Securities Exchange Act that limits the second category to purchases or sales within the US, Breyer would apply the presumption against extraterritoriality.

Justices Stevens, joined by Ginsburg, also concurred, but only in the judgment, saying that they would adhere to the conduct -and-effects test approach followed over the last 40 years, and rejected the presumption against territoriallity. Rather, the real question should be "how much, and what kinds of, domestic contacts are sufficient to trigger application of Section 10b-5." Taking great issue with the majority, Steven wrote:

Repudiating the Second Circuit’s approach in its entirety, the Court establishes a novel rule that will foreclose private parties from bringing §10(b) actions  whenever the relevant securities were purchased or sold abroad and arenot listed on a domestic exchange. The real motor of the Court’s opinion, it seems, is not the presumption against extraterritoriality but rather the Court’s belief that transactions on domestic exchanges are "the focus of the Exchange Act" and "the objects of [its] solicitude." ... In reality, however, it is the "public interest" and"the interests of investors" that are the objects of thestatute’s solicitude.

***

Imagine, for example, an American investor who buys shares in a company listed only on an overseas exchange. That company has a major American subsidiary with executives based in New York City; and it was in New York City that the executives masterminded and implemented a massive deception which artificially inflated thestock price—and which will, upon its disclosure, cause the price to plummet. Or, imagine that those same executivesgo knocking on doors in Manhattan and convince an unsophisticated retiree, on the basis of material misrepresentations, to invest her life savings in the company’s doomedsecurities. Both of these investors would, under the Court’s new test, be barred from seeking relief under §10(b).

The oddity of that result should give pause. For in walling off such individuals from §10(b), the Court narrows the provision’s reach to a degree that would surprise and alarm generations of American investors—and, I amconvinced, the Congress that passed the Exchange Act.Indeed, the Court’s rule turns §10(b) jurisprudence (andthe presumption against extraterritoriality) on its head,by withdrawing the statute’s application from cases inwhich there is both substantial wrongful conduct that occurred in the United States and a substantial injuriouseffect on United States markets and citizens.

Nevertheless, Justice Stevens follows the Court of Appeals decision in concluding that this case, in particular, does not have extensive links to or ramnifications in the US, but rather "has Australia written all over it."

Most important, however, is Justice Stevens concluding paragraph which transcends this case and expresses his heartfelt opinion against the Court's campaign against our securities laws:

The Court instead elects to upend a significant area of securities law based on a plausible, but hardly decisive, construction of the statutory text. In so doing, it paysshort shrift to the United States’ interest in remedyingfrauds that transpire on American soil or harm American citizens, as well as to the accumulated wisdom and experience of the lower courts. I happen to agree with the resultthe Court reaches in this case. But “I respectfully dissent,” once again, “from the Court’s continuing campaign to render the private cause of action under §10(b)toothless.” Stoneridge, 552 U. S., at 175 (STEVENS, J., dissenting).

We could not agree more.

So now what? As a firm we must now look abroad to protect our clients. While we have done so in the past, it will now become a primary function. Unfortunately, those laws are not as developed as well as those in the US, and access to the Courts is much more difficult.

Senators Lose Will to Allow Pursuit of Aiders and Abettors | Reuters

As reported by Reuters here the House approved amendments to the Financial Reform Bill  H.R. 4173. The amendment would reinstate the grounds for private civil actions for aiding and abetting in securities fraud -- i.e., overturning the U.S. Supreme Court decision in Stoneridge Investment Partners v. Scientific Atlanta in which the Roberts Court let third parties who assist the frauds go free. The logic went something like this:

1. Defendants actually and knowingly  assisted in sham transactions that misrepresented the financial results of a public company.
2. Defendants had no duty to the investors of another company, nor did they make any public statements about the transactions.
3. Hence, investors did not rely on their conduct when making their investment decisions!!!!

And therefore, unless Congress says otherwise, the Defendants can now move on and help the next fraudster with impunity.

But, as Reuters also reported, Senator Chris Dodd, who helped lead the charge in 2004 and 2005 to make it more difficult to sue his campaign donators from the accounting and banking industry, has once again stood in the path of accountability. Dodd was instrumental in the passage of the Private Securities Litigation Reform Act that made it impossible to sue anyone who commits securities fraud unless you can get the facts usually soley in the possession of the fraudsters themselves. Now again, the Senate negotiators for the Financial Reform Bill rejected the amendments to reinstate liability in favor of a "STUDY." Reuters quotes Dodd as saying "The idea of having a healthy private practice litigation in this area is critical in my view, but I do believe there are legitimate concerns about this point." So let's have a study.

This is probably the last chance to get such liability reinstated and Dodd well knows that a STUDY is the kiss of death. He is not really standing up for the little guy in protecting his friends. The lawyers, accountants, bankers, who act as gatekeepers cannot be allowed to assist fraud and line their pockets. The main culprit often has too few resources to pay the damages, is bankrupt, or otherwise judgment proof. Even the SEC cannot recover damages from those who aid and abet. In large part that is why we have the financial/banking mess we have now.



Unless Congress Acts -- The Courts Will Belong to Wall Street, Not Main Street

WeI have staked out our position on the Supreme Court's continued chipping away at the ability of the investor to get redress for wrongs committed by corporate American. Let's just realize that our Supreme Court has been co-opted to protect corporations over individuals. Shutting the door on the ability to pursue aiders and abettors, now loosely defined to be over-inclusive by the Supreme Court, is just one of the area's Senator Spector seeks to remedy. See my post below. But Senator Spector has also introduced a bill to remedy an newer evil----forcing the wronged to plead more than ever before required, just to get access to the court system.

Senate Bill 1504, would reverse the Supreme Courts decision this year which gives a federal judge the ability to throw out a lawsuit, before discovery, if he does not think it is "plausible". That's a lot of discretion without any guidance, and keeping the case away from a jury based upon personal biases.  

Senate Bill 1504 is designed to return the standard to what it was prior to 2007, when the Court handed down its ruling in Bell Atlantic Corp. v. Twombly. That case and another — Ashcroft v. Iqbal from the most recent term — have raised the standard that pleaders must meet to avoid having their cases quickly tossed. Specter, in remarks prepared for the Senate floor, accused the Court’s majorities of making an end run around precedent with the two recent cases.

“The effect of the Court’s actions will no doubt be to deny many plaintiffs with meritorious claims access to the federal courts and, with it, any legal redress for their injuries,” Specter said. “I think that is an especially unwelcome development at a time when, with the litigating resources of our executive-branch and administrative agencies stretched thin, the enforcement of federal antitrust, consumer protection, civil rights and other laws that benefit the public will fall increasingly to private litigants.”

At issue is how specific a pleading must be under the Federal Rules of Civil Procedure. Rule 8 requires that a complaint include “a short and plain statement of the claim showing that the pleader is entitled to relief,” while Rule 12 allows for the dismissal of complaints that are vague or that fail to state a claim. Under Iqbal, a 5-4 decision written by Justice Anthony Kennedy, many courts are now requiring more-specific facts that aren’t often available until discovery.

The Iqbal -Twombly debate arrived on Capitol Hill when  the House Committee on the Judiciary Subcommittee on the Constitution, Civil Rights and Civil Liberties held hearings on October 27, 2009. The hearing was entitled "Access to Justice Denied – Ashcroft v. Iqbal." The Committee’s page about the hearing, including links to the witnesses’ testimony can be found here. From Arthur Miller's written comments  here:

 

Not only has plausibility pleading undone the simplicity and legal basis of the Rule 8 pleading regime and the limited function of the motion to dismiss, but it also grants virtually unbridled discretion to district judges. Under the new standard, the Court has vested trial judges with the authority to evaluate the strength of the factual “showing” of each claim for relief and thus determine whether or not it should proceed.

In conducting this analysis, judges are first to distinguish factual allegations from legal conclusions, since only the former need be accepted as true. Some post-Iqbal decisions suggest that the conclusion category is being applied quite expansively, embracing allegations that one might well consider to be factual and therefore historically jury triable.

By transforming factual allegations into legal conclusions and drawing inferences from them, judges are performing functions previously left to juries at trial, and doing so based only on the complaint.

Once trial judges have identified the factual allegations, they then must decide whether a plausible claim for relief has been shown by relying on their “judicial experience and common sense,” highly subjective concepts largely devoid of accepted—let alone universal—meaning.

Further, the plausibility of factual allegations appears to depend on the judge’s opinion of the relative likelihood of wrongdoing as measured against a hypothesized innocent explanation. As is true of the division between fact and legal conclusion, the Court has provided little direction on how to measure the palpably nebulous factors of “judicial experience,” “common sense,” and
“more likely” alternative explanation it has inserted into the threshold Rule 12(b)(6) dynamic.

Once again, a citizen’s due process right to a day in court before a jury of his or her peers is threatened.

The subjectivity at the heart of Twombly-Iqbal raises the concern that rulings on motions to dismiss may turn on individual ideology regarding the underlying substantive law, attitudes toward private enforcement of federal statutes, and resort to extra-pleading matters hitherto far beyond the scope of a Rule 12(b)(6) motion to dismiss. As a result, inconsistent rulings on virtually identical complaints may well be based on judges’ disparate subjective views of what allegations are plausible.

Courts already have differed on issues that were once settled. For instance, the Third Circuit has ruled that the 2002 Supreme Court decision in Swierkiewicz v. Sorema, N.A.,which upheld notice pleading in employment discrimination actions, no longer was valid law after Twombly-Iqbal.27 Courts in other circuits disagree.

Twombly and Iqbal have swung the pendulum away from the prior emphasis on access for potentially meritorious claims; it probably will affect litigants bringing complex claims the hardest. Those cases -- many involving Constitutional and statutory rights that seek the enforcement of important national policies and often affecting large numbers of people -- include claims in which factual sufficiency is most difficult to achieve at the pleading stage and tend to be resource consumptive.

Already, recent decisions suggest that complex cases, such as those involving claims of discrimination, conspiracy, and antitrust violations, have been treated as if they were disfavored actions. Perhaps the propensity to dismiss these claims should come as no surprise: Twombly and Iqbal arose in two such contexts, and lower courts may find it easier to apply the Supreme Court’s reasoning to complaints with seemingly similar facts. Yet ambiguity abounds. Where is the plausibility line and what must be pled to survive a motion to dismiss? How will each judge’s personal experience and common sense affect his or her determination of plausibility? As a result of these and other uncertainties, the value of prior case law and predictability are obscured, and plaintiffs will be left guessing as to what each individual judge will consider sufficient. Throughout, the defendant basically gets a pass.

Moreover, how can plaintiffs with potentially meritorious claims plead with factual sufficiency without discovery, especially when they are limited in terms of time, lack resources for pre-institution investigations, and critical information is held by the defendants? 

Moreover, how can plaintiffs with potentially meritorious claims plead with factual sufficiency without discovery, especially when they are limited in terms of time, lack resources for pre-institution investigations, and critical information is held by the defendants?

Contact your Senators and Congresspersons and ask them to support these bills, before you find that you too have no access to the courts.

It's Time To Reinstate Aiding and Abetting Liability Against Those Who Help Securities Fraud

Now is the time, if ever, for Congress to pass legislation that would reinstate aiding and abetting liability for accountants, lawyers, and others who help corporate executives commit securities fraud that harm investors. The public is outraged from watching all those who assisted in the market meltdown walk away with their huge bonuses.

Senator Arlen Specter, introduced Senate Bill 1551 on July 30, 2009, seeking to do just that. The Bill called the"Liability for Aiding and Abetting Securities Violations Act of 2009," is currently co-sponsored by Edward Kaufman [D-DE], John Reed [D-RI] and Sheldon Whitehouse [D-RI]. The Bill seeks to amend the SEC Act of 1934 subject to liability in a private civil action any person that knowingly or recklessly provides substantial assistance to another person (aids and abets) in violation of that act. The Senator's goal is to restore the ability to sue third parties in securities fraud lawsuits as freely as you could before the U.S. Supreme Court's ruling in Stoneridge v. Scientific Atlanta (Supreme Court docket).

The main provision of the Bill states:

For purposes of any private civil action implied under this title, any person that knowingly or recklessly provides substantial assistance to another person in violation of this title, or of any rule or regulation issued under this title, shall be deemed to be in violation of this title to the same extent as the person to whom such assistance is provided.’.

Senator Spector"s floor speech follows: 

 Mr. President. I have sought recognition to urge support for the legislation I just introduced, the Liability for Aiding and Abetting Securities Violations Act of 2009. My legislation would overturn two errant decisions of the Supreme Court--Central Bank of Denver v. First Interstate Bank of Denver, 511 U.S. 164, 1994, and Stoneridge Investment Partners, LLC v. Scientific-Atlanta, Inc., 522 U.S. 148, 2008, by amending the Securities Exchange Act of 1934 to authorize a private right of action for aiding-and-abetting liability.

 Act's main anti-fraud provision, §10(b), makes it "unlawful for any person, directly or indirectly," to commit acts of fraud "in connection with the purchase or sale of any security." Nearly fifty years ago the Court implied a private right of action under §10(b). The result was that investors could recover financial losses caused by violations of 10(b) and the companion regulation issued by the SEC commonly known as "Rule 10b-5."

Until Central Bank, every circuit of the Federal Court of Appeals had concluded that §10(b)'s private right of action allowed recovery not only against the person who directly undertook a fraudulent act--the so-called primary violator--but also anyone who aided and abetted him. A five-Justice majority in Central Bank, intent on narrowing §10(b)'s scope, held that its private right of action extended only to primary violators.

When Congress debated the legislation that became the Private Securities Litigation Reform Act of 1995, PSLRA, then-SEC chairman Arthur Levitt and others urged Congress to overturn Central Bank. Congress declined to do so. The PSLRA authorized only the Securities and Exchange Commission, SEC, to bring aiding-and- abetting enforcement litigation.

It is time for us to revisit that judgment. The massive frauds involving Enron, Refco, Tyco, Worldcom, and countless other lesser-known companies during the last decade have taught us that a stock issuer's auditors, bankers, business affiliates, and lawyers--sometimes called "secondary actors"--all too often actively participate in and enable the issuer's fraud. Federal Judge Gerald Lynch recently observed in a decision calling on Congress to reexamine Central Bank that secondary actors are sometimes "deeply and indispensably implicated in wrongful conduct." In re Refco, Inc. Sec. Litig., 609 F. Supp. 2d. 304, 318 n.15, S.D.N.Y. 2009. Professor John Coffee of Columbia Law School, a renowned expert on the regulation of the securities markets, has even laid much of the blame for the major corporate frauds of this [sic].

The immunity from suit that Central Bank confers on secondary actors has removed much-needed incentives for them to avoid complicity in and even help prevent securities fraud, and all too often left the victims of fraud uncompensated for their losses. Enforcement actions by the SEC have proved to be no substitute for suits by private plaintiffs. The SEC's litigating resources are too limited for the SEC to bring suit except in a small number of cases, and even when the SEC does bring suit, it cannot recover damages for the victims of fraud.

Last year's decision in Stoneridge made matters still worse for defrauded investors. Central Bank had at least held open the possibility that secondary actors who themselves undertake fraudulent activities prescribed by §10(b) could be "held liable as ..... primary violator[s]." Stoneridge has largely foreclosed that possibility. A divided Court held that §10(b)'s private right of action did not "reach" two vendors of a cable company that entered into sham transactions with the company knowing that it would publicly report the transactions in order to inflate its stock price. The Court conceded that the suppliers engaged in fraudulent conduct prescribed by §10(b), but held that they were not liable in a private action because only the issuer, not they, communicated the transaction to the public. That remarkable conclusion put the Court at odds with even the Republican Chairman of the SEC.

My legislative response would take the limited, but important, step amending of the Exchange Act to authorize a private right of action under §10(b) (and other, less commonly invoked, provisions of the Act) against a secondary actor who provides "substantial assistance" to a person who violates §10(b). Any suit brought under my proposed amendment would, of course, be subject to the heightened pleading standards, discovery-stay procedures, and other defendant-protective features of the PSLRA.

On Thursday, September 17, the Senate Judiciary Committee, Subcommittee on Crime and Drugs held a hearing consider the Bill, entitled  "Evaluating S. 1551: The Liability for Aiding and Abetting Securities Violations Act of 2009." S. 1551.  Sen. Arlen Specter's chaired the hearing. The witnesses were John C. Coffee, Columbia University School of Law; Patrick J Szymanski, General Counsel, Change to Win (a group of labor unions); Tanya Solov, Director, Illinois Securities Department, of behalf of the North American Securities Administrators Association; Robert J. Giuffra, Jr., a partner in Sullivan & Cromwell LLP, NYC; and Adam C. Pritchard, University of Michigan Law School. Coffee, Szymanski and Solov testified in favor of the Bill. Their can be found here:

John Coffee

Patrick Szymanski

Tanya Solov

 

Messrs. Giuffa and Pritchard both testified against the Bill, asking for lesser enforcement of the securities laws, and arguing that private law suits cost millions to those who are sued (forgetting about the billions lost in the recent market crash), and pointing to the evil plaintiffs lawyers who actually make money enforcing these laws ( while conveniently ignoring the millions made by the attorenys now shielded from liability when they help their clients commit fraud). Rather, they prefer that the inept SEC retain sole jurisdiction to go after aiders and abettors. Professor Pritchard wants to do away with actual damages and substitute only the amounts gained by the wrongdoers...effectively making damages so small that no attorney could afford to bring a case. Their testimony can be found here:

Robert Giuffra

Adam Pritchard

 

Senator Patrick Leahy's statement in favor of the Bill can be found here:

 

The Honorable Patrick Leahy

 

 

 

Market Manipulation Cases Can Never Be Certified, So Says Ninth Circuit?

In what will hopefully be a short-lived opinion, a panel of the Ninth Circuit issued a per curiam opinion which appears to state that plaintiffs can never certify a class action for market manipulation....only for outright misrepresentations or ommissions---a curious if not frightening holding at a time when Wall Street has proven itself to be ....hmmm...shall we say less than ethical.

The issue: Whether stock purchasers are entitled to utilize a lesser variant of the "fraud on the market" doctrine, called the  "integrity of the market" doctine, to create a rebuttable presumption of reliance, when a stock is maniplutated in a non-verbal way.

In Desai v. Deutsche Bank Securities (9th Cir. - July 29, 2009), a Ninth Circuit panel held that the lower court was correct in refusing to certify a class action based on market manipulation of the stock of GenesisIntermedia, Inc. by various bad actors, including various entities of Deutsche Bank, and one of its Canadian employees. The market manipulation scheme was complex,  the Court accepted that "the scheme had driven GENI's Stock price from $12 per share to over $52 per share." It now trades for pennies. Plaintiffs sued and sought to certify a class of those who purchased the stock during the market manipulation.

Judge Wilson, in the Central District of California, refused to certify the class because each individual member of the class would have to prove its own personal reliance, presumably, the lack of market manipulation, and therefore individual questions of fact predominated. The appellate panel, consisting of Judge John T. Noonan, who wrote the per curiam opinion, and Justices Diermuid F. OScannlain, and Susan P. Graber, agreed.

Justices Noonan and Graber believed that they could reverse the lower court only for a clear abuse of discretion. Plaintiffs had conceded that they needed to prove reliance. ( I'm not sure I would have conceded reliance in a market manipulation case, though I would have conceded lack of knowledge is required). Justice Noonan then drew the battle lines:

Reliance can be presumed in two situations. In omission cases, courts can presume reliance when the information withheld is material pursuant to Affiliated Ute Citizens v. United States, 406 U.S. 128, 153-54 (1972). Reliance can also be presumed in certain circumstances under the so-called “fraud on the market theory.” Basic INc. V Levinson, 485 U.S. 224, 241-49 (1988), Precisely to which cases this presumption applies—that is, to misrepresentation, to omission, to manipulation cases, or to some combination of the three—is an issue the parties contest on appeal. The two presumptions are conceptually distinct.

As explained by the Court, the fraud on the market theory is “based on the hypothesis that, in an open and developed securities market, the price of a company’s stock is determined by the available material information regarding the company and its business.” Basic v. Levinson, 485 U.S. at 241 (internal quotation marks omitted).

So far so good!

But then , Justice Noonan loses his way by picking and choosing verbage from cases that state that the fraud on the market presumtion is available "only" when a plaintiff alleges a material misrepresentation or omission realting to a stock sold in an efficient market. On examination, however, it appear these cases are not market manipulation cases, probably because, up until now, they have been so rare or well hidden.

But plaintiffs had conceded that they could not prove an efficient market. (An efficient market quickly digests new information...from almost any source...causing the stock price to quickly adjusts to incorporate that new information. A thinly traded stock might not absorb the information quickly and therefore any news may not create a price reaction for weeks. In such a case, the disparity between individual investors knowledge becomes an issue. ) Having so conceded, they could not utilize the traditional definition of the fraud on the market presumption.

As for the Affiliated Ute presumption,the lower court rejected the theory that a manipulation was, in essence or fact, an omission. ( A holding with which I strongly disagree).

Applying a "clear abuse of discretion" standard, Judge Noonan agreed. The  Affiliated Ute presumption has only been applied to cases of omission when there exists a duty to speak.  The Court refused to extend the presumption to  manipulative conduct which  "has always been distinct " from omissions., for example, in Rule 10b-5. The Court then claims to "follow" the 10th Circuit in  Joseph v. Wiles, 223 F.3d 1155 (10th Cir. 2000) which is not a market manipulation case. In fact the word "manipulation"only appears once in the lengthy opinion. For those who remember the 1989 Miniscribe class action, Wiles is a related individual case based upon a fraud whereby Miniscribe cooked its books by shipping bricks instead of product to warehouses, thereby overstating revenues and earnings....one of the good ol' frauds).

Regardless, to the extent that an omission might have existed, the plaintiffs failed to allege a duty. And the Court refuses to even attempt to discuss any duty of market participants to the market.

Next plaintiffs argued for a modification of the  fraud on the market theory to fit such a situation, and claimed a rebuttable presumption based upon investors reliance upon the "integrity of the market." The lower court rejected this too.

Judge Noonan first concedes that investors rely on the integrity of the market, citing Basic :

[T]he theory presumes first that “[a]n investor who buys or sells stock at the price set by the market does so in reliance on the integrity of that price.” Id. at 247. Second, “[b]ecause most publicly available information is reflected in market price, an investor’s reliance on any public material misrepresentations . . . may be presumed for purposes of a Rule 10b-5 action.” Id.

He notes plaintiffs argument that investors "typically rely on the 'integrity of the market,' that is, that no one has destroyed its efficiency by manipulation [and] when manipulation allegedly destroys the efficiency of the market, and with it the reliability of the market’s price." And he does not disagree. But when asked to find, that as a matter of law, plaintiffs are entitle to such a presumption, Judge Noonan can only summon the argument, "We are chary."

The Court argues, no authority compelled the lower court to adopt this new theory and that the Supreme Court has evidenced a "restrictive view" of private suits, and to not extend 10b-5 beyond its present boundaries, citing Stoneridge, 128 S. Ct. at 773.

The Court unfortunately pulls the Stoneridge quote out of context. In Stoneridge, the issue was framed as creating a private cause of action for aiders and abettors...a cause of action rejected more long ago in Central Bank. Hence the full quote is:

Concerns with the judicial creation of a private cause of action caution against its expansion. The decision to extend the cause of action is for Congress, not for us. Though it remains the law, the §10(b) private right should not be extended beyond its present boundaries. See Virginia Bankshares, supra, at 1102 (“[T]he breadth of the [private right of action] once recognized should not, as a general matter, grow beyond the scope congressionally intended”); see also Central Bank, supra, at 173 (determining that the scope of conduct prohibited is limited by the text of §10(b)).

Plaintiffs were not seeking to extend 10b-5 or create a private cause of action. The law clearly forbids market manipulation and private causes of action have existed under this law for decades.

Justice Noonan, thus, avoids any analytical examination of the requested presumption. Instead he concludes merely "that the district court did not abuse its discretion in refusing to adopt the integrity of the market presumption." In other words...he punts on what the law is or should be.

O'Scannlain, on the other hand, goes after his colleagues for dodging the legal issue, making out a good argument for en banc review:

Unfortunately, however, we are left to conclude abruptly with a declaration of the result, for we cannot agree on the correct approach. I believe that, because the validity of a presumption of reliance in securities class actions is a matter of law and because errors of law are per se abuses of discretion, we must explicitly decide whether Investors are entitled to this novel presumption as a matter of law. I write separately to explain my view.

Even so, O'Scannlain goes on to find the presumption legally unsupportable and logically inadvisable. On the legal side, he can only summon citations to  non-market manipulation cases that have no application to these facts. On the logic side, he actually makes plaintiffs case. He starts by admitting:

Most investors do, I think it fair to say, assume that the markets are not corrupt. Cf. Basic, 485 U.S. at 246-47 (“It has been noted that ‘it is hard to imagine that there ever is a buyer or seller who does not rely on market integrity. Who would knowingly roll the dice in a crooked crap game?’ ” (quoting Schlanger v. Four-Phase Sys. Inc., 555 F. Supp. 535, 538 (S.D.N.Y. 1982))).

But then he concludes, in logic that escapes rigor, that if the presumption were adopted, then no plaintiff would ever have to prove reliance. In so concluding, he simply forgets that plaintffs seek only to apply this presumption  to market manipulation cases....which the Court has just found to be distinct from misrepresentation and omission cases, legally.

Similarly he argues that the theory "would permit a presumption of reliance no matter how unlikely it is that the market price in question would actually reflect the alleged manipulation." Again, how is it that  the presumption of reliance would not still require the plaintiffs to prove that the price during the entire class period was inflated by the manipulation, and by how much? O'Scannlain does not say.

Revealingly, O'Scannlain seems to back track and recognize the problems with his concurring opinion in his concluding. This footnote accurately captures the entire issue...and best statement for l an en banc court to tackle:

I recognize the possibility that certain allegations of manipulative conduct might change the application of the fraud on the market theory. This is because the plaintiff in manipulation cases often alleges that a defendant directly manipulated the price. Certainly, a plaintiff must still show that the market in question could absorb into the price the misinformation communicated by the alleged manipulation. But need a plaintiff show the same type of proof of an efficient market in a manipulation case as is required in a misrepresentation case? Although I note the doctrinal wrinkle, this is a question I would agree we actually do not need to reach, because Investors forsook the fraud on the market theory.

Justice Graber, in her concurring opinion, defends Justice Noonan's contention that the Court need not reach the legal question:

All we have to decide is whether the district court had to recognize that new theory. If so, then the court made a mistake of law (and hence abused its discretion, see Koon v. United States, 518 U.S. 81, 100 (1996) (“A district court by definition abuses its discretion when it makes an error of law.”)).

I agree with O'Scannlain that the Court should have addressed, as a full panel, a broader application of the fraud on the market theory in market manipulation cases. An efficient market should not and, indeed, cannot be a requirement where there are no statements to be absorbed by the market participants in making their decisions. The Court should not have said that a lower Court has no duty to find the right law for the right circumstances, even if it is a new application of a principle. How else does law evolve. It has to start in the lower Courts. Justices Noonan and Graber, shirked their duty.

But in the end, it may not matter that much to the plaintiffs bar. The reason why there is no authority on the subject is, as O'Scannlain states, simply reflects "the relative rarity of" manipulative conduct cases. So the impact will be minimal on securities fraud cases.....except now that the fear of a lawsuit is gone, maybe the fraudsters will start crawling through the cracks.

Shaun Martin's Blog California Appellate Report, has a very good discussion and first analysis of the case at Desai v. Deutsche Bank Securities (9th Cir. - July 29, 2009).

A Fraudster's Mia Culpa: Marc S. Dreier---I Just Wanted Respect

        If you have seen my posts on Madoff, you can tell that I am curious about the criminal mind. With normal securities fraud I have always subscribed to the thought that people simply get caught up in little lies, which get bigger, and then out of control. It mostly happens as a series of events, gets covered up, until bad economic situations cause the fraud to be revealed. But rarely have I seen the two lives these people live as we have seen with such highly regarded individuals as Madoff, and now Marc Drier.

        In a recent letter, Dreier wrote to convince the Judge who is going to sentence him, we see another amazing sad story of refusing to fail at all costs...and perhaps a true lack of self esteem. While Madoff never appeared to lack self-esteem, he did grow up on the wrong side of the tracks...so to speak...for the social circles he wanted to accept him so badly. Dreier just outright confesses to this desire. His letter is reprinted below in its near entirety. If you are unfamiliar with the crime...just read on. Dreier lays it our for you. Read it for what it reveals...and skip the excuses:

Marc S. Dreier

c/o Law Offices of Gerald Shargel

570 Lexington Ave., 45 th Fl.

New York, NY 10022

 

July 7, 2009

 

Dear Judge Rakoff,

 

Please consider this letter in connection with my sentencing on July 13, 2009.

 

I know of course that no words can diminish the harm I have caused to so many people. Those who were victimized by my bogus loans lost millions of dollars. Clients of my law firm lost escrow funds they entrusted to me. The attorneys and staff at my firm who put their faith in me lost their jobs. My friends and colleagues have been tainted by their association with me. And the families of all these people have no doubt shared in the suffering — as has my own family. My children have lost the father they knew, as well as their good name and the  happiness they deserve. I have betrayed the people I care about most, and I suffer every day from the shame and self-loathing and regret with which I will always have to live.

 

My crimes are inexcusable. I expect and deserve a significant prison sentence.

 

Nevertheless, I am writing to give some context to what I did — certainly not to minimize my crimes but to try to explain how a person with my background and advantages came to do the unconscionable. Perhaps in learning how I made these terrible decisions which have ruined my life, others may avoid such mistakes. I have requested that my attorneys file this as an open letter, available in the public record, in the hope that it may do some good as a warning to others not to follow in my path.

 

I was raised in New York by a loving family. in a comfortable home. I always succeeded

in school. I attended Yale College and Harvard Law School. After law school I spent 20 years in several prominent law firms, first as an associate, then as a partner. I performed well, but I was achieving less satisfaction and recognition than I expected. Colleagues of mine and certainly clients of mine were doing much better financially and seemingly enjoying more status. By my mid-forties I felt crushed by a sense of underachievement.

 

So I started my own firm in 1996. My intention was to try to attract lawyers who, like myself, were dissatisfied with large firms and were looking for a more gratifying way to have a sophisticated practice. I had virtually no cash and very few clients. but I was able to grow the firm modestly over the next few years by investing my life in it.

 

I had planned poorly. however, for the expenses. I couldn't get bank loans without better credit or collateral, so I was funding the firm partially with advances from some clients but primarily through "factors" who charged exorbitant fees and interest and were highly intrusive in monitoring the firm's accounts. By 2001 I was deeply in debt.

 

In January 2002, my wife sued for divorce. I had been married for 15 years. We have two children. We entered into a settlement agreement under which I took on financial obligations to her and our children which were actually far more than I could afford. I believed that my fledgling law firm could not survive a contested divorce.

 

All of this left me feeling overwhelmed — by my debt, by a disappointing career, by a failed marriage. And so, incomprehensibly, in 2002 I started stealing. First, I invaded some settlement proceeds due a client. Then I arranged a few bogus investments with some individuals. And soon I stumbled upon the brazen idea of arranging fictitious loans from hedge funds, ostensibly to my principal client (the real estate developer referenced in the Indictment), and diverting the loan proceeds to myself.

 

As I sit here today, I can't remember or imagine why I didn't stop myself. It all seems so obviously deplorable now. I recall only that I was desperate for some measure of the success that I felt had eluded me. I felt that my law firm was my last chance to make a mark for myself, and I was fearful of seeing it fail. I know of course that this amounted to nothing more than self pity, but this was my state of mind when I became a criminal. I gave in to being overwhelmed by the anxieties of life that we are all expected to cope with every day, and most people do, but I just could not manage to do so. I had no one close to me with whom I could talk. I had isolated myself, both personally and professionally. I lost my perspective and my moral grounding, and really, in a sense, I just lost my mind.

 

At the beginning, I spent most of the money on growing the law firm. Much of the money also went to servicing the "debt" itself. But, as time went on, I was more and more self-indulgent.I bought extravagant things — a beach house, an apartment, a boat, expensive art. Obviously, other men suffer through divorce and "mid-life crisis" and manage not to steal. And, other people grow their business without resorting to crime. I just wasn't in control of myself.

 

It is hard to explain how my crimes in 2002 reached the level that they did by 2008. Certainly I never intended when this began to steal on the scale I eventually did. I took the first money thinking that I could and would repay it shortly with revenue derived from the law firm. Soon, however, I exhausted the money, and it was evident not only that I would be unable to repay the initial "loans" but that I would need more. I had stepped in a quicksand of spending. By 2008 I had hired over 250 lawyers and opened additional offices in Los Angeles. Pittsburgh and Connecticut. The expenses were more and more uncontrollable, and the "loans" became more and more expensive. As the credit markets worsened, hedge funds were demanding much higher interest rates and, in many cases. substantial discounts to principal. In some cases, when I desperately needed new money to pay back loans becoming due, I was selling loans for 60-65 cents on the dollar, meaning that I was paying back far more principal than the hedge funds were actually paying me, which obviously was dramatically deepening the hole I was in.

 

In this way, without ever actually planning to. I found myself running a massive Ponzi scheme with no apparent way out. No doubt as is typical in Penn schemes, there was always the unrealistic expectation, or at least the hope, that I could use the "borrowed" money to eventually make it all work out. Obviously, and predictably, I was unable to do so.

 

When I was no longer able to pay off old "loans" to the real estate developer by creating

new ones, I placed a few other fictitious loans, in much the same manner, by using instead as the purported borrower a Toronto pension fund that I had once represented. Finally, when there were no loans I could invent, I began to pull money again from a few of the firm's escrow accounts, knowing of course that it was terribly wrong but still thinking that I could somehow restore the funds in short order. Typically, I did restore this money, but in early December 2008 I was unable to restore about $40 million to one such client account as the due date for its disposition was nearing. As a result, I engaged in the most desperate and irrational act yet - impersonating an attorney from the pension fund in Toronto in order to "close" a loan from a hedge fund which would have given me the funds to return the escrow money. I knew very well that this time I would most likely be caught. I was caught, and that escrow money was not restored.

 

In some sense, being caught was a relief. I had been living a self-inflicted nightmare,

scrambling every day to sustain the charade. I had three "full time" jobs: First, I was managing a large active law firm, with all the daily challenges that come with such responsibility. Second, I was head of the firm's litigation department, with a very heavy active practice and caseload of my own. Finally, I was managing a huge portfolio of fraudulent loans, which required me to constantly prepare and update bogus financial statements and loan documents, field inquiries from lenders and prospective lenders, arrange payments of principal and interest on existing loans, obtain new loans as old ones matured, and do all that was necessary to keep the scam a secret. At the same time, I was trying to spend as much time as possible caring for my son, who lived with me full-time, and my daughter, who lived about half the time with each parent. It was all I could do to get through each day, and each day it got harder. It was a frantic life which I had created for myself, and it left me exhausted and impaired.

 

Your Honor has rightfully observed that as a lawyer I have dishonored the legal profession, and I am very painfully ashamed of that. My whole ambition in life was to be a lawyer who would distinguish himself and honor the profession. Over the course of 33 years of practice, I represented many clients well and devotedly. I made my work as a lawyer the center of my life.

 

Obviously, I then strayed very far from those goals. I lost myself to my ambition and

sacrificed everything else.

Recently, I have had the opportunity to read the letters sent to the Court by the victims of

my offense. I am shamed by these letters. During the time I was committing my fraud. I tried to convince myself that I was hurting only "institutions' . and not "individuals - (as if that were less contemptible), because I was borrowing almost entirely from hedge funds. I knew of course then and I know now that this was all nonsense - my fraud devastated "real people" in a very real way. The letters from these individual victims show their suffering first-hand. I will only add that I believed these individuals would not be harmed. because I always made certain that there were sufficient funds still available to repay them when their money came due. At the time of my arrest, there were in fact sufficient funds in the firm's account (over $10 million) to repay all f these individuals. After my arrest, while I was jailed in Toronto, I instructed the controller of the firm to transfer $10 million to a separate non-law firm account, believing that by doing so I could shield the money owed to these individuals from any competing claims until I returned to New York. As I understand it now, however, several individuals remain unpaid in the wake of the firm's collapse, and these individuals who trusted the firm I controlled have been terribly harmed. I never intended for them to lose their money, but obviously I am responsible for even he unintended consequences of my wrongdoing.

 

Since my arrest, I have done whatever little I can to start to make amends for my crimes.

From the outset I acknowledged my guilt. I never considered putting my victims through the burden of a trial. I have also cooperated fully with the Receiver and Trustees appointed by the ourt. In numerous meetings and discussions I have tried to help them identify and recover funds and other assets to start to compensate those who are owed money.

 

More than that, I can only explain to the people I betrayed how I came to make these mistakes and express my profound remorse. In the brief time I may have to speak at my sentencing, I hope to express my remorse to those I have hurt. Perhaps at least they will feel some degree of my shame, which I will have to live with for the rest of my life.

 

For rne, the punishment that I receive from this Court will only be part of my sentence. I have already been disgraced beyond anything I could ever have imagined. Despite whatever good I once accomplished in my life, and what I had hoped to accomplish, I will always be remembered as a thief. I have lost all my friends. I have lost my law firm, my law license and all that I ever owned. 1 have seen my family suffer the unimaginable. I have lost my past and y future. I have lost everything a man can lose. And now I will lose my freedom as well, and rightly so.

 

All that I have left in my life is the prospect of still sharing in my children's lives, both while I am in prison and, I pray, for some time thereafter. My son is 19; my (laughter is 17. We are very close. I have devastated their lives, and unfortunately nothing I do now can diminish that. I can only try to be there for them to whatever extent I can.

 

I don't know what gives some men the strength of character to lead virtuous lives for all of their lives, and what causes others, such as myself, to lose their way. There is no excuse

whatsoever for what I have done. I have explained it the best I can. 1 will try to learn from this, and hopefully others will as well.

 

Respectfully yours.

Marc S. Dreier