Battery Park, June 25, 2008.

People clamor for the world famous milkshakes and grilled cheese sandwiches of The New York Milkshake Company.

Only in New York would there be a lawsuit over it all. CR

I know it when I Google it.

A defense attorney in a Florida obscenity trial is going to try to persuade a judge that trends reflected in local Google search data are relevant to prove a community’s standards and values as a defense to criminal charges. Lawrence Waters represents Clinton Raymond McCowan, an alleged pornographic website operator. Waters plans to show a jury that Pensacola residents are more likely to search for terms like “orgy” than for “apple pie”. Therefore, he will argue, that Mr. McCowan’s website is not obscene because it does not offend local standards of decency. The prosecutor may object to the admissibility of the Google data on relevance grounds and may argue that search data does not necessarily reflect the values of a community. The persistent and creative Mr. Waters has nevertheless served Google with a subpoena for specific search data on sexual topics web surfed by local users. The trial is scheduled for early July.

Although former United States Supreme Court Justice Potter Stewart’s famous statement that he knows obscenity when he sees it is not the law of the land, a community’s standard of decency is an illusive concept. Miller v. California requires that a prosecutor must prove beyond a reasonable doubt that the material in question offends the local standards of the community. Kathleen A. Bergin, an Associate Professor at South Texas College of Law, has covered this case in her First Amendment Law Prof Blog. She says she’s “not sure which is more concerning – the pervasiveness of web pornography or being reminded of Google’s ability to track my personal habits”.

I have to say that as a resident of Sodom by the Sea, I am much more concerned about the big brother implications of Google’s ability to slice and dice my personal habits than I am about the proliferation of porn on the internet. You mean to tell me that the internet wasn’t invented as the premier vehicle for the delivery of pornography into American homes?

As a lawyer, I am impressed with the imaginative theory of defense posited by Mr. Waters in this Florida smut case. Certainly a jury can best be entrusted to decide whether evidence of Google search trends reflects community attitudes. Whether they know obscenity when they see it or Google it should be for twelve citizens to determine. This potential evidence seems relevant to me. CR

Netherlands monument, Battery Park, June 11, 2008.
This monumental flagstaff was given to the City by the Netherlands in 1926 to mark the tercentary of what they then claimed was their purchase of Manhattan. Now they're not so sure.
See "The Purchase of Manhattan: Myth or Swindle?" on the website of the National Library of the Netherlands. ER

Hold ’em or fold ’em Bear Stearns style

Former Bear Stearns hedge fund managers Ralph Cioffi and Martin Tannin were arrested yesterday at their homes in New Jersey and Manhattan, and charged by the U.S. Attorney’s office in Brooklyn with securities fraud in connection with the allegation that they lied to investors about the health and safety of their funds. The indictment alleges that even though they knew the market for securitized interests in subprime mortgages was in dire trouble, Cioffi and Tannin told investors that the funds were in good shape, excellent buying opportunities existed, and they themselves invested their own money in the funds and added to their positions. Meanwhile, the charges cite emails between the two saying the subprime market was “toast” and the funds were in deep trouble. Ostensibly, the managers failed to disclose to remaining investors that others had withdrawn significant amounts from the funds. Lawyers for both men have denounced the prosecution’s case. One of Cioffi’s lawyers, Edward Little, stated: “Because his funds were the first to lose might make him an easy target, but doesn’t mean he did anything wrong.”

The issue in this case will be the extent to which it is proper for an investment adviser to characterize risk in a positive way and encourage investment while still maintaining personal doubts about the viability of a particular market. This is not a case of premeditated fraud in which phony companies were set up and flat-out lies were told to investors. To what extent can an adviser remain upbeat in the face of a declining financial situation in the hope that things will come around or a downturn will present a real buying opportunity? The massive extent of the subprime failure was beyond anyone’s crystal ball capabilities to predict. Now, in order to give the appearance of punishing those responsible, federal prosecutors are bent on dissecting every move these beleaguered advisers made. As I told the Newark Star Ledger, this effort to clean up Dodge is misguided. CR

Battery Park, June 11, 2008. Liberty takes a break. ER

Subprime debut?

Kate Kelly reports in today’s Wall Street Journal that indictments appear to be near in the year-long investigation of former Bear Stearns hedge fund managers Ralph Cioffi and Matthew Tannin. It was the collapse of their funds in July 2007 that marked the beginning of the current credit crisis.

The probe by the Brooklyn U.S. Attorney’s office focuses on the management of two high-profile bond portfolios. The issue is whether Cioffi and Tannin misled investors in these portfolios by misrepresenting the status and safety of the investments, which were tied to the mortgage and credit markets. Around the same time that Cioffi told investors he was “cautiously optimistic” about the safety of the instruments, he was moving $2 million of his own money out of one of the troubled funds. Then these markets plummeted, igniting broad problems within the economy.

This case is being closely watched on Wall Street. If these indictments are obtained, they would represent the first charges against executives in connection with the subprime mortgage market meltdown. This might signal a willingness on the part of prosecutors to aggressively pursue more cases against individual executives in connection with the broad failures in mortgage-related securities.

A few months ago, Cioffi was said to be planning an aggressive defense. One potential avenue will certainly be the unexpected and massive nature of the subprime credit failure. How could anyone have predicted its breadth and power? Moreover, simply because a manager decides to move his own money, this does not make him a liar. Why can’t he be both “guardedly optimistic” as a matter of professional opinion and extraordinarily cautious with his own dough?

For more on the potential for individual prosecutions in the wake of the subprime mortgage crisis and the available defenses, there is an article in this month’s Corporate Counselor newsletter with my byline on it. I don’t claim to have a crystal ball, and I promise not to say I told you so if there is an indictment. CR

June 11, 2008.
The wild turkey of Battery Park surveys his domain. ER

Go directly to jail.

On Monday, Sam Israel was supposed to directly surrender to federal prison in Ayer, Massachusetts, to begin a 20-year sentence for securities fraud in connection with his tenure as the manager of the Bayou Group hedge fund. Instead, today he is missing. His GMC Envoy was found abandoned near the Bear Mountain Bridge, which spans a remote and wild portion of the Hudson River. Someone scratched the message “Suicide Is Painless,” the theme song from the TV show M*A*S*H, into the layer of dust on the SUV. While the bridge is quite isolated and imposing, a law-enforcement source stated, “We’re not searching the river because it is widely presumed he didn’t jump.” Ross Intelisano, a lawyer for victims of Israel’s investment fraud, said, “Unless they find a body, I think he’s on the lam.”

Back in April, I wrote about our country’s “rogue state” status, in which draconian sentences are imposed even in nonviolent cases. I cited Israel’s 20-year sentence as an extreme example of punishment run amok. Despite the fact that Israel cooperated with government prosecutors and then pled guilty, he received an extraordinarily tough sentence from Judge Colleen McMahon. While the Department of Justice claims that the suicide rate for inmates now is much lower than it was 20 years ago, I can tell you from experience that people who face even a small amount of time behind bars often become unbearably anxious. If the authorities do discover Sam Israel’s body, those who are calling the disappearance his “greatest con” should be truly ashamed. On the other hand, if the Feds find him on a beach in Tahiti drinking a Mai Tai, it's going to be harder for all of us defense attorneys to get judges to allow our clients to surrender directly to prison instead of being thrown in the can at sentence.

Broadway and Wall, June 11, 2008. Our sister building, the U.S. Realty Building and the Woolworth Building. CR

Reefer Madness and the Potsicle

New York Post reported that six people, three from Alabama and two from Connecticut, were arrested at New York City’s Puerto Rican Day Parade for selling so-called “marijuana lollipops.” The report states that the alleged sales staff, working from a green van decorated with pictures of scantily clad women, told undercover cops that the pops and Gummi bear candies they were hawking contained marijuana. However, most manufacturers of pot flavored candy clearly state that while the flavoring ingredient, hemp oil, makes “pot suckers” with names like Purple Haze and Kronic Kandy taste like the real thing, there is no drug in the confection.

The tale will be told in the lab report. In every drug case, the prosecution must submit a lab report to the court where the case is filed which demonstrates that the substance being peddled is indeed a controlled substance. The candies will be subjected to a compound analysis which may or may not show that the active chemical ingredients in marijuana were present. Various officials such as Connecticut Attorney General Richard Blumenthal and Pennsylvania state representative Thomas Corrigan have actively sought to outlaw all marijuana flavored candies such as the venerable “Stoner Pop.” Corrigan states, “It is really frightening to develop a taste for marijuana in children through lollipops." Here in the new millennium “reefer madness” has now extended to candies which contain hemp oil. However, no matter how hysterical politicians get, you still need a positive lab report to prosecute a marijuana case in court. CR

The Bowling Green entrance to Battery Park, May 29, 2008.
New York is one of five states in which it is illegal for the public to use Segways. ER

Deal or no deal?

On Wednesday, Antoin “Tony” Rezko was convicted in Chicago of 16 of the 24 counts he was charged with, including wire fraud and money laundering. Rezco was a prominent fundraiser for Illinois senator Barack Obama and governor Rod Blagojevich. Obama, whose relationship with Rezko dates back to 1990, was also involved in a personal real estate deal with Rezko in 2005, when Rezko was already under federal investigation. Obama has characterized his involvement in this deal as “boneheaded.” Republicans wasted no time in exploiting the news of the conviction by sending an email questioning Obama’s judgment to reporters.

Rezco’s sentencing is scheduled for September 3. However, rather than asking the trial judge for a continuation of his release on bail pending sentence, he immediately surrendered and entered federal custody while he is awaiting sentence. His attorney stated that Rezco wanted to begin his sentence without delay. Even though Rezco was found not guilty of eight counts, including extortion, under federal sentencing law the judge may increase a sentence by considering acquitted conduct. Thus Rezco is facing many, many years in prison. Meanwhile, the government’s star witness against Rezko, self-admitted political fixer Stuart Levine, is likely to receive only a little over five years under the terms of his plea agreement, rather than the possible life sentence he was facing before he decided to cooperate with the government. This is not unusual. Prosecutors turn witnesses in all kinds of cases, and they get sweet deals for spilling the beans.

There is now speculation that with the heat turned up to a boil on Rezko, he’ll also strike a deal and squeal, engulfing Senator Obama in the kind of controversy that could jeopardize his run for the White House. This is highly unlikely. First, why would Rezko launch himself into the big house if he thought he could serve up Barak Obama on a silver platter? He’d have his lawyer get him bail, set up a meeting with the prosecutors, and start snitching. Second, the prospect of getting a cooperation deal after you’ve made the government convict you is far more difficult than auditioning for Team America prior to seating a jury of twelve to decide your fate.

Pat Fitzgerald, the U.S. Attorney in Chicago, is no shrinking violet. He’s a former Manhattan federal prosecutor whom I’ve squared off against. He zealously prosecuted and convicted Scooter Libby and would not hesitate to go after Obama if the goods were there. I don’t think Rezko has anything other than superficially embarrassing things on Obama; otherwise, he’d have played those cards already. Moreover, why volunteer to be a caged stool pigeon when you could be free and give Chicago yet another marquee trial? The bonehead is not Obama but Rezko, for risking trial without a real safety net. CR