The BLT: The Blog of Legal Times

Subprime Meltdown

The subprime mortgage business is risky enough, even without throwing in allegations of fraud against a fugitive who was shot in the head last year in Norway by a disgruntled business associate.

Last week, the U.S. Court of Appeals for the 4th Circuit affirmed a $161 million jury verdict for the Federal Deposit Insurance Corp. in its suit over the implosion of First National Bank of Keystone, one of the costliest bank failures in U.S. history. The bank in West Virginia coal country collapsed in 1999, raking up colossal losses that cost the U.S. Bank Insurance Fund an estimated $750 million to $850 million.

Keystone had only done traditional local lending before bank officials were induced by Harald Bakkebo and several co-conspirators to invest hundreds of millions of dollars in a risky loan securitization enterprise involving the purchase of subprime mortgages, with the resale of the rights to most of the loans’ proceeds in special mortgage-backed securities, the 4th Circuit decision stated.

Bakkebo - a native of Norway who fled there in 1999 to avoid criminal prosecution in an unrelated insurance fraud scheme in Louisiana - was shot and killed last year in Norway. Bakkebo‘s attorney, Jeffrey Dorrell of Dorrell & Farris in Houston, had argued that the FDIC shouldn’t have been allowed to enter his insurance fraud indictment as evidence at the Keystone trial, but the 4th Circuit rejected that argument and other challenges made on appeal.

"As far as I'm able to determine, this is the first time in American jurisprudence that a court of appeals has approved the use of an indictment in an unrelated [civil] case," Dorrell says. "I think it's a dangerous precedent to set."

The FDIC may not see much of its money because it must proceed under Norwegian law to seize Bakkebo’s estate there from his two sons, and the estate "is not worth anywhere close to $161 million," Dorrell says. Approximately 20 other defendants in the Keystone case entered settlements or were subject to default judgments for much smaller amounts, Dorrell says. An FDIC spokesman told Legal Times the FDIC is pleased with the 4th Circuit ruling, but he wouldn‘t comment further on the case.

This Week in Legal Times...

For all of you Redskins fans, hung-over from the shellacking, or for you three or four dispirited Rockies folks, or for the seasonally depressed, we have a diversion for you: This week’s Legal Times is crowded with interesting items -- including our annual breakdown of D.C.’s legal landscape, the Legal Times 150. Once you’ve scanned the rankings, check out our accompanying pieces on firm growth and hiring sprints, odd couples, and top-heavy firms.

Legal Times’ Tony Mauro offers up a preview of round two of the partial-birth abortion ban in the U.S. Court of Appeals for the 4th Circuit. The impact of the Supreme Court’s April decision in Gonzales v. Carhart will be measured this week when the 4th takes another look at, perhaps, the strictest abortion law in the country to decide how it matches up against the federal ban. Virginia says the law is virtually identical, while abortion rights advocates argue the state ban is far broader.

Then we have a story about several detainees in Afghanistan who are taking cues from prisoners at Guantanamo Bay by challenging their confinement in federal court. Gitmo is emptying, but detention centers abroad -- in this case, the Bagram Theatre Internment Facility -- are taking on more prisoners, who unlike their counterparts in Cuba enjoy no rights to contest or appeal their combatant status. The mental and physical distance between the United States and Afghanistan have, so far, held legal representation to a minimum, but that could change. Whether and how these cases proceed hangs on the Supreme Court’s decision in an upcoming case, Boumediene v. Bush, over whether Gitmo detainees have a right to habeas relief.

And On the Merits columnist Douglas McCollam is musing about chimps. Will these nonhuman hominids, with the cognitive abilities of a young child, ever be granted "personhood" in the courts?

Diversity in the District

The New York Times ran an article this morning on the new report from Law Students Building a Better Legal Profession, a student-run organization that seeks to transform the legal world, making it more diverse and more amenable to, you know, basic existence.

The organization ranked firms in legal markets across the country on the number of female, minority, and LGBT associates and partners. And, shockingly, most firms didn’t do all that well.

In D.C., no firm got higher that a B+ (way to go, Nixon Peabody), but the District’s firms didn’t score Fs either. The lowest was Mayer Brown with a D– (c’mon, gentlemen, get with the 21st century).

Most of the firms ranked in the C range, and according to the NYT, while some of the firms may dispute the rankings they agree that these numbers matter. After all, the top students look at diversity rankings numbers when deciding which firm to join.

Legal Times will examine these numbers in depth in our upcoming diversity issue, which comes out next week. Until then, check out this LT article about the students who founded Law Students Building a Better Legal Profession.

Morning Wrap

Oil and Iran: Economic sanctions on Iran might not have the effect the U.S. and U.N. had hoped, reports the Washington Post. With oil prices topping $90 a barrel, Iran might not need to worry as much about customers, since smaller banks, Islamic financial institutions, and Asian banks are all potential customers.

Competing for Cable: The New York Times reports that the FCC is about to make a move that will open cable television markets around the country, particularly for those who live in apartment buildings and haven’t had much choice in cable providers.

Merrill’s Man Out: E. Stanley O’Neal is about to resign as chairman and CEO, possibly as early as today, after pushing the company to risky investments and making an unauthorized merger approval to a rival bank, Wachovia. The Wall Street Journal takes a close look at O’Neal’s tenure.

Slots in Maryland: The Maryland General Assembly, looking at a $1.7 billion shortfall, considers raising taxes and legalizing slot-machine gambling with encouragement from Gov. Martin O’Malley.

Deaths in North Carolina: Seven college students were killed in Ocean Isle Beach, N.C. early Sunday morning in a beach house fire. Six of the students attended the University of South Carolina, based in Columbia, S.C.

Senate FISA Hearing Next Week

The Senate Judiciary Committee will once again take up the debate over reforms to the Foreign Intelligence Surveilance Act (FISA) at 10 a.m. next Wednesday.

Scheduled to testify at the hearing's first session is Assistant Attorney General Kenneth Wainstein of the Department of Justice's national security division.

A second panel will follow with Edward Black, president and CEO of the Computer & Communications Industry Association; Patrick Philbin, partner at Kirkland & Ellis and former DOJ deputy assistant attorney general for national security; and Morton Halperin, director of U.S. advocacy at the Open Society Institute.

The hearing comes ahead of more Senate debate over a new bill to revise the hastily passed Protect America Act of 2007, a FISA amendment that expanded the government's abilities to wiretap communications without warrants.

Ahead of Wednesday, the committee's chairman, Sen. Patrick Leahy (D-Vt.), and Sen. Arlen Specter (R-Pa.) will be reviewing confidential documents that the White House Counsel's Office previously showed to members from the Senate Intelligence Committee.

That committee last week approved a FISA amendment that would give retroactive immunity to communications carriers that have assisted the government's warrantless spying efforts.

Wainstein and other administration officials have strongly argued for the controversial legal amnesty because they argue without it, pending suits will bankrupt the telecommunications industry and expose national security secrets.

The records to be examined by Leahy and Specter include legals opinions and presidential memos related to the warrantless surveillance program launched by President George W. Bush after the attacks of Sept. 11, 2001.

Campaign Watch 2008

Stephen Colbert is running for president. And, yes, it’s a joke.

The faux pundit and host of Comedy Central’s “The Colbert Report” merely wants to run in his native state of South Carolina as a “favorite son.” Threat down “real” contenders: He’s getting double digit support in polls that include Sen. Hillary Clinton and Rudy Giuliani. (Where have you gone, Dennis Kucinich?...)

Colbert’s bid for the presidency provides some much-needed comic relief in a crowded field of candidates vying for something, anything, to distinguish themselves. But the legal issues surrounding Colbert’s presidential bid aren’t exactly laughable. Kenneth Gross, an election law expert and partner at Skadden, Arps, Slate, Meagher & Flom, points out that Comedy Central is owned by Viacom, a publicly traded corporation, and by providing Colbert with something as simple as air time, Comedy Central and Viacom could be making an illegal campaign contribution.

Comedy Central has hired D.C. communications firm Wiley Rein to advise Colbert on how to avoid running afoul of the Federal Election Commission. Jan Baran heads the election law practice there, but, alas, he, Comedy Central, and Colbert would not comment on the issue.

Gross doubts the FEC will want to get involved at this stage in the game. But if Colbert, who is running as a Democrat and as a Republican, gets on the ballot and starts taking votes from other candidates, things could change. “You hate to sound like a skunk at the garden party if the whole thing’s a spoof,” says Gross. “But again if he’s getting votes—which means he’s taking votes from somebody else—people’s sense of humor starts to fade away.”

But for now it’s still pretty funny:

Court Orders Genarlow Wilson Freed

The Georgia Supreme Court ruled today that Genarlow Wilson should be released. By a 4-3 decision, the justices found that Wilson’s 10-year sentence for consensual sex between two teenagers was cruel and unusual punishment. Chief Justice Leah Ward Sears wrote that a sentence of that length makes "no measurable contribution to acceptable goals of punishment."

Wilson had been convicted of aggravated child molestation for having oral sex with a 15-year-old girl when he was 17. The girl and her mother opposed the prosecution.

For more on the decision, read the AP story. Read the full decision here. For a discussion about prosecutors who go too far, read professor Angela Davis’ commentary in Legal Times.

Sen. Leahy to White House: Release All Torture Memos

Sen. Patrick Leahy (D-Vt.) on Thursday renewed his call for White House officials to release all documents related to torture memos and any presidential authorization of controversial interrogation practices.

While thanking White House Counsel Fred Fielding for the recent release of records dating from 2002 to 2005, Leahy fired off yet another plea requesting that more recent memos and legal opinions by the Department of Justice be disclosed as well.

"You have provided to us some documents demonstrating the Administration's expansive and disturbing position on torture and related issues in 2002 and 2003, as well as documents from 2004 and very early 2005, withdrawing and minimizing those previous positions," Leahy wrote.

"However, we have not yet seen the 2005 memoranda recently reported in The New York Times, which apparently authorize the use by the Central Intelligence Agency of combinations of cruel and extreme interrogation techniques."

The Times article on Oct. 4 revealed that while earlier torture memos were rescinded, Justice Department officials issued two memos in early 2005 that sanctioned questionable CIA techniques, including the simulation of drowning.

Leahy's letter goes on to request documents showing "any and all revisions or modifications" of the White House stance on torture and also asks for a summary of "any and all" Department of Justice investigations or reviews of detainee abuse around the world.

Legal Tender: Cows to Market

Sometimes new investment products are helpful; other times they chiefly tempt investors to self-defeating behavior. Barclays Bank previously pioneered two broad-based investments that track commodities indexes. These products, helpfully, let individual investors get the diversification benefits of commodities at a reasonable cost.

On Wednesday, however, the company announced eight ways to invest in narrower subgroups of commodities, including copper, natural gas, nickel, and livestock (ticker symbol "COW"). These specialized offerings may be useful for some professional traders, but I have my doubts about whether they'll turn out to be good for most individual investors. The price of individual commodities can be quite unstable. The obvious temptation is to speculate on their rise and fall. But gambling a significant portion of your retirement savings on swings in the price of cattle just isn't prudent.

Morning Wrap

Merger or New Chairman?: Merrill Lynch, the investment firm that has taken some major hits in the subprime market, might be considering a merger with a large bank, according to the New York Times. The Times reported that the chairman of Merrill Lynch was dabbling with a merger with Wachovia but without first consulting his board of directors, making them very irate indeed.

Daley Doesn't Like This: Chicago aldermen have asked a federal judge to release the names of city police officers who have received complaints of misconduct. The complaints range from false arrests to police brutality. Though the federal judge denied their request yesterday on jurisdictional grounds, the aldermen are appealing much to the chagrin of entrenched Chicago mayor, Richard Daley.

S&C Sex Settlement:Sullivan & Cromwell and estranged former associate Aaron Charney reached a settlement yesterday in a discrimination case. Charney, who is gay, sued the white shoes off S&C earlier this year for alleged mistreatment due to his sexual orientation.

Yet Another Reason Why Not to Attack Iran: The Washington Post reported this morning that a military strike against the country would disrupt the oil markets, and possible lead to Iran retaliating against Iraqi oil production sites. Oh, and oil prices are up to a record $90 a barrel.

Just Plain Weird: A Texas bookstore owner purchased some of Che Guevara’s hair at an auction yesterday for $100,000. He was the only bidder for the hair, which was plucked from the famed revolutionary’s head shortly after he died in an ambush in the Bolivian jungle. The locks were purloined by Gustavo Villoldo, the Cuban CIA operative who helped track Guevara and then helped bury him. Villoldo now lives in Florida.