"If you have any doubts about this, ask those thoughtful shareholders in any of those 586 companies that disclosed material weaknesses in internal controls during the first four months of the year. I'm sure they will tell you that expenditures made in complying with Rule 404 is money well spent," said Levitt, addressing reporters this week...

...AMR Research Inc. estimates spending on compliance regulations will exceed $15.5 billion in 2005 and $80 billion over the next five years. Companies will spend $5.8 billion in 2005 on SOX requirements alone. A much-cited study by University of Rochester professor Ivy Xiying Zhang estimates the indirect total market value costs of SOX at an astounding $1.4 trillion.

"Looking below the surface, we found that 10% to 15% was learning time; 20% was spent on doing the documentation, and 15% to 20% was spent on remediation. "Is this likely to recur every year? I don't think so"...

In addition to providing good employment for some of his organization's 107,000 worldwide members, Richards joked, SOX gave focus to a problem that "should have been on the agenda many years ago."

Onerous as they are, the requirements of Section 404 provide consistency, methods of compliance and a written record that can be referred back to measure progress, he said. Most importantly, the financial controls will become embedded in the company, with a "broader understanding by operations people and management of their responsibility for the controls."

Morgan Stanley fires 1,000 retail brokers

Bloomberg News
July 29, 2005

Morgan Stanley, the world's biggest securities firm, is cutting about 1,000 retail brokers to boost profitability in a business that trails Merrill Lynch and Citigroup.

The job cuts, outlined yesterday in a memo to employees from acting president Zoe Cruz, are the New York-based firm's biggest step to reverse a profit slide since John Mack took over as chief exec June 30.

The brokerage unit's pre-tax profit fell 11% in the second quarter and was a focus for critics of former CEO Phil Purcell.

The cutbacks are among the biggest at the biggest securities firms since Merrill CEO Stanley O'Neal began slashing more than 20,000 jobs in 2001.

"We must constantly review the performance of individuals in the retail group and identify those who are not up to our standards," Cruz, 50, said in the memo, which was obtained by Bloomberg News. "As we move towards our new goals, we anticipate reducing the number of brokers by about 10%."

Labels: John Mack, Morgan Stanley

Private security firms expanding services

By Mike Levin
Business Edge
07/21/2005

The line between public and private policing is blurring in Canada as government funding for security gets stretched tighter and tighter. Most of Canada's 1,400 private investigation and security firms are tapping this trend to find new business in areas traditionally patrolled by domestic police forces.

But it is no longer just a game for gumshoes. In Ottawa, Robin St. Martin has built Iron Horse Corp. from a one-man operation in 1994 to a multimillion-dollar business by filling security gaps left by the public sector. The demand is so great, he is predicting a 35-per-cent increase in revenue for 2005. "This business is all about investigation and protection, and as the economy grows so does the need for security services," St. Martin says. "People know they will have to pay for it either by increased taxes or by hiring a company like ours." Revenue reached $1.85 million last year. This year's increase is expected to come mostly from new operations in Toronto.

Since 1998, St. Martin has geared Iron Horse to meet what he calls a phenomenal demand for licensed security guards, which he says has increased guard numbers in Ontario to 40,000 in 2004 from 28,000 in 1999. Most of Iron Horse's 100 full-time and 300 part-time employees are involved in property protection, which accounts for 55 per cent of the company's business. The company also operates a training academy and graduates are all but guaranteed a job because of a backlog of demand. "Times have changed. There's a much stronger view of this need for security because of 9/11, but also because prominent businesses know they have to have protection or face serious liabilities," St. Martin says. He adds that the investigations side of his company is also becoming broader.

Like most security companies, Iron Horse offers diversified services and can investigate everything from insurance fraud to theft of intellectual property and marital infidelity.
The scope is becoming so wide that some agencies see their duties as risk-management consultants as much as private investigators. "Much of the investigation business is about getting information for police or lawyers to use in the legal system. But there's also a growing need within corporations to be able to protect themselves," says Bill Joynt, president of the Council of Private Investigators - Ontario. "Corporate clients today have all sorts of different requirements and you never know what will pop up next. PIs (private investigators) have to keep pace with crime sophistication," says Joynt, who owns the 110-employee Investigators Group agency in Toronto.

According to many security executives, breaking insurance scams, investigating workers' compensation claims, finding missing people and uncovering information for lawyers remain their core businesses. But they are susceptible to market forces. "There are parts of the business that come and go, like surveillance. It just shows that agencies have to be far more diversified today and flexible for when those slumps hit," says Geoff Frisby, owner of LCR Consulting Ltd., a two-person agency in Fort Saskatchewan, a suburb of Edmonton.

One effect has been increased co-operation in what was once a fiercely competitive industry. Security companies will now subcontract their expertise to other agencies. James Thomasen, president of the Private Investigators Association of British Columbia, calls it "service by affiliation" and says it allows smaller agencies to call themselves full-service companies. One area of investigations that is growing is background checks.

"I've seen a rise in the due-diligence part of employment, where companies want to make sure that prospective employees are who they say they are," says Thomasen, who owns the two'-person Pinnacle Investigations and Security Services Ltd. In Vancouver. "It's expanded into the international level and we're doing background checks in places like the Philippines and the United Kingdom."

Another area that is providing growth opportunities is combating the rapidly evolving styles of theft and fraud. New forms of loss protection often involve technology such as high-end audio-visual surveillance and cyber-tracking equipment. "The electronic side is new and getting bigger, especially when it deals with identity theft," says John Farinaccio, director of the Canadian Private Investigators' Resource Centre in Montreal. "The demand is being driven by the U.S., because what happens down there comes up to Canada."

A 2003 study on economic crime by PricewaterhouseCoopers found that one-third of companies in North America were victims of fraud and theft, and that the problem of cybercrime was increasing by double digits annually.

As the crimes become increasingly sophisticated, private investigators have to know how to dig deep for information. Accessing personal information also has become harder since investigators now must have investigative body status under the Personal Information Protection and Electronic Documents Act (PIPEDA) in order to be able to thoroughly examine someone's background.

That is a status that most PIs do not have. In fact, most PIs do not need any certification at all. They do need a licence from Industry Canada, but requirements (except in B.C. and Newfoundland, which have two-year supervisory conditions on licensing) are less stringent than for a driver's permit, says Iron Horse's St. Martin.

"It's the same thing for licensing security guards in Ontario, no minimum standards, and I think it's pretty bad because the business is now all about reputation. When PIPEDA came in it caused a bit of a slump, but I think it was necessary," he says. "This means as a full-service security company we absolutely must do our due diligence properly and provide top-quality customer service," St. Martin says.

St. Martin, who is about to expand Iron Horse into Quebec, believes there is a need for a national association to create adequate certification for an industry that is now starting to consolidate. "There used to be a lot of mom'-and-pop shops (in the security guard business) but they're getting bought up by the public multinationals like Securitas and Garda. This is a trend in the whole industry, becoming international because security issues go across borders," he says.

Labels: background checks, identity theft

USDOJ Launches National Sex Offender Public Registry

July 23, 2005

The site, www.nsopr.gov, does not contain information not already made available on the Internet by each state. However, it allows researchers to determine whether an individual who has been convicted in one state has moved to another. The site is difficult to access due to high volume, but I'm sure this resource will continue to improve and expand in the near future.

Labels: database

SEC sues family for defrauding church investors

Jul 27, 2005
Reuters

WASHINGTON - The U.S. Securities and Exchange Commission said on Wednesday it sued an Indiana family accused of misusing millions of dollars they raised from Christian faith investors, including elderly people who depended on monthly fixed income payments.

The federal regulators said they obtained a court order against four men of the Reeves family of Sullivan, Indiana. They were accused of diverting $13 million of funds for trading stock and equity options and making loans to themselves and companies they controlled.

The Reeves family raised more than $120 million from investors in church bonds and more than $50 million from investors in other bond funds, according to the SEC's lawsuit. The funds were supposed to be held in trust for bondholders, but some of the funds were used for other purposes, the SEC said, and the Reeves family also misrepresented the rates of return of the bond funds.

The SEC said it filed a civil complaint on Tuesday in a federal court in Indianapolis against Vaughn Reeves Sr., his three sons Vaughn, Christopher and Josh, the brokerage firm called Alanar and a group of bond funds and paying agents they controlled.

"Alanar's and the Reeves' scheme is an affinity fraud," the SEC said in its complaint. "Many investors bought church bonds and units in the Bond Funds through Alanar because of their desire to help churches in need of funds. "In addition, many of the investors are elderly and some of them depend on the monthly payments as part of a fixed income."

Peter French, who is representing the Reeves family, said his clients have been working with the SEC over the last three months to resume payments to investors and Alanar, which had offices throughout the Midwestern and eastern United States, has voluntarily shut down. "I don't believe this is a situation where you're going to see investors get pennies on the dollar," French said. "Most of the investors are going to be made whole and even those that aren't are going to receive a significant return on principle."

The three paying agents listed on the SEC complaint are Guardian Services LLC, First Financial Services of Sullivan County Inc. and The Liberty Group Inc. Vaughn Reeves is the chief executive officer of all three entities, according to the complaint. Under the court order, the defendants are prohibited from destroying documents and are required to appoint an Indianapolis lawyer as a independent monitor to oversee the day-to-day operations, the SEC said.

The regulators are seeking the return of ill-gotten money and to impose civil penalties against the defendants, who agreed to the permanent injunction without admitting or denying the SEC allegations. The attorney for bond funds, John Harris, said the funds' directors plan to work closely with the monitor to secure and maximize the returns to investors.

SEC Won't Punish Sallie Mae

By Albert B. Crenshaw
Washington Post Staff Writer
July 26, 2005

SLM Corp., the big student loan finance company, said yesterday that the Securities and Exchange Commission has indicated it will not take action against the company over accounting irregularities in one of its subsidiaries two years ago.

SLM, in a filing with the SEC, said it had fired the chief financial officer of one its loan-collection subsidiaries, demoted a manager there, and denied bonuses and other performance-related payments to the subsidiary's chief executive and several other managers.

The Reston-based company, widely known as Sallie Mae, declined to identify the subsidiary or the managers involved. The SEC had no comment on the filing. Sallie Mae had said earlier it was cooperating with an SEC probe begun last year.

The company said in its filing that the irregularities involved less than $75,000, but "were inconsistent with company practices and violated generally accepted accounting principles."

Sallie Mae Disciplines Execs after Investigation

July 27, 2005
WebCPA staff

Washington - SLM Corp., the parent company of student loan lender Sallie Mae, said Monday that it had fired the subsidiary's chief financial officer and disciplined several other executives after finishing an internal accounting investigation.

In a filing with the Securities and Exchange Commission, Sallie Mae said that it discovered three incidents in 2003 where managers at a debt collection subsidiary had shifted revenue to earlier months in order to meet performance goals and receive bonuses. The lender said that the irregularities amounted to less than $75,000, and that a senior manager who had been involved was being demoted, while other managers were also being reprimanded.

Sallie Mae, which took in $1.4 billion in revenue in 2003, said that the accounting irregularities were immaterial to its revenue that year, and that the SEC would not take further action.

In January 2004, Sallie Mae began its own investigation, shortly after the SEC told the company it would be investigating accounting at the unnamed debt collection subsidiary. Sallie Mae owns or manages student loans for 8 million borrowers, and employs 10,000 people. Congress created the company in 1972 as a government-sponsored enterprise before SLM began privatizing its operations in 1997, a process that was completed at the end of 2004.

Original article appears here.

— MDT

RenaissanceRe CEO may face SEC civil action

Reuters
Mon Jul 25, 2005

NEW YORK - RenaissanceRe Holdings Ltd. (RNR.N: Quote, Profile, Research) said on Monday U.S. securities regulators notified its chief executive that they intend to recommend a civil enforcement action against him, sending the company's shares down 5 percent.

Chairman and CEO James Stanard received the U.S. Securities and Exchange Commission's "Wells Notice" for allegedly violating federal securities laws, the Bermuda-based reinsurer said. The notice was issued in connection with the SEC's investigation into the company's restatement of financial statements.

The SEC notice was also sent to Michael Cash, a former executive in RenaissanceRe's specialty reinsurance unit who resigned following his refusal to accept a subpoena from the agency, the company said.

RenaissanceRe said it is cooperating with the SEC and other government agencies investigating the firm. A company spokesman said Stanard was not available for comment...

SEC weighs civil action on Fidelity

By Riva D. Atlas
The New York Times
JULY 27, 2005

NEW YORK Fidelity Investments, the giant mutual fund company, has said that federal regulators are considering taking civil action against it as part of an inquiry over whether its employees improperly accepted gifts or entertainment from brokers.

Fidelity, which manages more than $1 trillion, said Monday that it had received a Wells notice from the Boston office of the Securities and Exchange Commission, meaning that the agency's staff is preparing to recommend action against the company and is giving Fidelity a chance to refute any accusations.

The notice was received late Friday by the entities that manage Fidelity's stock funds, a spokeswoman said. No current employees of Fidelity have received Wells notices, she said.

"The company has been cooperating with the Securities and Exchange Commission and all other inquiries concerning gifts and gratuities," Fidelity said in a statement. "We intend, however, to vigorously defend ourselves against any allegations that we believe are not supported by relevant facts and data."

Fidelity said that an internal review had "uncovered instances where there were violations of the company's policies and procedures" but that it had taken steps to correct the behavior. The firm has said that no mutual fund investors were harmed by the inappropriate behavior.

Since the investigation was disclosed last year, Fidelity has disciplined 16 traders, and five executives have left the company. Two weeks ago, it reassigned its stock trading chief, Scott DeSano, to another position within the company.

The investigation began after improprieties were discovered in a routine examination by the NASD, the nongovernmental regulatory body formerly known as the National Association of Securities Dealers. The NASD sent letters to more than two dozen brokerage firms seeking information about their gift and entertainment policies to see whether the brokers acted improperly in an effort to curry favor and to win commissions from fund companies.

The U.S. Attorney's Office in Boston has begun its own investigation of whether brokers improperly offered gifts and entertainment to Fidelity employees in an effort to attract trading business from the investment firm.

A representative of the SEC declined to comment on its investigation of Fidelity.

Bush nominee insists he will stay true to SEC mission of investor protection

By Andrew Parker
July 27 2005

Christopher Cox, the Republican congressman chosen by President George W. Bush to be the next chairman of the Securities and Exchange Commission, yesterday insisted he would stay true to its mission of investor protection. He promised vigorous enforcement of the securities laws, and signalled he would not seek to undo ambitious rules for capital markets introduced by William Donaldson, who resigned as SEC chairman last month. Mr Cox also said he would try to put an end to divisions at the financial regulator that dogged Mr Donaldson's tenure.

In his first public comments about the SEC since Mr Bush nominated him last month, Mr Cox told the Senate banking committee: "My top priority will be vigorous enforcement of our nation's securities laws. The Commission must be vigilant on behalf of investors." Some investor groups fear Mr Cox could pursue a deregulatory agenda because of his business-friendly record in Congress, which could lead him to unpick Mr Donaldson's ambitious reforms of mutual fund governance, hedge fund oversight and stock trading rules.

But Mr Cox said Mr Donaldson's record was "one of great achievement". "I would hope to build on that and extend it," he added. He also signalled he would not seek to scrap a controversial accounting rule that requires companies to treat awards of stock options as expenses and make deductions from profits. Mr Cox opposed the accounting standard in Congress but he said the rule had been debated and should be implemented as the financial markets expected.

Yesterday's hearing could pave the way to the Senate confirming Mr Cox's appointment, together with two Democratic nominees to the SEC, before the weekend. Mr Cox strongly endorsed the 2002 Sarbanes-Oxley law on accounting and corporate governance, passed in response to corporate scandals such as Enron. Mr Cox made no commitment to reforms, but he expressed an interest in giving investors more information about executive pay. He also said he was willing to revisit the issue of giving shareholders more powers to nominate directors to troubled companies.

Senator Paul Sarbanes, the Democrat who co-authored the Sarbanes-Oxley legislation, asked Mr Cox if the US Chamber of Commerce was wrong to greet his proposed appointment with the claim that the "pendulum is swinging back" in favour of business. Mr Cox said that it was wrong to suggest he would be "lax on enforcement" or not pursue "appropriate regulation".

Labels: Enron

Payola Shocker: J-Lo Hits, Others Were 'Bought' by Sony

Monday, July 25, 2005
By Roger Friedman

... internal memos from Sony Music, revealed today in the New York state attorney general's investigation of payola at the company, will be mind blowing to those who are not so jaded to think records are played on the radio because they're good. We've all known for a long time that contemporary pop music stinks. We hear "hits" on the radio and wonder, "How can this be?"

Now we know. And memos from both Sony's Columbia and Epic Records senior vice presidents of promotions circa 2002-2003 — whose names are redacted in the reports but are well known in the industry — spell out who to pay and what to pay them in order to get the company's records on the air...

...Announced today: Sony Music — now known as Sony/BMG — has to pony up a $10 million settlement with New York's Attorney General Eliot Spitzer. It should be $100 million. And this won't be the end of the investigation. Spitzer's office is looking into all the record companies. This is just the beginning.

...Who will take the fall at Sony for all this? It's not like payola is new. The government investigated record companies and radio stations in the late 1950s and again in the mid 1970s... Spitzer is said to be close friends with Sony's new CEO, Andrew Lack, who publicly welcomed the new investigations earlier this year when they were announced..

Spitzer Evidence To Be Handed Over To FCC

July 25, 2005
By Paul Heine and Bill Holland

..."I would encourage the FCC to take a very hard look at whether something that is this pervasive, something that is so corrosive to the integrity of the market place should not merely be investigated and pursued, but whether some of these stations deserve to have their licenses stripped," said Spitzer at the downtown Manhattan press conference trumpeting the settlement. "They know what the law is and they have been disregarding it willfully and pervasively"...

...[FCC] commissioner Jonathan Adelstein says Spitzer has given the FCC "an arsenal of smoking guns" to ramp up federal payola enforcement. Adelstein says he has asked Spitzer for "everything he’s got" so that evidence uncovered in New York's pay-for-play probe can be evaluated for possible federal violations. An outspoken advocate for heightened payola enforcement, Adelstein says an email trail now exists to justify a full-on federal investigation...

..."These same exact practices are explicitly prohibited by the Communications Act, including criminal violations that would be handled by the Justice Department," Adelstein says. "People haven't been willing to come forward." "It took an attorney general's subpoena power to blow the lid off a potentially far-reaching payola scandal...Now it's incumbent on us to enforce our rules and conduct a thorough investigation of each of the allegations."

FCC protocol calls for the agency to investigate and act upon filed complaints... Although he expects to receive complaints based on the settlement, Adelstein says the magnitude of potential federal violations warrants an immediate investigation and potential enforcement action. "What we have here for the first time are emails documenting the reasoning behind this," Adelstein said, referring too materials uncovered by Spitzer. "We no longer have to guess what was in the mindset of people, we can actually see it."

Labels: Eliot Spitzer, New York AG

Many thanks to all the regular and occasional readers of The Daily Caveat. Writing for the blog daily over the last several months has been a wonderful experience and has proven to be a key element in the expansion of our business.

We recently prepared a brief note acknowledging our anniversary that was sent out via email to our clients, friends and colleagues. I'd like to share it here with our blog readers as well:

Monday, July 25, 2005

Caveat Research, LLC. Celebrates its First Anniversary

Founded in 2004 by Anthony Sartori, Thea Bournazian and Michael Thomas, Caveat Research has grown from an idea and opportunity into a successful investigative firm serving a full range of clients including attorneys, investment banks, corporations and research consultancies.

Building on our personal friendship and professional
admiration, we founded Caveat Research because of
our shared passion for investigative work. As Caveat
grows and prospers, we remain committed to providing
our clients with dependable, discreet and cost-effective
solutions to their investigative needs.

We want to personally thank our clients and colleagues
as well as our family and friends for your inestimable
contribution to our continued success.

With warmest regards,

Federal garbage probe hits Mount Kisco transfer station

By TERRY CORCORAN AND CARA MATTHEWS
THE JOURNAL NEWS
July 22, 2005

FBI agents executed a search warrant at a Mount Kisco transfer station Wednesday, the latest development in a widening criminal investigation into organized crime in the garbage industry in New York and Connecticut.

William F. Williams, Mount Kisco's village manager, confirmed yesterday that the FBI searched a transfer station owned by Allied Waste Industries on Columbus Avenue on Wednesday evening. But he said he did not know what the agents were seeking.

"They didn't tell the police anything," Williams said. "The police just informed me that they executed a search warrant there."

The search came one day after federal authorities executed warrants at several locations in Connecticut and New York, including Putnam County Executive Robert Bondi's office in Carmel and Suburban Carting Corp. in Mamaroneck, also an Allied-owned transfer station. Federal agents removed roughly a dozen boxes from Bondi's office Tuesday night. Bondi has not been available for comment, but Legislature Chairman Robert McGuigan, R-Mahopac, has said that Bondi left him a phone message saying the search was related to the garbage-hauling industry, and there was no corruption on Bondi's part.

The target of the probe, law enforcement officials said, is James E. Galante, a 52-year-old businessman who runs a garbage empire in Connecticut that includes Automated Waste Disposal of Danbury, Conn., and several affiliated businesses. Galante is also a major figure in Putnam's carting industry and is a former business partner of Thomas Milo, a Pelham Manor resident who served time in the 1990s for rigging garbage contracts in Westchester. Milo is the former owner of Suburban Carting, reportedly also a subject of the probe.

Federal agents on Tuesday searched Automated Waste Disposal, a massive trash-collection and recycling operation at 307 White St., Danbury; Galante's home in the nearby suburb of New Fairfield; and the Danbury office of his attorney, Jack D. Garamella. Messages left with Galante and Garamella, 60, have not been returned. In all, agents have raided more than two dozen addresses this week, including a New Haven, Conn., transfer station and sanitation companies on Long Island. One of Galante's lawyers, defense attorney Hugh Keefe of New Haven, said federal agents had not told him much about the investigation. "I have gotten precious little information out of the government," Keefe said. "In due time, I'm sure we'll talk."

Milo, who has been identified by prosecutors as an organized-crime figure, could not be reached for comment yesterday. Milo's wife said yesterday that he was at work, but she would not say where.

Court records show that Galante was sentenced in 1999 to a year and a day in prison after pleading guilty to federal tax evasion. He was also fined $100,000 plus the cost of his incarceration, and Automated Waste Disposal was fined $210,000.

One of the related businesses Galante owns is Superior Waste Disposal, which lists its address at 307 White St., Danbury, according to records filed with New York's Department of State. Putnam County paid Superior $103,740 in 2003, $115,005 in 2004 and $59,511 this year to pick up trash at county facilities, Finance Department records show.

David Steinmetz, a White Plains-based attorney for Allied Waste, wouldn't comment about the FBI's search of the company's Mamaroneck and Mount Kisco properties. The attorney said that as far as he had been advised, his client cooperated fully with the FBI investigation "of other individuals."

In March 2004, two of Galante's companies, Greensphere Inc. and Transfer Systems Inc., were fined $13,600 by the Westchester County Solid Waste Commission for dumping solid waste at the Resco incinerator in Peekskill without commission permits. Garamella, Galante's lawyer, entered not-guilty pleas on two counts of unlicensed operation and paid a reduced $6,800 fine after the company argued it did not know it needed permits to dump in Westchester.

No companies that Galante is associated with have licenses with the Solid Waste Commission to do business in Westchester, executive director Bruce Berger said yesterday.

Records in New York and Connecticut show a complex web of connections among Galante, Milo and Allied Waste, the nation's second-largest garbage handler. Allied, with revenues of $5.66 billion in 2004, took over several Westchester companies after an organized-crime monopoly on the industry was broken up by federal indictment in the late 1990s.

The biggest player in Westchester's garbage industry at the time was Milo's Suburban Carting, which also owned 40 percent of the stock in Galante's Automated Waste Disposal. In February 1998, Milo was sentenced to three years in prison and paid $3.2 million in fines and restitution for the part he played in what prosecutors said was a mob-run scheme that used price fixing, violence and intimidation to control Westchester's garbage industry over 35 years.

Milo currently heads Mialto Realty Inc., according to New York Department of State records. The principal executive office is listed at the same 524 Waverly Ave. address in Mamaroneck as Suburban Carting. There is no listing in the phone book for the business. One of the contacts listed for Mialto is the law firm of Cherico & Stix, now called Cherico, Cherico & Associates on Battle Avenue in White Plains. The firm at one point represented Automated Waste Disposal. Attorney Louis Cherico did not return a phone call seeking comment yesterday, but on Wednesday he said his firm had not represented Galante's company in two years.

Suburban Carting also has offices at 566 N. State Road in Briarcliff Manor. That same address is shared by Valley Carting Corp., another carting company bought by Allied in 1999.

All of Allied's Westchester subsidiaries — Valley Carting, the Mount Kisco transfer station and the Metro Enviro transfer station in Croton-on-Hudson — came under federal monitorship because of Allied's purchase of Suburban Carting and that company's role in the federal organized-crime case. The federal monitor uncovered deceptive business practices by Valley Carting and Metro Enviro under Allied's ownership.

A March 2004 federal monitor's report on Valley Carting said Allied's management was not "discernibly different" from when the company was led by James Hickey and Toby DeMicco, Hickey's late father-in-law and the son of a reputed soldier in the Genovese crime family.

A 2003 report on Metro Enviro documented operating abuses, such as exceeding daily tonnages, doctoring records and accepting banned materials. Hickey, who died in 2002, also co-owned Greentree Realty, a company that at one time shared the same 566 N. State Road address as Valley Carting and now Suburban. Greentree owns the land in Croton where Metro Enviro is situated and leases the property to Allied.

CEOs are faking it, Stanford professor says, the bigger the company, the less impact they often have

By Robert McMillan
JULY 22, 2005
IDG NEWS SERVICE

Your company's CEO might be a pretender, and that may be a good thing, according to Robert Sutton, professor of management science and engineering at Stanford University.

Sutton, the author of a 2001 study of corporate innovation, "Weird Ideas that Work," says that a close look at the evidence shows that CEOs probably deserve less credit for their company's fortunes than they receive and that the best of them manage a tough balancing act: secretly aware of their own fallibility while also realizing that any sign of indecisiveness could be fatal to their careers.

"In just about every study I've ever seen ... the amount of control a leader has over the company is exaggerated," Sutton said during a keynote address at the AO05 Innovation Summit at Stanford yesterday. Although top executives of the largest companies are often considered uniquely powerful, their effectiveness actually dwindles as companies get larger, he said.

"If you look at these Fortune 500 companies where they get paid a fortune, they have the least impact," Sutton said. The notion of the CEO as a captain, steering the corporate ship, isn't so much a fallacy as it is a "half truth," according to Sutton, who has devoted a chapter to the topic in his upcoming book, Hard Facts, Dangerous Half Truths, and Total Nonsense. In fact, leaders -- even great ones -- often have no clear idea where they are going, he said. And they make mistakes.

The best executives, like Intel Corp.’s former CEO Andy Grove, will admit that they face a dilemma in needing to appear decisive while at the same time being conscious of their limitations. "You have to pretend," Sutton said. "It's sort of a dilemma, but if you want to accept a leadership job, you've got to accept the hypocrisy of it."

In a 2003 interview with the Harvard Business School, Grove acknowledged that no business leader has "a real understanding of where we are heading." In the interview, Grove added that it is important not to be weighed down by the burden of making important decisions without a clear picture of things. "Try not to get too depressed in the journey, because there's a professional responsibility. If you are depressed, you can't motivate your staff," he said. The interview illustrated that Grove was "getting even more honest" as his involvement in the day-to-day management of Intel lessened, Sutton said...

Google site 'used by drug gang'

Friday, 22 July, 2005

Ten people have been arrested in Brazil after authorities discovered them allegedly using Google's online community site, Orkut, to sell drugs. The drugs ring was uncovered after police tapped phone calls and monitored online communications through Orkut. The site, used for building online communities and making contacts, is hugely popular in Latin America. According to media reports, more than half of the seven million community members are from Brazil.

"We discovered the drug ring first via authorised phone tapping, and later the investigation included monitoring of their activities on the internet," an officer at the Drugs Enforcement Service in Niteroi, near Rio de Janeiro, told the Reuters news agency. "We are aware of the situation and are currently looking into it," Google said in a statement. "When we are made aware of situations that are against our terms of service we take appropriate action"...

Labels: background checks, database

Feds expand trash probe: FBI, IRS raid facilities of firms in two states

By John Pirro. Karen Ali
and Tony Jones
The News-Times

FBI raids at two Danbury trash hauling firms appear to be part of a larger investigation into possible organized crime involvement in the waste disposal industry in Connecticut and New York.

It was well after midnight Wednesday when agents finished loading dozens of boxes from the Automated Waste Disposal complex on White Street into a Ryder truck. About 16 hours later, FBI and Internal Revenue Services agents searched the offices of Country Disposal on Beckerle Street in Danbury.

Lisa Bull, a spokeswoman for the FBI's Connecticut office, said the Danbury raids are part of the same investigation that saw federal agents search the office of the Putnam County Executive in Carmel, N.Y., and about a dozen trash haulers in Connecticut, New York and Long Island on Tuesday and Wednesday.

ChoicePoint says data theft cost it $6M

Linda Rosencrance
JULY 21, 2005

Credit and personal information vendor ChoicePoint Inc. took a $6 million charge in its second quarter, which ended June 30, citing costs associated with the theft of personal information on 145,000 consumers, the company said yesterday. The $6 million was used for legal expenses and other professional fees related to the data theft, Alpharetta, Ga.-based ChoicePoint said in a statement...

Lawyers Challenged on Asbestos

By JONATHAN D. GLATER
July 20, 2005

Plaintiffs' lawyers, long accustomed to public criticism and lawmakers' wrath, now face a new and more dangerous adversary in federal prosecutors. The latest evidence that the government may be increasingly willing to pursue these lawyers comes in the bankruptcy of a company overwhelmed by asbestos claims. Recently filed court documents show that federal prosecutors in Manhattan may have begun to investigate the conduct of three law firms.

The documents - which surfaced in the bankruptcy case of G-1 Holdings, formerly the GAF Corporation, a manufacturer of roofing material - show that lawyers for G-1 have met with prosecutors from the United States attorney's office in Manhattan in recent months. The documents also show that the company's lawyers have turned over records of extensive interviews with former employees of the three plaintiffs' firms in which some employees described coaching potential claimants and noted efforts to influence doctors' diagnoses...

...The current criminal investigation is the latest example of a new willingness by prosecutors to look into the conduct of plaintiffs' lawyers. Last month, the United States attorney's office in Los Angeles announced the first indictments related to a three-year-old investigation of Milberg Weiss Bershad & Schulman, a law firm known for its frequent shareholder class-action lawsuits.

The interviews of former employees were conducted by investigators from Kroll, which was retained by G-1 to gather evidence in its three-year-old civil lawsuit against three plaintiffs' law firms: Baron & Budd of Dallas; Ness, Motley, Loadholt, Richardson & Poole of Mount Pleasant, S.C. (a law firm in the process of disbanding); and Weitz & Luxenberg of New York.

Last month, Kroll investigators, after receiving a subpoena from prosecutors, turned over their findings; the subpoena suggests that prosecutors are interested in the asbestos claims. Lawyers say at least one insurance company has also received a subpoena.

A spokeswoman for the United States attorney's office declined to comment on the matter, as did a spokeswoman for Weitz & Luxenberg. Steven Storch, a New York lawyer representing Ness, Motley, Loadholt, Richardson & Poole, said, "We would've expected that if there were anything of any interest, we would've heard about it during the course of civil litigation, and we didn't hear anything."

Frederick M. Baron, of Baron & Budd, said that he knew documents had been provided to the United States attorney's office, but that the same documents had not proved persuasive in the civil case by G-1 against the firm. "We have received no information that the U.S. attorney's office has done anything other than accept documents that the lawyers from G-1 have asked them to." Mr. Baron said the judge in the civil case had reviewed the documents and not found them credible. "The Kroll affidavits are bogus in the extreme," he said.

G-1 was driven to seek Chapter 11 protection in 2001 as a result of some 150,000 asbestos claims. The court filings, in which lawyers describe the activities that generated their bills, indicate that lawyers for G-1 have spoken or met with assistant United States attorneys several times in recent months. The United States attorney's office in Manhattan is also pursuing an investigation into thousands of claims filed on behalf of people who said they were injured by exposure to silica, another dangerous material. Some of the same law firms that brought those claims also brought asbestos claims, some of the same doctors who diagnosed silica injury in claimants also diagnosed asbestos injury in claimants - and many of the same people claiming they were hurt by silica previously claimed they were harmed by asbestos.

The criminal investigation could have broad implications for the civil justice system that compensates victims of personal injuries. If it proceeds to an actual case, it could also force some lawyers who file what are known as mass tort claims to change their tactics. And defense lawyers, who have often been reluctant to take on plaintiffs' lawyers armed with thousands of claims in open legal battle, could be emboldened.

The investigation, raising the specter of fraud, will almost certainly be seized on by advocates of changes to the nation's civil justice system. Lawyers who represent people who are already sick as a result of asbestos exposure said they worried that any such changes might make it harder for legitimate asbestos victims to recover damages they deserve...

...A criminal investigation could provide potent ammunition to litigators like Irving Cohen, a lawyer at Cohen Pope in New York who has filed objections to asbestos settlements in various corporate bankruptcies on the ground that they unfairly discriminate against people who are currently sick as a result of exposure to asbestos. "It can't give anything but momentum to what we've been doing," Mr. Cohen said. "The implication of a criminal investigation is that perhaps some wrongdoing was occurring and if that were to be the case, it would certainly augment the civil remedy. Depending on what kind of evidence that they can obtain, it is potentially very big."

Labels: Kroll

The coroner said he will send a report to employee arbitration service ACAS to help provide guidance for employers dealing with similar investigations in future, although he said this implied no blame on Abbey's conduct. "When an interview has been conducted the employee should not be unescorted. There is a risk of the employee being rendered vulnerable by the interview. There is an issue about preventing similar fatalities. This case is obviously tragic and employers are going to be faced with these situations in future," the coroner said.

Chang's widow Lay Pen Lim said in a statement released after the verdict that her husband had been deceived into attending the meeting and then subjected to "consistently hectoring and misleading" questioning by Jones. "I believe that, had this meeting not taken place, Richard would still be with us today. Richard had everything to live for. The children and I are absolutely devastated. We will never get over our loss," she said.

The full story can be read here.

Labels: Kroll

Ex-HealthSouth COO Has Charges Dropped

Stephen Taub
CFO.com
July 20, 2005

Federal prosecutors moved to dismiss the indictment of former HealthSouth Corp. president and chief operating officer James P. Bennett for his role in the company's $2.7 billion accounting scandal, according to press reports. The one-sentence motion did not provide a reason for the request, according to the Associated Press.

Bennett was indicted in February — shortly after former chief executive officer Richard Scrushy went on trial — on 39 counts of insider trading; conspiracy to commit wire, mail, and securities fraud; making false statements to HealthSouth's auditor, Ernst & Young; money laundering; and lying to the Federal Bureau of Investigation, reported the Birmingham Business Journal.

According to the Journal, Bennett was the only former employee formally charged with insider trading in connection with the HealthSouth scandal. Knowing that fraud was taking place, the government alleged, Bennett sold 960,000 shares of HealthSouth stock, for $17.4 million, the newspaper reported...

The full CFO.com piece appears here.

-- MDT

Labels: 2006, Health South, insider trading, money laundering

Enron Task Force Director Andrew Weissmann To Step Down, Sean Berkowitz Named Director

July 20, 2005
I-Newswire.com

WASHINGTON, D.C. - Acting Assistant Attorney General John Richter of the Criminal Division announced today that Andrew Weissmann will step down as Director of the Justice Department’s specially-formed Enron Task Force, after more than three-and-a-half years on the prosecutorial team, including 17 months as director.

Labels: Andrew Weissmann, Enron

Kickbacks' case embroils class-action powerhouse

By Timothy L. O'Brien
and Jonathan D. Glater
The New York Times
JULY 19, 2005

Three months ago, William Lerach, a class-action lawyer both feared and loathed in executive suites across the United States, received a disturbing call from his attorney. Federal prosecutors, Lerach was told, wanted more time to build a criminal case against him. Until then, a three-year investigation into whether Lerach and his former New York law firm, Milberg Weiss Bershad & Schulman, had used illegal tactics in shareholder lawsuits that made him and the firm rich and famous had appeared to be dormant. The phone call meant that the inquiry had suddenly gained traction...

...The investigation of Milberg Weiss began in the late 1990s with the prosecution for art fraud of Steven Cooperman, a multimillionaire ophthalmologist who collected fine art and opulent houses on the East and West coasts of the United States. He was also a frequent plaintiff in shareholder lawsuits brought by the firm.

Struggling with more than $6 million in personal debt, Cooperman engineered the theft of two of his own paintings - a Picasso and a Monet - from one of his homes and collected $17.5 million from insurers for the missing artwork, according to court documents from his divorce proceedings.

After the paintings turned up in a climate-controlled storage facility in Cleveland, Cooperman was prosecuted and convicted on fraud charges in 1999 and faced a 10-year prison term. To reduce his sentence, said a number of people with direct knowledge of the case, he offered prosecutors a bigger fish: Milberg Weiss.

Federal prosecutors in Los Angeles declined to comment. But former government lawyers said the prospect of securing Cooperman's cooperation had to be tempting to the authorities because taking on Milberg Weiss guaranteed a highly publicized, exacting legal battle.

"Your reaction to that is, there's an interesting scalp, more important than my two-bit art fraud thief," said Michael Shepard, former chief of special prosecutions in the U.S. attorney's office in Chicago, who is now in private practice in San Francisco and played no role in the Cooperman prosecution.

The deal that Cooperman signed with prosecutors remains under seal.

But he was not sentenced for two years, until July 2001. His sentence was reduced, and he ended up serving less than two years in prison. According to the judge in the divorce case, Cooperman received "large sums as kickbacks from attorneys in one of the leading class-action firms in the nation" - Milberg Weiss. In cooperating with prosecutors, the judge said, Cooperman would help implicate "members of the Milberg Weiss law firm."

For several months, nothing happened. Then, in early 2002, federal prosecutors in Los Angeles sent out a barrage of subpoenas to law firms that had worked with Milberg Weiss. Word of the federal investigation leaked to the news media...

Labels: Milberg

The Way Back Machine and Robots.txt
The Patry Copyright Blog
Tuesday, July 12, 2005

On July 8th, a complaint was filed in the United States District Court for the Eastern District of Pennsylvania, Healthcare Advocates, Inc. v. Harding, Early, Follmer & Frailey, et al. This is such an extraordinary document that I will break with my usual practice of not commenting on complaints or motions.

Those who decry the DMCA as an (attempted) tool of oppression will find more than ample support in this effort. Other laws are implicated too, including some I venture to guess most IP lawyers have never heard of at least in the IP context, for example, a Greta Garbo like claim for "Intrusion upon Seclusion."

Others, such as the Computer Fraud & Abuse Act and trespass to chattels have become better known recently but are invoked here in a novel way, to say the least. In my opinion (and all this is opinion whether denominated as such or not), the Healthcare Advocates complaint represents a misuse of the legal process.

According to the Financial Times, attorneys for the parents of former Abbey Bank IT employee Richard Chang's are hoping for a finding against Abbey Bank and investigative contractor, Kroll in connection with Chang's death last year. Chang fell to his death from a fifth-floor balcony into the atrium at Abbey Bank's headquarters in London about an hour after being interviewed by Abbey and Kroll personnel.

The interview was in connection with a company an investigation into the origins of an anonymous letter sent last year to senior bank executives containing allegations of financial and sexual impropriety in the distribution of Abbey Bank's IT contracts. The Chang's solicitors allege that there was an abuse of UK employment law in Abbey Bank's handling of the investigation.

Abbey faces grilling over death at HQ

Simon Watkins
17 July 2005

THE tactics used by Abbey bank and a private investigation firm it employed will come under scrutiny tomorrow at the inquest into the death of Richard Chang, an IT worker at the bank. Chang, 48, fell from a fifth-floor balcony into the atrium at Abbey's headquarters in central London on July 13 last year. His death came less than an hour after he had been questioned by employees of investigation firm Kroll...Central to the [Chang] family's concerns are questions of whether Chang was put under undue pressure by his interviewers and whether his rights as an Abbey employee were respected.

...Abbey called in the services of Kroll after an anonymous document was circulated last year alleging favouritism and corruption in the way that IT contracts were being granted to outside contractors. Abbey carried out its own investigation headed by Keith Woodley, then deputy chairman of Abbey, and decided that the allegations were untrue. It then hired Kroll to help uncover which member, or members, of staff were behind the document.

Chang was one of four employees - including his manager Vincent Santeng - suspected by Abbey of being behind the circulation of the allegations. Chang was interviewed on July 13 by two Kroll employees, former Metropolitan Police detective Howard Jones, and Peter Pender-Cudlip, then Kroll's deputy head of business intelligence and investigations.

Chang fell from the balcony less than an hour after his interview, while Jones and Pender-Cudlip were interviewing Santeng. Jones, two Abbey staff who witnessed the fall, and Santeng have all been summoned to give evidence to the inquest. The original document containing allegations of corruption, which has so far been kept secret, could form part of the evidence revealed in court.

A tape recording of the interview with Chang is also expected to be key. It is understood that the tape reveals that Chang declined to answer most questions during the interview. Another vital piece of evidence expected to be revealed is a note left by Chang in which he apparently confesses to circulating the document.

Labels: Kroll

Ex-Qwest CFO pleads guilty to insider trading

By SANDY SHORE
AP Business Writer

DENVER (AP) -- A former Qwest Communications finance chief pleaded guilty to a single count of insider trading Thursday, the highest-ranking one-time executive to admit wrongdoing in the telephone company's multibillion-dollar accounting scandal...

...The SEC has said the fraud at Qwest Communications International Inc., the dominant local phone provider for 14 mostly Western states, occurred between April 1999 and March 2002, allowing it to improperly report approximately $3 billion in revenue that helped its 2000 merger with U S West. Qwest later restated earnings from 2000 and 2001 to erase about $2.2 billion in revenue and then agreed last year to pay $250 million to settle SEC fraud charges in a deal that excluded individual officers. The company did not admit wrongdoing...

Flanked by two attorneys, Robin Szeliga spoke in a soft monotone, her voice breaking just once as she answered the judge's questions about netting $125,000 on a stock sale by using financial information intentionally withheld from the public....Szeliga, 44, faces up to 10 years in prison and a $1 million fine, though the plea agreement recommends a term of 15 to 21 months. She agreed to pay $125,000 in restitution and to cooperate with prosecutors, which could prove valuable in their three-year investigation into accounting irregularities that forced Qwest to restate billions in revenue.

Acting U.S. Attorney William Leone said he was pleased with Szeliga's plea but declined to discuss specifics of her case or the ongoing investigation. "I do feel like the charge we brought today or that she pleaded guilty to today, reflects a fair view of the evidence," he said. Securities attorney Andrew Stoltmann of Chicago said Szeliga's agreement was a significant victory for prosecutors. "Once the CFO flips, that is huge in any case that the Department of Justice is going after," Stoltmann said. "From the prosecutor's standpoint, they kind of use that CFO's knowledge to go after the CEO or anyone higher up than the CFO"...

...she and other senior executives knew in late April 2001 that some business units would fail to meet revenue targets for the first six months of that year. She said she and other executives also knew that Qwest improperly booked revenue from one-time sales of equipment and fiber-optic swaps as recurring to meet those targets. Szeliga sold 10,000 shares of stock at $41 per share on April 30, 2001, earning a net profit of $125,000...

Labels: insider trading, Quest, Robin Szeliga

Nigeria Jails Woman in $242 Million Email Fraud Case

Reuters
Jul 16, 2005

By Tume Ahemba

LAGOS - A Nigerian court has sentenced a woman to two and half years in jail after she pleaded guilty to fraud charges in the country's biggest e-mail scam case, the anti-fraud agency said on Saturday. Amaka Anajemba, one of three suspects in a $242 million fraud involving a Brazilian bank, would return $48.5 million to the bank, hand over $5 million to the government and pay a fine of 2 million naira ($15,000), the agency said. Scams have become so successful in Nigeria that anti-sleaze campaigners say swindling is one of the country's main foreign exchange earners after oil, natural gas and cocoa.

Anajemba's sentencing by a Lagos High Court on Friday is the first major conviction since the Economic and Financial Crimes Commission (EFCC) was established in 2003 to crack down on Nigeria's thriving networks of email fraudsters. The agency said in a statement that the judgment was "a landmark achievement by EFCC in the fight against advance fee fraud, corruption and other related crimes."

Typically fraudsters send out junk e-mails around the world promising recipients a share in a fortune in return for an advance fee. Those who pay never receive the promised windfall. Anajemba, whose late husband masterminded the swindling of the Sao Paolo-based Banco Noroeste S.A. between 1995 and 1998, was charged along with Emmanuel Nwude and Nzeribe Okoli. The prosecution said the three accused obtained the $242 million by promising a member of the bank staff a commission for funding a non-existent contract to build an airport in Nigeria's capital Abuja.

All three accused pleaded not guilty, but Anajemba later changed her mind to enter a guilty plea in order to receive a shorter sentence. Her prison term was backdated to start in January 2004 when she was first taken in custody. The trial of the two others who maintained their not guilty pleas was adjourned to September.

Ranked the world's second most corrupt country after Bangladesh by sleaze watchdog Transparency International, Nigeria has given new powers to the EFCC which is prosecuting about 200 fraud and corruption cases. The anti-fraud agency has arrested over 200 junk mail scam suspects since 2003. It says it has also confiscated property worth $200 million and secured 10 other convictions. ($1=132.70 Naira)

...[T]he motivation of these lead plaintiffs has always raised questions. In other forms of class-action lawsuits, notably those concerning civil rights, each member of the class stands to gain a similar, common benefit—for example, access to something that had previously been denied. In securities class-action suits, however, the gains are proportional to share ownership. Why, then, would small investors take on the burden of championing a suit?

...Conjecture centred on law firms because until the class-action rules were changed in 1995, they clearly had most to gain. Lead plaintiffs, regardless of the size of their investment, were allowed to play a central role in the selection of counsel and their compensation (which could be as much as 40% of any settlement). This is not true now, because one of the largest shareholders is typically the lead litigant...

...For many years it was suspected, but always denied, that a number of law firms maintained a network of individuals who would buy token amounts of stock in many companies. These people would then be able to sue at the first sign of trouble. Named plaintiffs were barred from sharing their lawyers' fees, because they would have an incentive to maximise rather than minimise them, says James Copland, director of the Centre for Legal Policy at the Manhattan Institute. That would subvert a primary aim of tort cases—making victims whole—because a plaintiff sharing in the lawyers' cut would, in effect, be gaining at the expense of his fellows in the class action. It would also provide incentives for spurious litigation that companies might feel forced to settle.

Silicon Valley execs who have grappled with Lerach are already feeling more than a little vindicated. Although government reforms stopped the practice in the early 90s, the ability of Milberg Weiss to find a willing plaintiff to sue within hours of an unexpected stock drop raised suspicions with companies for years.

Faced with Lerach's aggressive tactics and the skill of his staff of lawyers, companies often would settle, rather than incur years of legal fees fighting a Milberg Weiss suit. They complained bitterly that Lerach was preying on legitimate companies which happened to have volatile stocks -- often tech-related outfits.

Indeed, a judge removed the lead plaintiff from a Milberg suit against a tech firm called Terayon in 2004, questioning whether the plaintiff had helped drive down Terayon's stock by selling its stock short.

“We are saddened by the indictment today of Seymour Lazar, who has been a client of this firm. Many of [Mr] Lazar’s cases championed consumer rights, and resulted in many of the protections consumers enjoy today, including safeguards against discrimination by restaurant chains, prohibitions on unfair charges by rent-a-car companies, and penalties for misconduct by big corporations and their accountants."

Lerach won't comment on his current troubles, but people in his camp have been quick to cast the investigation as politically motivated, an example of a pro-business Republican administration going after a scourge of corporate wrongdoing - and a big contributor to the Democrats to boot. Besides, doesn't Lerach currently have a shareholder suit against Halliburton, one that even points the finger at its former chief executive, the vice president, Dick Cheney? Hasn't he extracted $4.7 billion so far for the beleaguered shareholders of Enron, the company once run by President George W. Bush's old friend, "Kenny Boy"? Lerach's lawyer, John Keker, said in a statement that "Bill Lerach has done more to protect shareholders than this SEC and the Department of Justice combined"- and made ominous references to Lerach's "powerful enemies."

Labels: Enron

Libraries exist to preserve society’s cultural artifacts and to provide access to them. If libraries are to continue to foster education and scholarship in this era of digital technology, it’s essential for them to extend those functions into the digital world...

...[W]ithout cultural artifacts, civilization has no memory and no mechanism to learn from its successes and failures. And paradoxically, with the explosion of the Internet, we live in what Danny Hillis has referred to as our "digital dark age."
The Internet Archive is working to prevent the Internet — a new medium with major historical significance — and other "born-digital" materials from disappearing into the past. Collaborating with institutions including the Library of Congress and the Smithsonian, we are working to preserve a record for generations to come.

Open and free access to literature and other writings has long been considered essential to education and to the maintenance of an open society. Public and philanthropic enterprises have supported it through the ages. The Internet Archive is opening its collections to researchers, historians, and scholars... [and]...we are hopeful about the development of tools and methods that will give the general public easy and meaningful access to our collective history.

In the suit, Healthcare Advocates Inc. v. Harding Earley Follmer & Frailey, et al., the plaintiff claims that during the discovery phase of a prior lawsuit, employees of the law firm violated the Digital Millennium Copyright Act and the Computer Fraud and Abuse Act.

Plaintiff's attorneys Peter J. Boyer and Scott S. Christie of McCarter & English allege in the suit that employees of Harding Earley were aware that the archives of Healthcare Advocates' Web site were blocked, but "successfully hack[ed]" into the system and "finally managed to successfully circumvent the security."

Also named as a defendant in the suit is Internet Archive, a nonprofit organization in San Francisco that, according to the suit, was "founded to build an 'Internet library' with the purpose of offering researchers, historians, and scholars permanent access to historical collections that exist in digital format."

The suit alleges that Internet Archive had agreed to block public access to the archived historical content of Healthcare Advocates, but "failed to perform its duty." In the 12-count complaint, the law firm is also accused of copyright infringement, civil conspiracy, trespass to chattels, trespass for conversion and intrusion upon seclusion. Internet Archive is being sued for breach of contract, promissory estoppel, breach of fiduciary duty, negligent dispossession and negligent misrepresentation.

In an interview Tuesday, plaintiff's attorney Christie -- a former federal prosecutor in the District of New Jersey where he headed the computer hacking and intellectual property section -- said the case is about the right of Web site owners to protect their copyrighted material by insisting that archive sites block access.

As for the law firm he sued, Christie said their actions were "antithetical to the way lawyers are expected to conduct themselves," and that, as specialists in the area of intellectual property, "they should have known better." In the opening paragraphs of the suit, the plaintiff's lawyers contend there were "at least 92 separate acts of unauthorized electronic access" of Healthcare Advocates' Web archives committed by "partners, associates, legal assistants and other employees of [the] Harding Earley law firm."

According to the suit, Healthcare Advocates is "a pioneer in the patient advocacy field," and "assists the public in securing, paying for, and receiving reimbursement for necessary health care." In June 2003, Healthcare Advocates filed a copyright and trademark infringement suit against a competitor, Health Advocate Inc. The suit was dismissed in February 2005 when Senior U.S. District Judge Robert F. Kelly concluded that the plaintiff's claimed trademark was not entitled to protection because it had not attained any "secondary meaning."

That ruling is now on appeal.

But in the new suit, Healthcare Advocates claims that during the discovery phase of the prior suit, Harding Earley -- an intellectual property boutique in Valley Forge, Pa. -- was hired by one of the defendants and set out to hack into its Web archives.
The suit also alleges that Internet Archive promised that the archives would be blocked from public view, but failed to deliver on that promise. According to the suit, Internet Archive "archives the content of publicly accessible Internet Web sites that otherwise would disappear as it is updated, removed by its owners, or otherwise ceases to exist in an effort to preserve the cultural and historical value of this material."

On its site, the suit says, Internet Archive allows visitors to use its "Wayback Machine" to access any of its archived Web sites "as it existed on any or all of the capture dates as far back as 1996." The suit also says Internet Archive has an "exclusion policy" that allows Web site owners to block public access. To take advantage of the policy, the suit says, Web site owners are instructed to install a file named "robots.txt" on their servers.

"Internet Archive represented to Web site owners that as long as the denial text string was properly installed in the robots.txt file of the computer server hosting their Web sites, defendant Internet Archive would prevent individuals from gaining access to the archived historical content for their Web sites via the Wayback Machine," the suit says.

The suit alleges that when employees of Harding Earley at first attempted to access the archives, they were confronted with a screen that said: "We're sorry, access to http://www.healthcareadvocates.com has been blocked by the site owner via robots.txt." But instead of simply giving up, the suit alleges, Harding Earley set out to hack its way past the site's security mechanism...