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To: Winfastorlose who wrote (15)5/31/2011 4:35:56 PM
From: Winfastorlose
   of 5542
 
Want to Cut Federal Spending? Go Where the Money Is.
Posted April 28th 2011 at 2:53 pm by Neil Payne

This op-ed was published today in newspapers in Arkansas and California.
We can trim the Pentagon’s budget without sacrificing national security.


By Ben Cohen and Jeff Blum

Pop quiz:

Name the last three presidents who significantly cut military spending.

If your answer is George H.W. Bush, Ronald Reagan, and Richard Nixon, you would be correct. To address budget deficits, Bush I and Reagan, in his second term, reduced military spending by a combined 23 percent. Perhaps even more apropos to today’s fiscal realities, Nixon reduced military spending by a whopping 27 percent between 1969 and 1974 to pay for social programs he felt were important to our nation.

Legend has it that career criminal Willie Sutton, asked why he robbed banks, replied, “Because that’s where the money is.”

If we are serious about cutting or redirecting our federal spending to important priorities like health care and education, we need to go where the money is, too. Roughly 59 percent of discretionary federal spending is military spending. That’s where we need to look.

The amount of savings we can realize by eliminating unnecessary weapons systems and scaling back our military’s ever-expanding role could total nearly $800 billion during a seven-year period, beginning in 2012 and continuing through 2018. That’s a cut of just under 15 percent.

What could we do with the savings? We could pay for health coverage for up to 40 million Americans each year. We could immediately stop firing hundreds of thousands of teachers. Eliminating these jobs is hurting our local economies and endangering our children’s future.

Don’t believe we can do it?

Gordan Adams and Matthew Leatherman are two experts who aren’t household names, but should be. They’ve penned an article for Foreign Affairs headlined, “A Leaner and Meaner Defense: How to Cut the Pentagon’s Budget While Improving Its Performance.”

The article discusses many things–the Pentagon’s proper role, weapons systems we don’t need, out-of-control costs associated with military payroll and pensions. Most importantly, it addresses how we choose between our desire to be the world’s sheriff and the urgent need to address our economy.

Along the way, the authors lay out a series of cuts that would save hundreds of billions over the next few years alone. Examples:

We could cut the F-35 fighter jet. That aircraft runs $90 million a pop. Stocking up on the 2,443 F-35s Washington wants will exceed $1 trillion. The Atlantic wryly notes that this is more than Australia’s gross domestic product.

We could scrap the V-22 Osprey, a tilt-rotor aircraft designed to fly like a plane and take off and land like a helicopter.

Despite the $18 billion the Pentagon plans to spend on this gizmo beginning next year, the Osprey tilts too much. During testing, some 30 service members were killed in four well-publicized accidents.

We could drop part of our missile defense program, leaving in place our Patriot system but saving $34 billion beginning next year. We could cut the Expeditionary Fighting Vehicle, saving $24 million a pop. This vehicle, intended for amphibious assault, seems entirely superfluous, given that no amphibious landing has taken place in combat conditions for decades.

These are just some of their suggestions. There are others. What’s important is that the $788 billion in proposed savings wouldn’t make America any less strong and resilient. It would, however, better equip us to make investments that strengthen us at home.

It would also leave President Barack Obama occupying a rather unique place in history. He would be the first Democratic president since before World War II to actually cut military spending. That’s “change” we not only can believe in, but can pocket for our future.

Ben Cohen is a founder of Ben & Jerry’s and has been working for sensible defense policies for more than a decade. Jeff Blum is executive director of USAction, a federation of 24 state affiliates and partners that organizes for a more just America.

insideusaction.org

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To: scion who wrote (10)5/31/2011 6:09:14 PM
From: scion
   of 5542
 
U.S. Marshals track man down in Southern Utah

By Nur Kausar nkausar@thespectrum.com
May 31, 2011
m.thespectrum.com

ST. GEORGE - A Georgia man trying to thwart a significant prison sentence will go before a federal judge in Utah Wednesday, following his arrest by the Joint Criminal Apprehension Team Saturday night in Bloomington.

Rufus Paul Harris, former CEO of Conversion Solutions Holdings Corporation, fled Atlanta on May 23, before the end of his two-week trial that found him guilty of securities fraud, wire fraud, falsifying financial statements and conspiracy.

Michael Wingert, supervisory deputy U.S. Marshal for Utah, said law enforcement followed the 43-year-old Harris using a trail he "unintentionally left."

Wingert said Harris had some former business associates in Southern Utah, and was arrested at one of their homes, where JCAT officers found him hiding in a closet.

JCAT in Southern Utah included officers from Washington County, Iron County, St. George Police, Adult Probation and Parole and the Marshals Service.

From his investigation, Wingert said there is no connection to Harris' fraud case to Utah, and the crimes were committed in Georgia where he was convicted.

Harris is scheduled to be sentenced on Aug. 18 in Atlanta for his eight convictions, and could receive a maximum consecutive or concurrent sentence of 25 years in prison and a fine of up to $250,000 each for charges of securities fraud and conspiracy, and 20 years and a fine of up to $250,000 for each count of the wire fraud.

For the false certification of a financial statement conviction, he could receive a maximum sentence of 10 years in prison and a fine of up to $1 million.

Wingert said extrication back to Georgia would be determined after Wednesday's appearance.

m.thespectrum.com

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From: scion5/31/2011 7:12:33 PM
   of 5542
 
Perry signs 'loser pays' lawsuit bill
Designed to encourage out-of-court settlements

Updated: Monday, 30 May 2011, 3:33 PM CDT
Published : Monday, 30 May 2011, 1:30 PM CDT
SOMMER INGRAM, Associated Press
kxan.com

AUSTIN (AP) - Gov. Rick Perry signed into law Monday a measure that will limit frivolous lawsuits by levying some fees on plaintiffs and allowing meritless suits to be dismissed early in the process.

Perry designated the "loser pays" bill a top priority of the legislative session, saying Texas needs to crack down on junk lawsuits.

Some plaintiffs who sue and lose will be required to pay the court costs and attorney fees of those they are suing. The law also creates expedited civil actions for cases less than $100,000. It goes into effect Sept. 1.

Perry said the legislation "provides defendants and judges with a variety of tools to expedite justice for those deserving."

"Employers will spend less time in court and more time creating jobs," he said.

The law will encourage timely settlements by penalizing parties who turn down reasonable settlement offers to try to get more than they should.

Perry said the changes reduce the cost of litigation while still allowing legitimate cases to proceed. Supporters say the state's business climate will improve because the reforms will make Texas more attractive to employers looking to expand or relocate.

"HB274 signifies a major landmark in tort reform in Texas," said Rep. Brandon Creighton, the House author of the bill. "The state now has the means to dispatch suits that should have never been filed, making litigation in Texas fair and expedient."

Business groups and the Texas Medical Association, which wanted to protect doctors from frivolous malpractice lawsuits, have urged lawmakers to pass such legislation. But several trial lawyer groups and the AFL-CIO opposed the measure, arguing it would give corporations the upper hand in lawsuits and prevent some individuals with legitimate claims from filing suit.

Sen. Joan Huffman, the Senate sponsor of the bill, worked to negotiate a compromise between trial lawyer groups and businesses. The trial lawyers agreed to support the Senate version of the bill after the provision that allows judges to immediately dismiss frivolous lawsuits was added.

kxan.com

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From: scion5/31/2011 7:46:27 PM
   of 5542
 
Tens of Thousands of Pacer Documents Could Have Failed Redactions, Study Suggests

(Posted on ABA Journal Daily News at Tue, May 31, 2011 at 10:10AM)
abajournal.com

Those black boxes used to hide redacted information in court documents filed with Pacer don’t always work, according to a study that suggests tens of thousands of the online filings may have failed redactions.

Timothy Lee, a PhD candidate in computer science at Princeton, conducted the study. He found 194 documents with not-so-hidden information that included trade secrets; personal information; and names of witnesses, jurors or plaintiffs. Lee wrote about his study at Freedom to Tinker, a blog hosted by Princeton’s Center for Information Technology Policy.

Lee explains that PDF documents have multiple layers, and text may still be under a blacked-out rectangle. Extracting the information can be as easy as cutting and pasting.

Lee found the 194 documents by writing a computer program to detect redaction boxes in the 1.8 million Pacer documents in Princeton’s collection. The software identified about 2,000 documents with redactions. Of those, 194 had redactions that didn’t work.

Lee notes that Pacer reportedly has about 500 million documents. He cautioned that Princeton’s Pacer documents aren’t a random sample, so it’s difficult to estimate just how many Pacer documents have similar problems. Still, he writes, it’s safe to say there are thousands, and probably tens of thousands, of documents in Pacer with failed redactions.

Lee recommends that the federal judiciary use software like the program he developed to scan Pacer documents for failed redactions. He advises lawyers who want to avoid the problem to check out recommendations (PDF) developed by the National Security Agency.

abajournal.com

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To: scion who wrote (19)5/31/2011 7:47:00 PM
From: scion
   of 5542
 
Studying the Frequency of Redaction Failures in PACER

By Timothy B. Lee May 25th, 2011 at 1:52 pm
freedom-to-tinker.com

Since we launched RECAP a couple of years ago, one of our top concerns has been privacy. The federal judiciary's PACER system offers the public online access to hundreds of millions of court records. The judiciary's rules require each party in a case to redact certain types of information from documents they submit, but unfortunately litigants and their counsel don't always comply with these rules. Three years ago, Carl Malamud did a groundbreaking audit of PACER documents and found more than 1600 cases in which litigants submitted documents with unredacted Social Security numbers. My recent research has focused on a different problem: cases where parties tried to redact sensitive information but the redactions failed for technical reasons. This problem occasionally pops up in news stories, but as far as I know, no one has conducted a systematic study.

To understand the problem, it helps to know a little bit about how computers represent graphics. The simplest image formats are bitmap or raster formats. These represent an image as an array of pixels, with each pixel having a color represented by a numeric value. The PDF format uses a different approach, known as vector graphics, that represent an image as a series of drawing commands: lines, rectangles, lines of text, and so forth.

Vector graphics have important advantages. Vector-based formats "scale up" gracefully, in contrast to the raster images that look "blocky" at high resolutions. Vector graphics also do a better job of preserving a document's structure. For example, text in a PDF is represented by a sequence of explicit text-drawing commands, which is why you can cut and paste text from a PDF document, but not from a raster format like PNG.

But vector-based formats also have an important disadvantage: they may contain more information than is visible to the naked eye. Raster images have a "what you see is what you get" quality—changing all the pixels in a particular region to black destroys the information that was previously in that part of the image. But a vector-based image can have multiple "layers." There might be a command to draw some text followed by a command to draw a black rectangle over the text. The image might look like it's been redacted, but the text is still "under" the box. And often extracting that information is a simple matter of cutting and pasting.

So how many PACER documents have this problem? We're in a good position to study this question because we have a large collection of PACER documents—1.8 million of them when I started my research last year. I wrote software to detect redaction rectangles—it turns out these are relatively easy to recognize based on their color, shape, and the specific commands used to draw them. Out of 1.8 million PACER documents, there were approximately 2000 documents with redaction rectangles. (There were also about 3500 documents that were redacted by replacing text by strings of Xes, I also excluded documents that were redacted by Carl Malamud before he donated them to our archive.)

Next, my software checked to see if these redaction rectangles overlapped with text. My software identified a few hundred documents that appeared to have text under redaction rectangles, and examining them by hand revealed 194 documents with failed redactions. The majority of the documents (about 130) appear be from commercial litigation, in which parties have unsuccessfully attempted to redact trade secrets such as sales figures and confidential product information. Other improperly redacted documents contain sensitive medical information, addresses, and dates of birth. Still others contain the names of witnesses, jurors, plaintiffs, and one minor.

Implications

PACER reportedly contains about 500 million documents. We don't have a random sample of PACER documents, so we should be careful about trying to extrapolate to the entire PACER corpus. Still, it's safe to say there are thousands, and probably tens of thousands, of documents in PACER whose authors made unsuccessful attempts to conceal information.

It's also important to note that my software may not be detecting every instance of redaction failures. If a PDF was created by scanning in a paper document (as opposed to generated directly from a word processor), then it probably won't have a "text layer." My software doesn't detect redaction failures in this type of document. This means that there may be more than 194 failed redactions among the 1.8 million documents I studied.

A few weeks ago I wrote a letter to Judge Lee Rosenthal, chair of the federal judiciary's Committee on Rules of Practice and Procedure, explaining this problem. In that letter I recommend that the courts themselves use software like mine to automatically scan PACER documents for this type of problem. In addition to scanning the documents they already have, the courts should make it a standard part of the process for filing new documents with the courts. This would allow the courts to catch these problems before the documents are made available to the public on the PACER website.

My code is available here. It's experimental research code, not a finished product. We're releasing it into the public domain using the CC0 license; this should make it easy for federal and state officials to adapt it for their own use. Court administrators who are interested in adapting the code for their own use are especially encouraged to contact me for advice and assistance. The code relies heavily on the CAM::PDF Perl library, and I'm indebted to Chris Dolan for his patient answers to my many dumb questions.

Getting Redaction Right

So what should litigants do to avoid this problem? The National Security Agency has a good primer on secure redaction. The approach they recommend—completely deleting sensitive information in the original word processing document, replacing it with innocuous filler (such as strings of XXes) as needed, and then converting it to a PDF document, is the safest approach. The NSA primer also explains how to check for other potentially sensitive information that might be hidden in a document's metadata.

Of course, there may be cases where this approach isn't feasible because a litigant doesn't have the original word processing document or doesn't want the document's layout to be changed by the redaction process. Adobe Acrobat's redaction tool has worked correctly when we've used it, and Adobe probably has the expertise to do it correctly. There may be other tools that work correctly, but we haven't had an opportunity to experiment with them so we can't say which ones they might be.

Regardless of the tool used, it's a good idea to take the redacted document and double-check that the information was removed. An easy way to do this is to simply cut and paste the "redacted" content into another document. If the redaction succeeded, no text should be transferred. This method will catch most, but not all, redaction failures. A more rigorous check is to remove the redaction rectangles from the document and manually observe what's underneath them. One of the scripts I'm releasing today, called remove_rectangles.pl, does just that. In its current form, it's probably not user-friendly enough for non-programmers to use, but it would be relatively straightforward for someone (perhaps Adobe or the courts) to build a user-friendly version that ordinary users could use to verify that the document they just attempted to redact actually got redacted.

One approach we don't endorse is printing the document out, redacting it with a black marker, and then re-scanning it to PDF format. Although this may succeed in removing the sensitive information, we don't recommend this approach because it effectively converts the document into a raster-based image, destroying useful information in the process. For example, it will no longer be possible to cut and paste (non-redacted) text from a document that has been redacted in this way.

Bad redactions are not a new problem, but they are taking on a new urgency as PACER documents become increasingly available on the web. Correct redaction is not difficult, but it does require both knowledge and care by those who are submitting the documents. The courts have several important roles they should play: educating attorneys about their redaction responsibilities, providing them with software tools that make it easy for them to comply, and monitoring submitted documents to verify that the rules are being followed.

This research was made possible with the financial support of Carl Malamud's organization, Public.Resource.Org.

freedom-to-tinker.com

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From: scion6/1/2011 8:48:01 AM
   of 5542
 
Are Members of Congress Engaged in Insider Trading?

By Conor Friedersdorf
May 27 2011, 2:20 PM
theatlantic.com

Legislators who buy stock somehow manage to earn a much higher return on their investments than the rest of us

When Congress isn't sending billions in taxpayer money to bail out Wall Street firms, some of its legislators appear to be using information unavailable to the general public to personally profit on stock trades.

So says a study just published in Business and Politics.[ bepress.com ] A portfolio that imitates the stock purchases of House members outperforms the market by more than 6 percent in the course of a year, its authors found. "A previous study of the stock returns of U.S. Senators in a leading finance journal indicates that their portfolios show some of the highest excess returns ever recorded over a long period of time, significantly outperforming even hedge fund managers," they wrote. "Until now, there has been no similar study of Members of the U.S. House of Representatives."

Now we know that from 1985 to 2001, the specific interval used to generate the data, senators do the best, House members follow, and the average American investor brings up the rear. In defense of Congress, however, most legislators weren't exploiting their advantage: on average only 27 percent of senators and 16 percent of House members bought and sold common stock. Interestingly, in the House "by far the most successful traders were those Representatives with the least seniority." The authors acknowledge that result is counterintuitive, and posit this explanation:

Whereas Representatives with the longest seniority (in this case more than 16 years), have no trouble raising funds for campaigns, junkets and whatever other causes they may deem desirable owed to the power they wield, the financial condition of a freshman Congressman is far more precarious. His or her position is by no means secure, financially or otherwise. House Members with the least seniority may have fewer opportunities to trade on privileged information, but they may be the most highly motivated to do so when the opportunities arise.

So what should be done?

It's presented as a thorny problem. "To restrain Members from taking personal advantage of non-public information and using their positions for personal gain, Congress has decided that such unethical behavior is best discouraged by the public disclosure of financial investments by Representatives and the discipline of the electoral process," the authors point out, but "to form a reasonable opinion of a Representative's conflicts of interest, voters must familiarize themselves with their Representative's personal asset holdings, the details of each law under consideration in the House and the voting record of the Representative. This could be difficult for any voter."

That's why faster disclosure would work best here. Forget filing periodic reports. Just force Members of Congress to be transparent about their stock trades in real time. Voter oversight wouldn't even be needed -- the idea is that self-interested traders would closely monitor the buying and selling of stock by legislators, who'd thereby lose a lot of their ability to get a jump on other investors.

Right?

theatlantic.com

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From: scion6/1/2011 8:54:44 AM
   of 5542
 
Cooperator in FCPA Sting Case Testifies For Government

May 31, 2011
legaltimes.typepad.com

A military equipment dealer and certified public accountant who pleaded guilty to participating in a foreign bribery conspiracy testified today for the government that it was clear to him that a $15 million deal with Gabon involved an illegal payment.

The cooperator, Jonathan Spiller, represented by O'Melveny & Myers partner Kenneth Wainstein, pleaded guilty in March in U.S. District Court for the District of Columbia. Spiller agreed to testify against four men on trial for their alleged roles in the same bribery conspiracy.

Prosecutors allege the participants agreed to inflate artificially the sales price of equipment and other items being sold to the west African nation of Gabon. The authorities arrested 22 people in the undercover sting in January 2010. Spiller faces up to five years in prison for conspiracy. Sentencing guidelines call for a range of 37 to 46 months in prison, court records show.

Laura Perkins, a fraud section trial attorney for the U.S. Justice Department, played for jurors today secretly recorded audio and video of meetings that included Spiller and the government's lead informant, Richard Bistrong.

In one call, an undercover FBI agent posing as a procurement officer for Gabon said the defense minister thanked Spiller for his commission. Perkins asked Spiller, owner of JM Spiller & Associates, in Florida, whether he was surprised a Gabonese official had received a payment.

“No,” Spiller responded. “Because we’d been told that was part of the deal.” He said in another response to Perkins that it was “not unclear to me at all” that the commission going to the defense minister was an illegal payment under the Foreign Corrupt Practices Act.

Spiller today recounted the trip to Las Vegas in January 2010 in which participants in the deal were planning to meet the new defense minister of Gabon and receive payment for the second phase of the deal. Spiller said he was “very excited.”

But no money was exchanged. Instead, Spiller and 20 others were arrested on charges of violating the FCPA. Federal agents interrogated Spiller for hours the day of his arrest. And he would meet with prosecutors again months later, agreeing then to cooperate for the government.

Spiller told a lawyer for defendant Pankesh Patel, Matthew Menchel, that he spent hours with prosecutors preparing for his trial testimony. Spiller said he did not recall seeing any reports of his interviews with federal agents.

At the advice of counsel, Spiller declined to grant an interview with the defense lawyers prior to his testimony in Washington federal district court.

When Menchel asked Spiller about a meeting with prosecutors in February, Spiller said he did not recall the substance of the discussion. Menchel suggested prosecutors would have frowned against such an interview.

“I think I’ve been truthful the whole way through,” Spiller said in one exchange with Menchel, former chief of the criminal division in the U.S. Attorney’s Office for the Southern District of Florida.

Spiller is a former partner at the accounting firm Deloitte & Touche, where he spent 18 years. He made partner in 1982.

Posted by Mike Scarcella on May 31, 2011 at 02:01 PM in Justice

legaltimes.typepad.com

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From: scion6/1/2011 9:58:10 AM
   of 5542
 
S.E.C. Case Stands Out Because It Stands Alone

May 31, 2011
By LOUISE STORY and GRETCHEN MORGENSON
nytimes.com


At the height of the housing boom, the 26th floor of Goldman Sachs’s former headquarters on Broad Street in Lower Manhattan was the nerve center of Goldman’s fast-growing mortgage trading business.

Hundreds of employees worked closely in teams, devising mortgage-based securities — billions of dollars’ worth — that were examined by lawyers, approved by management, then sold to investors like hedge funds, commercial banks and insurance companies.

At one trading desk sat Fabrice Tourre, a midlevel 28-year-old Frenchman who was little known not just outside Goldman but even inside the firm. That changed three years later, in 2010, when he achieved the dubious distinction of becoming the only individual at Goldman and across Wall Street sued by the Securities and Exchange Commission for helping to sell a mortgage-securities investment, in one of the hundreds of mortgage deals created during the bubble years.

How Mr. Tourre alone came to be the face of mortgage-securities fraud has raised questions among former prosecutors and Congressional officials about how aggressive and thorough the government’s investigations have been into Wall Street’s role in the mortgage crisis.

Across the industry, “it’s impossible that only one person was involved with fraudulent activities in connection to the sales of these mortgage securities,” said G. Oliver Koppell, a New York attorney general in the 1990s and now a New York City councilman.

In the fall of 2009, when Mr. Tourre learned that he had become a target of investigators for helping to sell a mortgage security called Abacus, he protested that he had not acted alone.

That fall, his lawyers drafted private responses to the S.E.C., maintaining that Mr. Tourre was part of a “collaborative effort” at Goldman, according to documents obtained by The New York Times. The lawyer added that the commission’s view of his role “would have Mr. Tourre engaged in a grand deception of practically everyone” involved in the mortgage deal.

Indeed, numerous other colleagues also worked on that mortgage security. And that deal was just one of nearly two dozen similar deals totaling $10.9 billion that Goldman devised from 2004 to 2007 — which in turn were similar to more than $100 billion of such securities deals created by other Wall Street firms during that period.

While Goldman paid $550 million last year to settle accusations that it had misled investors who bought the Abacus mortgage security, no other individuals at the bank have been named. Now, however, as criticism has grown about the lack of cases brought by regulators, the scope of the inquiries appears to be widening. The United States attorney general, Eric H. Holder Jr., has said publicly that his lawyers were reviewing possible charges against other Goldman officials in the wake of a Senate investigation that produced reams of documents detailing other questionable decisions that were made in the firm’s mortgage unit.

The Senate inquiry was one of several in the past three years. These investigations by Congressional leaders and bankruptcy trustees — into the likes of Washington Mutual, Lehman Brothers and the ratings agencies — were undertaken largely to understand what had gone wrong in the crisis, rather than for law enforcement. Yet they uncovered evidence that could be a road map for federal officials as they decide whether to bring civil and criminal cases.

One person who already has come under investigation is Jonathan M. Egol. A senior trader at Goldman who worked closely with Mr. Tourre, he had a negative view on the housing market early on, and took a lead role in creating mortgage securities like Abacus that enabled Goldman and certain clients to place bets that proved profitable when the housing market collapsed.

Last year the S.E.C. examined Mr. Egol’s role in the Abacus deal in its lawsuit, according to a report by the commission’s inspector general. But Mr. Egol, now a managing director at the bank, was not named in the case, in part because he was more discreet in his e-mails than Mr. Tourre was, so there was less evidence against him, according to a person with knowledge of the S.E.C.’s case.

Though Mr. Tourre was a more junior member of the Goldman team, the S.E.C. case against him was bolstered by colorful e-mails he wrote, calling mortgage securities like those he created monstrosities and joking that he sold them to “widows and orphans.”

The S.E.C. declined to comment about its focus on Goldman and Mr. Tourre, beyond pointing to a section in its complaint that said that Mr. Tourre had been “principally responsible” for the Abacus deal in the case.

A spokesman for Goldman, Lucas van Praag, did not dispute that Mr. Tourre had worked on the Abacus deal as part of a collaborative team. But he said that the bank had disagreed with many of the conclusions about its mortgage unit contained in the recent Senate report. Mr. Egol and his lawyer did not respond to inquiries for comment.

As the government continues to investigate the activities of Goldman and other banks, it is uncertain whether other individuals will be named. Neil M. Barofsky, who as the first inspector general of the Troubled Asset Relief Program, the federal bank bailout program, investigated whether banks had properly obtained and handled the money they received, said prosecutors should look as high up as possible.

“Obviously in any investigation that results in charges against a company,” he said, “you’d like to see the highest-ranking person responsible for the conduct at the company to be held accountable.”

A Booming Market

A math whiz who got his undergraduate degree at the École Centrale in Paris, Fabrice Tourre joined Goldman in 2001 after getting a master’s degree at Stanford. As the housing market and the demand for mortgages boomed over the next few years, Goldman went from creating just $3 billion of mortgage securities called collateralized debt obligations in 2002 to at least $22 billion in 2006, according to Dealogic, a financial data firm.

The C.D.O.’s were linked to the performance of underlying mortgages that were bundled into securities; as long as homeowners stayed current on payments, investors who bet that the housing market would stay healthy made money. Only if many borrowers defaulted would the investors lose money.

Goldman’s mortgage desk worked as a tight team. Dan Sparks was the head of all mortgage operations, including the Abacus team, which Mr. Egol led.

The team worked so closely that its members shared a group e-mail address, “Ficc-mtgcorr-desk.” Nearly all of the e-mails about the Abacus deal in the S.E.C.’s case, as well as those about other, similar deals, were sent by Mr. Tourre or his colleagues using the shared e-mail address.

The 2007 memo that proposed the Abacus deal to higher managers at Goldman was signed by all seven members of the group. The marketing materials for Abacus, and other complex mortgage securities, often listed around 15 people in addition to Mr. Tourre, with their contact numbers.

Abacus and related mortgage securities deals were a huge success for Goldman, allowing the firm to earn tens of millions of dollars in fees by selling securities to investors and to place bets on the securities that helped Goldman perform better than most other banks during the crisis.

But Mr. Tourre’s world would soon be turned upside down. In fall 2009, the S.E.C. issued him a Wells notice, a formal warning that he was likely to be named in a civil fraud suit for his role in the mortgage deals. Mr. Egol also received such a notice in 2010.

In their Oct. 10 response to the S.E.C., Mr. Tourre’s lawyers, including Pamela Chepiga of Allen & Overy, made an argument that they have not emphasized publicly. They contended that “singling Mr. Tourre out for criticism regarding the content of this clearly collaborative effort is unreasonable.”

These legal replies, which are not public, were provided to The New York Times by Nancy Cohen, an artist and filmmaker in New York also known as Nancy Koan, who says she found the materials in a laptop she had been given by a friend in 2006.

The friend told her he had happened upon the laptop discarded in a garbage area in a downtown apartment building. E-mail messages for Mr. Tourre continued streaming into the device, but Ms. Cohen said she had ignored them until she heard Mr. Tourre’s name in news reports about the S.E.C. case. She then provided the material to The Times. Mr. Tourre’s lawyer did not respond to an inquiry for comment.

In the drafted replies, lawyers for Mr. Tourre named the other Goldman employees who they say worked closely on the Abacus deal with him: In addition to Mr. Egol, they included David Gerst, a securities lawyer in the Abacus group and Darren Littlejohn, another lawyer at Goldman who worked on the deal; Cactus Raazi and Gail Kreitman, sales representatives; Shin Yukawa, a credit ratings specialist; and others.

The S.E.C. focused in the complaint on disclosures in the marketing of Abacus, saying that the sales documents had failed to tell investors that the deal was devised with the help of John A. Paulson, the billionaire hedge fund manager, who was not named in the case. Mr. Paulson’s firm suggested that the deal be linked to mortgages for which he expected a high rate of default, the S.E.C. said; when that came to pass, the bets he placed against the securities proved very profitable for him. But investors on the other side lost more than $1 billion, according to the S.E.C.

Mr. Tourre’s lawyers wrote that their client was “simply one member of a large team that worked on the 2007-AC1 transaction” — referring to the Abacus deal — “and was entitled to rely on Goldman Sachs’s institutional processes to ensure that disclosures were properly drafted.” He was not a lawyer, they argued. Legal counsel on a deal, in this case Mr. Littlejohn and Mr. Gerst, typically review documents and decide what must be disclosed to investors.

The S.E.C. has not said why it focused on just one Abacus deal, even though other mortgage securities created by Goldman and other banks had similar designs and disclosures. In many of the securities, for example, there was an investor like Mr. Paulson or Goldman itself betting against the housing market, and often that party helped devise the deal, according to four former Goldman employees familiar with the securities.

Indeed, there was at least one other security that had involved Mr. Paulson, according to the 2007 memo written by Mr. Tourre’s desk.

It was Mr. Egol’s name that came up most prominently in Mr. Tourre’s legal response to the S.E.C., as well as in interviews with traders knowledgeable about the Abacus deals.

A former colleague on Goldman’s mortgage desk who now works for another financial firm said he did not understand why Mr. Tourre had been singled out. “That has baffled me from the very beginning. I just can’t even begin to tell you how junior and insignificant his role was,” said this person, who asked not to be named because it could damage his career.

Mr. Tourre’s lawyers also pointed to an e-mail that February from Mr. Egol, which said “the cdo biz is dead we don’t have a lot of time left.” The S.E.C. pointed to that line as evidence that Mr. Tourre had known of the trouble in the market. Mr. Tourre’s lawyers responded that those views were Mr. Egol’s and “not necessarily” Mr. Tourre’s.

The newly released Senate report also cites e-mails that it has made public, where Mr. Egol seems to have the stronger views. On Jan. 29, 2007, for instance, Mr. Egol wrote to Mr. Tourre that “the mkt is dead.” Mr. Tourre replied, “ouahhh, what do you mean by that? Do you have any insight I don’t?”

In April 2010, when the S.E.C. filed its case against the bank and Mr. Tourre, the young banker told friends that he believed Goldman had been chosen to be the commission’s “case study,” according to several who spoke on the condition that they not be identified. The friends also said they were concerned that Mr. Tourre’s dependence on Goldman for advice and legal counsel was not in his best interest.

In September 2009, for instance, Mr. Tourre told friends he thought he had to use a lawyer from a list of lawyers at three firms that Goldman gave him.

Robert Follie, a lawyer in Paris, said Mr. Tourre told him he was not authorized to use lawyers other than those Goldman selected. Mr. Follie said he cautioned Mr. Tourre that his interests might diverge from Goldman’s, so he should consider hiring his own counsel.

“As a practitioner, I mentioned to him that I felt the risk in the long run was that the lawyer who was acting for him might end up in a near conflict-of-interest situation,” Mr. Follie, whose daughter is friends with Mr. Tourre, said in an interview last December.

After the S.E.C. case was filed in summer 2010, Mr. Follie wondered how Mr. Tourre had wound up as the only defendant. “I felt that somewhere down the line, he must have done or not done the proper things to get out of this. I was personally wondering if he had sufficient representation disassociated from Goldman,” he said.

Mr. van Praag, the Goldman spokesman, said the bank did not impose lawyers on its workers and had not done so on Mr. Tourre. He said that “ultimately the decision is for the individual and counsel to determine whether they are right for each other.”

For the last year, Mr. Tourre has been on paid leave from Goldman’s London office, where he was transferred after the United States mortgage trading business dried up.

Mr. van Praag also pointed to testimony released this year to the Financial Crisis Inquiry Commission, created by Congress to identify the cause of the economic crisis, as evidence that might help Mr. Tourre’s case because it included statements supporting his claim that the deal had been created properly and independently of Mr. Paulson.

No Criminal Case

Even as Mr. Tourre awaits trial in the civil fraud case, it seems that he will not face criminal charges. When the S.E.C. referred the case to the Justice Department, the commission’s top enforcement lawyer, Robert S. Khuzami, told his counterparts there that he did not believe it was a criminal case, according to two people briefed on the discussions.


Since Mr. Tourre was named in the case, other inquiries into the causes of the financial crisis have put the spotlight on activities of a number of Wall Street firms. This year, the Financial Crisis Inquiry Commission released a 633-page report, and the Senate’s Permanent Subcommittee on Investigations issued its own 650-page report. While the S.E.C. focused solely on the single Abacus deal, the Senate’s report raised questions about a handful of other Goldman mortgage securities.

The report also detailed Goldman’s aggressive valuation of its customers’ mortgage holdings. Goldman’s “senior management knew its sales force was selling C.D.O. securities at inflated prices” and knew that those prices were dropping, the report said. It quoted from a Goldman sales representative’s e-mail saying: “Real bad feeling across European sales about some of the trades we did with clients.”

In addition, the Senate said that two Goldman employees, Deeb Salem and David Swenson, tried to manipulate prices of securities used to bet against mortgages. Both tried to help Goldman pile on larger bets against the mortgage market, and they wanted to be able to buy such negative bets more cheaply, the report said. Goldman, as a broker, was able to affect prices in the market through the bids and offers it gave out.

Mr. Swenson wrote in May 2007 that the bank should try to “start killing” prices on certain positions so that Goldman would be able to “pick some high quality stuff,” according to the Senate report. The strategy, Mr. Swenson wrote, would “have people totally demoralized.” The pair were unsuccessful in their attempt, and both denied making it to the Senate committee. Mr. van Praag said last week that the report had no evidence of manipulation.

Still, the Senate report said that “trading with the intent to manipulate market prices, even if unsuccessful, is a violation of the federal securities laws.”

Goldman is not the only firm to have been scrutinized in public reports. Washington Mutual and Deutsche Bank, for instance, were also cited in the recent Senate report. And last year, a trustee examining the Lehman Brothers bankruptcy uncovered questionable accounting maneuvers at that firm. Companies like Bank of America, the American International Group and Moody’s Investors Service have been featured in other hearings and reports.

Former United States prosecutors said there were limits to how these materials could be used in court. Still, they said, the reports should have given the government a head start on cases.

“They are good starting points,” said Juliet Sorenson, a professor at Northwestern University School of Law. “They are indicators of witnesses who would be subjects for additional interrogations; the reports may introduce documents which lead federal criminal investigators to do additional digging.”

Tom Torok contributed reporting.

nytimes.com

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From: scion6/1/2011 10:03:18 AM
   of 5542
 
Web Hackings Rattle Media Companies

May 31, 2011
By BRIAN STELTER
nytimes.com

It might just be the most worrisome letter to the editor any news organization can receive.

PBS fought on Monday and Tuesday to restore the Web sites for two news programs on public television, “Frontline” and “PBS NewsHour,” which were crippled by hackers who said they were angered by coverage of WikiLeaks.

The incidents were the latest examples of what security experts call “reputational attacks” on media companies that publish material that the hackers disagree with. Such companies are particularly vulnerable to such attacks because many of them depend on online advertising and subscription revenue from Web sites that can be upended by the clicks of a hacker’s keyboard — and because unlike other targets, like government entities and defense contractors, they are less likely to have state-of-the-art security to thwart attacks.

The PBS attack was said to be motivated by a “Frontline” film about WikiLeaks that was broadcast and published online on May 24. Some supporters of Julian Assange, the WikiLeaks founder, and Bradley Manning, a soldier who is suspected of having shared hundreds of thousands of government files with WikiLeaks, criticized the film and claimed that it portrayed the two men in a negative light.

When the anonymous hackers posted a fake news article on a PBS blog and published passwords apparently obtained from PBS servers late Sunday night, they attached complaints about the film, which was titled “WikiSecrets.”

Staff member at PBS said they were appalled by the hackings — which were perceived to be attempts to chill independent journalism — and, to a lesser extent, by the long delay in having the sites restored. In a telephone interview on Tuesday, David Fanning, the executive producer of “Frontline,” called the incidents a “real intrusion into the press” and said they should not be characterized as mere pranks.

“This is what repressive governments do,” he said. “This is what people who don’t want information out in the world do — they try to shut the presses.”

Mr. Fanning said “Frontline” included multiple points of view in “WikiSecrets” and provided forums for criticism of the film. Other staffers, speaking anonymously because they had not been authorized by PBS to speak on the record, did not point the finger for the hack directly at WikiLeaks, but some did suggest that it would be hypocritical for any supporters of such a group to try to tamp down on freedom of information.

From time to time, other news organizations have wound up in the bull’s-eye of hacker groups, sometimes after they have published unflattering information about those very groups.

Last December, Web sites belonging to Gawker Media were forced to stop publishing when hackers gained access and stole the names and passwords of some users. Gawker had been critical of hacker groups like the one called Anonymous that had attacked security firms and Web sites of the Egyptian government.

The group that claimed responsibility for the PBS attack this week, called Lulzsec, also hacked Fox.com, the Web site of the Fox broadcast network, earlier this spring and divulged personal information about some of the potential contestants on a reality show. “We don’t like you very much,” the group wrote in a letter touting the successful break-in.

Individual subjects of media coverage have also been known to retaliate using hacking tactics: in a well-publicized case that led to a conviction last year, a New Jersey man spread a computer virus that searched for mentions of his name in online articles and tried to shut down the hosts of those articles.

The PBS attack appeared to start with Sunday’s publication of a fake news article about the rapper Tupac Shakur being spotted alive in New Zealand. (He died in 1996.) Then, on Monday afternoon, the “Frontline” site was infiltrated, Mr. Fanning said.

Comparing it to a rock being chucked through a storefront window, he said, “I don’t believe it will in any way hinder our continuing reporting on these sorts of subjects, but it is a cautionary note.”

Among the news sources affected was Tehran Bureau, a well-regarded source of news about Iran that is operated under the “Frontline” umbrella. The Web sites appeared to be back online on Tuesday afternoon.

Robert Corn-Revere, a partner at the law firm Davis Wright Tremaine who specializes in First Amendment law, compared the hacking incident to the vandalism of a newspaper box or the theft of the papers from the box. “Something like that is not a protected First Amendment act, even though you’re expressing frustration with a newspaper,” he said.

When the Web site for “PBS NewsHour” was disrupted, staffers turned to sites like YouTube, where they posted Monday’s newscast, and Tumblr, where they published transcripts and the news organization’s features.

PBS said that visitors to the sites did not have their personal information compromised, as has occurred in other hacking cases.

“As this breach shows, there’s more than just personally identifiable information at risk,” said Phil Blank, a security analyst with Javelin Strategy & Research. Many Web sites, he said, fail to take appropriate steps to combat “Web site defacing” and “reputational risk.”

In the event of a hacker attack, news organizations, he said, “lose both ways — they lose from the ‘Gee, don’t they take care of their Web site?’ perspective, and they lose from the ‘How do I know the information they’re putting out is accurate?’ perspective.”

nytimes.com

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From: scion6/1/2011 11:49:50 AM
   of 5542
 
Patent Researcher Turns Tables on Litigants

JUNE 1, 2011
By STUART WEINBERG
online.wsj.com

Patent research firm Article One Partners is offering frequent targets of patent lawsuits a new first-strike tool that turns the tables on initiators of infringement actions.

The New York company, which pays a network of scientists and technology experts to determine if a patented invention is truly novel, typically helps big companies after they are sued by patent holders. Now, it is launching a service that aims to invalidate "poor quality" patents before they are asserted in courts.

The service, called Litigation Avoidance, is targeted squarely at so called non-practicing entities, or NPEs. These companies, called "patent trolls" by some critics, don't make products and generate revenue solely by licensing and litigating patents.

"The NPE business model is quite easy today and the business model for high-tech companies is increasingly difficult," said Cheryl Milone, chief executive of Article One.

One of the early customers for the service is Microsoft Corp., which like many of its tech peers is engaged in various patent disputes. Microsoft declined to comment.

Founded in 2008, closely-held Article One has 110 customers who pay an annual six-figure fee for access to research generated by its network. Until now, the company focused on patents that had already been asserted in court. Now, clients can request investigations on patents that have yet to be litigated, for an addition fee, which Article One declined to specify.

In recent years, NPEs such as InterDigital Inc., Acacia Research, Wi-LAN Inc., Mosaid Technologies Inc. and Intellectual Ventures LLC, have grown in size and clout. For instance, Acacia's 2010 revenue and earnings more than doubled. The Newport Beach, Calif. firm recently raised $175 million, giving it a war-chest of $316 million. Wi-LAN and InterDigital also recently completed large financings.

Patent lawsuits filed by NPEs that went to trial last year climbed to 602 from 496 in 2009, according to RPX Corp., a San Francisco company that acquires patents to prevent NPE's from buying them and asserting them against its members. Many more patent suits were filed and settled before reaching the trial stage.

While the companies sued by NPEs complain that such lawsuits are often frivolous, NPEs and their supporters say they help independent inventors and companies realize value for their inventions.

Article One's latest initiative could be used to delay or avoid litigation by targeting legitimate patents, said Ray Niro, founding partner of Niro, Haller & Niro, a Chicago law firm that often represents NPEs. "To establish a business whose goal is to wipe out patents is disgraceful," he said.

Write to Stuart Weinberg at stuart.weinberg@dowjones.com

online.wsj.com

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