CEBC IN THE NEWS

To Catch a White-Collar Crook

Published Sunday, March 20, 2005 in the Star Tribune.

By Neal St. Anthony

The day after a federal jury in New York convicted former WorldCom boss Bernie Ebbers on all counts for orchestrating a record $11 billion accounting fraud, three of Minnesota's top prosecutors lamented that they have fewer resources than a few years ago to take on white-collar crooks.

"Once you get out of the Metropolitan Mosquito Control District, you've got about 80 counties, 2 million people in [rural] Minnesota and eight trained fraud investigators," quipped U.S. Attorney Tom Heffelfinger, who cited a rising incidence of electronic and other fraud. "Not good. The marketplace in Minnesota is at significant risk in the area of white-collar crime."

Heffelfinger, without getting too specific, said the feds have lost several FBI agents and postal inspectors from white-collar teams; they have been diverted to investigating terroristic threats since the Sept. 11, 2001, attacks.

Kris Eiden, chief deputy attorney general for Minnesota, said her office has been cut by a third, to 367 professionals and support staff, for budget reasons since 1999. The attorney general provides administrative and other counsel to state agencies -- as well prosecutors to rural counties to pursue major cases.

And Amy Klobuchar, the Hennepin County attorney, said that in order to increase productivity, her office and the U.S. attorney's office are working together more often on complicated white-collar cases.

So why do we seem to be reading more in Minnesota and nationally about criminals in wingtips and $1,000 suits?

For one thing, the ugly aftermath of Wall Street's speculative boom of the late 1990s is still winding itself down in civil and criminal courts.

The other answer is "marketing." Prosecutors admit that they're making considerable noise when they bring and win cases because it has a deterrent effect on would-be fraud artists.

It's interesting reading -- from the celebrity-vintage prosecution of home-and-garden maven Martha Stewart to the federal tax fraud case against former Katun CEO Terence Michael Clarke, a millionaire executive who once had the gall to complain about Minnesota taxes, only to be revealed in federal court as a tax cheat.

"Manpower shortages do not dictate whether we will take a significant case," Heffelfinger said. "And part of my job is deterrence ... to make clear that if you commit a fraud, eventually we will get you. There will be a paper trail and witnesses. We also do a lot of educational work and ethics training."

To that end, Heffelfinger, Eiden and Klobuchar participated last week in an afternoon-long workshop on corporate compliance and ethical practices, featuring lawyers for several Twin Cities companies, before a couple of hundred Twin Cities attorneys and business people.

The U.S. attorney's office, joined by the Center for Ethical Business Cultures at the University of St. Thomas and area law schools, also have sponsored heavily attended symposiums featuring once-prominent Twin Cities business people and attorneys who are now shamed jailbirds.

It would be hard to find a more riveting drama than to listen to onetime lawyer Stephen Rondestvedt, now resident of a federal prison cell in South Dakota, discuss how his desire for success and "things" drove him to steal client funds, deluding himself by saying he would pay them back with the proceeds of "one big case." After burning through nearly $900,000, he contemplated killing himself before admitting guilt and cooperating with prosecutors in 2004.

In 2003, once-legendary venture capitalist George Kline, clad in prison garb and flanked by four other repentant members of "Club Fed," told a Twin Cities audience of several hundred that he rationalized trading stocks on the basis of insider information not available to other investors as a "victimless crime."

His insider-trading network led to the prosecution of a half-dozen others from the country-club set.

"I managed to go from the very top to the very bottom," Kline said, pointing to the number on his prison uniform. "I will always be a felon." 

It was front-page news.

To be sure, the prosecutors don't always get it right.

For example, Heffelfinger's office failed to win convictions against two of Clarke's former subordinates at Katun, prompting rumblings from the criminal defense bar that prosecutors had overstepped in their zeal to nail white-collar scalps to the wall.

High-profile prosecutions can have a ripple effect.

Klobuchar, the Hennepin County attorney, said the widely publicized felony prosecutions of several Northwest Airlines pilots in 2003 for claiming low-tax states of Florida and Alaska as their residence resulted in a number of delinquent taxpayers coming forward to settle residency cases with the Minnesota Department of Revenue.

A state spokeswoman confirmed the assertion but declined to quantify the result.

The pilots, who had homes in Minnesota, maintained mailboxes in the other states as a way to avoid paying tens of thousands of dollars in state income taxes over several years.

Klobuchar, a Democrat, and Heffelfinger, a Republican, both said they are inundated with appeals from wealthy, powerful friends of white-collar defendants to go easy on the accused on grounds "they have suffered enough" and have otherwise led "exemplary lives."

"I even heard from my high school football coach about one guy," said Heffelfinger, whose office was awarded an extra lawyer and accountant by his bosses in Washington last year because of a "higher-than-average white-collar criminal caseload."

"Once we make up our mind to prosecute, it's not particularly fruitful to try and get us to change our mind," Heffelfinger said.

In the case of the pilots, Klobuchar resisted pressure from defense attorneys and friends to reduce the tax-avoidance cases to misdemeanors, which would have allowed them to keep their pilot licenses. She said that the minimum theft for a felony charge is $500 and that she wanted to treat affluent, licensed professionals as tough as she would street thieves.

Later, her office had to fight off a legislative bill that would have granted a special amnesty to the pilots after they'd paid back two-thirds of the tax and penalties.

"Rep. Ron Abrams, then-chairman of the House Tax Committee, kiboshed it," Klobuchar recalled. "It's hard to imagine that someone who steals a car could get a bill introduced that would give them amnesty if they returned the car."

But Heffelfinger, who also has worked as a criminal defense lawyer, admitted that a prosecutor's effectiveness often depends upon what hat you where.

"None of my clients were ever white-collar criminals," he said to chuckles around the room. "They were simply misunderstood business people."

© Copyright 2005 Star Tribune. All rights reserved.

Center for Ethical Business Cultures

1000 LaSalle Avenue, TMH 331 ▪ Minneapolis, MN 55403-2005 ▪ USA

Phone: 651 962 4120 or 800 328 6819 Ext. 2-4120 ▪ Facsimile: 651 962 4042

Email: mail@cebcglobal.org

© 1978-2008 Center for Ethical Business Cultures. All Rights Reserved.

Business Partnering with the University of St. Thomas - Minnesota