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September 2009
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Henry Paulson, the Bobolink Foundation, and Goldman Sachs

Before Henry Paulson become Secretary of the Treasury, he was required by law to sell all of his shares in Goldman Sachs.  He was allowed to sell all of his shares of Goldman Sachs stock tax-free.  Thus, by becoming Secretary of the Treasure, he was paid over $200 million dollars.  Yet it seems that Paulson did not divest himself of all of his Goldman holdings.

It seems, though, that Paulson held millions in Goldman-Sachs-controlled investment funds.  He also held stock in the same companies that his every move as Treasury Secretary would impact.

Paulson, like most rich people, started a family foundation that allows him to donate money in exchange for influence and status.  He put over $100,000,000 into a family foundation, which he called the Bobolink Foundation.

I've uploaded the Form 990 for the Bobolink Foundation here.  Read pages 18-21.  According to the tax records, as of March 31, 2008, the Bobolink Foundation held $13 million Goldman Sachs investment funds.  What would have happened to the value of those funds had Goldman Sachs - like Lehman Brothers - gone bankrupt?  

The Bobolink Foundation also held shares in other banks:

  • JP Morgan
  • Merrill Lynch
  • Morgan Stanely
  • The Bank of NY Mellon Corp

Bobolink Foundation was also a major bondholder in several banks.

What would have happened to the share prices of those companies had Paulson not bailed out banks with taxpayer money?   What would have happened to bond values?  What would have happened to Paulson's $100 million family foundation if we taxpayers hadn't been required to bail out Wall Street?

William Welch II is Still a Federal Prosecutor

Remember the laundry list of prosecutorial abuses in the Ted Stevens prosecution?  If not, click here and start scrolling.  William Welch's prosecutor's misconduct was so outrageous that U.S. District Judge Emmet Sullivan initiated contempt proceedings against him.  What has happened to Welch?

Mike Scarcella is reporting that "Welch is taking a post as a prosecutor in Springfield, Mass., where he spent much of his career []."

Is that how the Department of Justice punishes prosecutorial misconduct?  By keeping the unethical prosecutors on the payroll?  By moving the unethical prosecutors to another jurisdiction?  

It seems that the Department of Justice has no respect for the law - at least when it's asked to apply the law to unethical prosecutors.  

Indeed, Assistant Attorney General Lanny Breuer praised Welch: 

Breuer called Welch an "extremely smart and thoughtful lawyer. I think he's a dedicated public servant who's devoted his entire professional life to serving the American people."  The Public Integrity Section, Breuer said, is "one of the greatest jewels" of the criminal division. He said he wants to find a "great leader" through a national search. "Bill's shoes will be hard to fill," Breuer said.

Breuer, incidentally, is resisting efforts to reform the Department of Justice.  

"Sword and Shield, Third Edition: A Practical Approach to Section 1983 Litigation"

Amazon has weird pricing algorithms.  For whatever reason, "Sword and Shield, Third Edition: A Practical Approach to Section 1983 Litigation," is "on sale" for under eighty bucks.  It's the '07 edition, and the law of Section 1983 often changes.  I use the same edition, though, as it's valuable for issue spotting and harvesting cases.  Anyhow, it's a good deal on a good volume

Understanding the Bailouts

News that Henry Paulson held a secret meeting with Goldman Sachs in Russia is not surprising or shocking.  It's banal.  The only surprising aspect is that the public learned about the meeting.  

If you want to have a sage-like understanding of the United States, you need only this mantra: "The system is lawless."  Once you view the system as lawless, everything that's occurred and is occurring makes sense.  

Only when you cling onto you a superstitious belief that we live in a nation of laws, do the bailouts or secret meetings in Russia seem confusing.  Only when you think that there is such a thing as The Law, when Wall Street is involved, does a secret meeting between Goldman Sachs and Henry Paulson shock, awe, and surprise.

Hank Paulson's Secret Meeting with Goldman Sachs

A year ago, you'd have called me a conspiracy theorist if I suggested that the Secretary of the Treasury - the man responsible for doling out $700 billion - was having secret meetings in Russia with Goldman Sachs.  Some of you should start becoming less dismissive of "conspiracy theories."  This one is true: 

When Paulson learned that Goldman’s board would be in Moscow at the same time as him, he had [Treasury chief of staff] Jim Wilkinson organize a meeting with them. Nothing formal, purely social — for old times’ sake.

 For fuck’s sake! Wilkinson thought. He and Treasury had had enough trouble trying to fend off all the Goldman Sachs conspiracy theories constantly being bandied about in Washington and on Wall Street. A private meeting with its board? In Moscow?

For the nearly two years that Paulson had been Treasury secretary he had not met privately with the board of any company, except for briefly dropping by a cocktail party that Larry Fink’s BlackRock was holding for its directors at the Emirates Palace Hotel in Abu Dhabi in June.

Anxious about the prospect of such a meeting, Wilkinson called to get approval from Treasury’s general counsel. Bob Hoyt, who wasn’t enamored of the “optics” of such a meeting, said that as long as it remained a “social event,” it wouldn’t run afoul of the ethics guidelines.

Still, Wilkinson had told [Goldman chief of staff John] Rogers, “Let’s keep this quiet,” as the two coordinated the details. They agreed that Goldman’s directors would join him in his hotel suite following their dinner with Gorbachev. Paulson would not record the “social event” on his official calendar…

“Come on in,” a buoyant Paulson said as he greeted everyone, shaking hands and giving bear hugs to some.

For the next hour, Paulson regaled his old friends with stories about his time in Treasury and his prognostications about the economy. They questioned him about the possibility of another bank blowing up, like Lehman, and he talked about the need for the government to have the power to wind down troubled firms, offering a preview of his upcoming speech.

Felix Salmon has more details.

McSherry v. City of Long Beach

What is going on in the Ninth Circuit Court of Appeals?  On March 30, 2009, in McSherry v. City of Long Beach, 560 F.3d 1125 (9th Cir. 2009) (here) (media coverage here), a unanimous three-judge panel held that a lawsuit alleging a fabrication of evidence claim against the Long Beach Police Department could go forward.  The original McSherry opinion was 12 pages. 

Today, in a 38-page opinion, the same panel withdrew the earlier - published opinion - issuing a superseding opinion.  In today's opinion, the panel dismissed the wrongfully convicted man's lawsuit.

There is substantial commentary about McSherry at Section 1983 Blog.  Click here for coverage.  

Aleynikov Case Continued Again

The Department of Justice is attempting to distract us through boredom: 

ORDER TO CONTINUE IN THE INTEREST OF JUSTICE as to Sergey Aleynikov re: 6 Order to Continue - Interest of Justice. Time excluded from 10/16/09 until 11/16/09. Follows oral order of 10/16/09. (Signed by Magistrate Judge Douglas F. Eaton on 10/16/09)(aba) (Entered: 10/19/2009)

Let's take a quick look at the case chronology.  Sergey Aleynikov was arrested less than 48 hours after Goldman Sachs called the FBI on him.  Goldman Sachs called the FBI on Aleynikov on July 1st.  On July 3, 2009, Aleynikov was in custody.    At a bail hearing, AUSA Joseph Facciponti said: "[B]ecause of the way this software interfaces with the various markets and exchanges, the bank has raised a possibility that there is a danger that somebody who knew how to use this program could use it to manipulate markets in unfair ways."

Since July 4th, DOJ has done nothing with the case.  They haven't even indicted Aleynikov.  Instead, they've kept asking for continuances.  (Here's the docket sheet.)

During Friday's hearing, DOJ received another continuance.  This is the fourth continuance in the case.  So what is going on?  What's the realpolitik of the case?

The United States Attorney's Office made a huge mistake in arresting Aleynikov.  They jumped too quickly for Goldman Sachs.  DOJ wants to dismiss this case - to walk away.  They can't, however, as the Aleynikov prosecution has received too much media attention.

Thus, DOJ wants Aleynikov to cop a plea to something.  Anything.  Please.  

Aleynikov's lawyer is too smart to fall for that.  She knows that DOJ has no case.  She is likely insisting that DOJ indict Aleynikov, or dismiss the criminal case against him outright.

In the meantime, AUSA Joseph Facciponti will keep continuing the case.  He hopes to bore us to death.  AUSA Facciponti misunderstands the legal blogosphere.  Legal bloggers obsess over a case.  We're not like other media - with writers forced to move on to the next story.  Indeed, we didn't even cover "balloon boy."   

Those of us following Aleynikov will dutifully check for case updates.  We're not going anywhere.

Our prior coverage of the Aleynikov case is available here.

Obama Decriminalizes Medical Marijuana

The Associated Press has this great news

WASHINGTON (AP) -- The Obama administration will not seek to arrest medical marijuana users and suppliers as long as they conform to state laws, under new policy guidelines to be sent to federal prosecutors Monday. 

Two Justice Department officials described the new policy to The Associated Press, saying prosecutors will be told it is not a good use of their time to arrest people who use or provide medical marijuana in strict compliance with state laws.