Charges Levied in Insider Case
UBS Banker, Others Face Counts in Albertson’s Deal

By CHAD BRAY

A UBS AG investment banker, a former co-worker, a family friend and a former classmate have been charged criminally in an insider-trading case that allegedly reaped more than $7 million in illicit profits.

Nicos Achillea Stephanou, a UBS investment banker who has been in custody since his arrest in December, has been charged with conspiracy and two counts of securities fraud. The charges against 34-year-old Mr. Stephanou, of London, were announced publicly Thursday.

On Thursday, Joseph Contorinis, a former portfolio manager for a hedge fund in Jefferies Group Inc.’s asset-management unit and former co-worker of Mr. Stephanou; Michael Koulouroudis, a close family friend of Mr. Stephanou, according to court documents; and George Paparrizos, a former classmate of Stephanou’s at the University of California-Berkeley, court documents said, were charged with conspiracy and securities fraud. Each fraud charge carries as long as 20 years in prison if convicted.

Mr. Contorinis, 44, of Fort Myers, Fla.; and Mr. Koulouroudis, 59, of Brooklyn, N.Y.; were arrested Thursday by the Federal Bureau of Investigation in New York. Mr. Paparrizos, 37, of Foster City, Calif., was arrested in California on Thursday.

Federal prosecutors in Manhattan have alleged that Mr. Stephanou worked on the acquisition of Albertson’s Inc. in 2006 and had access to nonpublic information through his work about a proposed acquisition of ElkCorp by a private-equity firm in 2006. He allegedly tipped others about the deals before they became public.

Mr. Contorinis allegedly reaped the largest illicit profits from the scheme, netting $7.2 million for a hedge-fund account he controlled. Prosecutors alleged Mr. Contorinis received a tip from a banker about the acquisition of Albertson’s before the public announcement of the deal in January 2006. Albertson’s was sold in 2006 to a consortium of investors that included Supervalu Inc., CVS Caremark Corp. and an investor group led by Cerberus Capital Management LP.

On Thursday, the Securities and Exchange Commission separately brought civil charges against seven people in the matter, including Messrs. Stephanou, Koulouroudis, Contorinis and Paparrizos. The SEC says the plot resulted in more than $8 million in illegal profits and losses avoided.

The SEC also brought charges against Ramesh Chakrapani, a suspended Blackstone Group executive and former co-worker of Mr. Stephanou’s at Credit Suisse First Boston, now part of Credit Suisse Group.

Mr. Chakrapani also faces criminal and civil charges in a separate insider-trading plot involving shares of Albertson’s. “Mr. Chakrapani is adamant that he never violated his duties to his employer and we expect him to be fully exonerated,” said Michael Sommer, his lawyer. Mr. Sommer noted none of the criminal complaints that became public Thursday allege a connection to his client.

Michael F. Bachner, a lawyer for Mr. Koulouroudis, and Christopher J. Morvillo, a lawyer for Mr. Stephanou, both declined to comment Thursday. A lawyer for Mr. Contorinis didn’t return a phone call for comment, while a lawyer for Mr. Paparrizos, in custody in California, wasn’t immediately located Thursday.

Tom Tarrant, a Jefferies spokesman, confirmed Mr. Contorinis left Jefferies a year ago and declined further comment. A UBS spokeswoman said the company has and will continue to assist authorities in their inquiry.

In January, when Mr. Chakrapani was arrested, a Blackstone spokesman said the firm was “shocked by this alleged breach of the law and violation of our own compliance policies and ethical standards,” and added that the firm was cooperating. He repeated those comments Thursday.

Write to Chad Bray at chad.bray@dowjones.com

GALESBURG — A man shot and killed by Bloomington police earlier this month is the man believed to have robbed a Galesburg bank in 2006.

Robert E. Sylvester, 57, of Bloomington died of multiple gunshot wounds to the head and lower extremities Jan. 5 at BroMenn Regional Medical Center in Normal. He was shot by Bloomington police on Interstate 55 after leading a chase.

Sylvester was suspected in the robbery of a Check ’n Go in Bloomington, along with five other robberies in December.

Around 3 p.m. Oct. 4, 2006, Galesburg police say a white male entered the front doors of First Financial Plaza at 1865 N. Henderson St., then entered the Associated Bank and handed a teller a note demanding money. They said he did not display a weapon and did not imply he had one.

After receiving an estimated $5,000, the suspect exited the bank and left the plaza via the east-facing rear doors. He left in a white SUV, according to reports.

Bank surveillance photos were circulated to the media at the time of the robbery.

Following the incident, police received several leads, but no suspect was ever caught.

Not until, that is, Sylvester’s photograph surfaced in local newspapers following his death.
According to a police report, people recognized Sylvester as possibly the Associated Bank robber in photos of him exiting a dark-colored SUV taken by a photographer from The Pantagraph.

“We looked at photos after the Bloomington shooting (and) did some work with them on the computer,” said Lt. Rodney Riggs of the Galesburg Police Department. “We consider him the suspect that did the bank robbery at that time.”

The Galesburg Police Department contacted Bloomington police, who provided them with an old booking photo of Sylvester. Transparency overlays using the old booking photos, along with still shots from the 2006 Galesburg robbery, showed a match.

Sylvester had been an ironworker with Iron Workers International Local 112, based in East Peoria, since 2003 and was a member with a different chapter in Chicago since 2000.

Sylvester’s criminal history stretches back to 1996 in McLean County. He was arrested for a DUI that year and faced several separate traffic charges in the dozen years since then.

He also was convicted of misdemeanor and felony domestic battery and was still on probation the day he died for a 2007 felony case that included charges of unlawful use of a weapon by a felon and aggravated battery.

In April 2008, he was sentenced as part of a plea deal in that case to 39 days of periodic imprisonment, 12 months of intensive probation, 18 months of probation, 130 hours of public service and 150 days in jail, which was stayed pending his compliance with probation.

“Sometimes, you have a picture, but it’s not easy to match that picture to a person,” Riggs said, as was the case with the original surveillance photos. “Sometimes, those things shake loose.
Myself, looking at it and what they did with it (the photo), I would say it was him. It’s a pretty good match.”

Galesburg police now consider the Associated Bank case closed.

Enron’s Skilling to be resentenced

Shorter sentence possible for jailed Enron CEO, as U.S. court says lower court made error in applying sentencing guidelines.

HOUSTON (Reuters) — A U.S. court upheld Tuesday the convictions of former Enron Corp President and Chief Executive Jeffrey Skilling related to his role in the collapse of the energy trading company, but said he must be resentenced.

The ruling, handed down by the U.S. Court of Appeals for the Fifth Circuit in New Orleans, said the lower court erred when applying federal sentencing guidelines, so the executive could now receive a shorter sentence.

Skilling who was convicted along with former Chairman Kenneth Lay in May 2006 on conspiracy and fraud changes, is serving a 24-year term at a minimum security prison in Colorado. His lawyers could not immediately be reached for comment.

Lawyers for Skilling had argued in lengthy appeals that all 19 of the counts against the executive should have been tossed out because government prosecutors had used a flawed legal theory to win the case.

But the panel of judges wrote that Skilling’s appeal “failed to demonstrate the government’s case rested on an incorrect theory of law or that any reversible errors infected his trial.”

Prior to filing bankruptcy in December 2001, Enron rose to become the seventh-largest U.S. corporation.

But the Houston energy trading company’s fortunes unraveled after it was revealed that Enron had used off-the-books deals to hide billions of dollars in debts.

Lay died of a heart attack in July 2006. His convictions were thrown out because he died before his appeals were exhausted. To top of page

Girlfriend of Bayou Fugitive Samuel Israel Is Arrested

By CHAD BRAY

The girlfriend of fugitive former hedge-fund executive Samuel Israel III was arrested late Thursday and charged with helping him flee authorities shortly before he was to begin serving a 20-year prison term.

Authorities claim Debra Ryan, Mr. Israel’s longtime live-in girlfriend, helped him when he packed up and parked a recreational vehicle at a highway rest area for use later in his flight from authorities last week.

She has been charged with a single count of aiding and abetting Mr. Israel, the former chief executive of Bayou Management LLC. She was released on a $75,000 bond late Thursday after a hearing before a U.S. magistrate judge in White Plains, N.Y. She faces a maximum of 10 years on the charges.

On June 9, Mr. Israel’s sport-utility vehicle was found abandoned on a bridge in Westchester County with the words “suicide is painless” scrawled in the dust on the hood — about 90 minutes before he was to report to prison in Massachusetts.

According to court documents, Ms. Ryan admitted to the U.S. Marshals Service that she helped Mr. Israel, of Armonk, N.Y., load his belongings into a recreational vehicle and attach a motor scooter to it in the days before he was to report to prison.

Ms. Ryan also admitted that Mr. Israel, 48 years old, woke her up early on the morning of June 9 and asked her to follow him in her own car to drop off the RV at a rest area off Interstate 684 near the intersection of Interstate 84 in New York State, according to court documents. Ms. Ryan said she drove Mr. Israel back to their home afterward. He then left alone in his SUV later in the day and disappeared, according to court filings. Authorities believe Mr. Israel may be staying at RV parks, campgrounds or highway rest stops.

Write to Chad Bray at chad.bray@dowjones.com

Review of LAPD fingerprint unit sought

Officials say errors led to false arrests; 1 fired, 3 suspended

LOS ANGELES - The head of the Los Angeles Police Commission said he asked for a review of policies and procedures at the city Police Department’s fingerprint analysis unit after it was revealed that workers there had made erroneous identifications.

Commission President Anthony Pacheco said Friday that he was highly concerned after learning police have arrested at least two innocent people because of faulty fingerprint analysis.

A confidential police report detailed two cases in which charges were dropped after problems with the fingerprint analysis were discovered, the Los Angeles Times reported late Thursday. Police blame shoddy work and poor oversight for the mistakes.

“This is very, very serious,” said Rhonda Sims-Lewis, chief of the Police Department’s administrative and technical bureau. “We feel very compelled to take quick action when something like this arises. Guilty people can be set free and innocent people can be jailed.”

One fingerprint analyst, who was involved in both the mishandled cases, was fired and three others were suspended last year after internal investigations, Sims-Lewis said. Two supervisors in the department’s latent print unit were replaced.

“This is something of extraordinary concern,” said Michael Judge, public defender for Los Angeles County. “Juries tend to afford the highest level of confidence to fingerprint evidence. This is the type of thing that easily could lead to innocent people being convicted.”

The report details the case of a pregnant hospital technician who was charged with breaking into a store in February 2006 because of an erroneous fingerprint identification. The department said prints in that case were lost and could not be re-examined. The charge was dropped.

In another case, a man was extradited from Alabama to face burglary charges after an analyst matched his prints to those found at the scene. Two reviewers missed the mistake before a third caught it while preparing to testify at the trial.

The department has 78 forensic print specialists who run prints from a crime scene through automated databases to analyze possible matches. Two other analysts check each match for accuracy.

‘Rubber stamping’
Department officials described a poorly run operation in which records and evidence were lost or misplaced.

“People were reviewing the work of friends and just rubber stamping it without really reviewing it,” said Yvette Sanchez-Owens, commanding officer of the department’s scientific investigation division.

Critics said the internal report challenges a belief that forensic matches are reliable.

Jack Weiss, chairman of the City Council’s public safety committee, said there was “nothing more basic and more bread and butter than fingerprints. You have to be able to take each one of them to the bank.” He said he will hold hearings on the issue and call fingerprint lab employees to testify.

“We want to know the extent of it and whether it affects any other cases. We want to know how far back it goes,” he said.

Police officials had initially planned to hire an outside expert last year to review the fingerprints unit but could not get the $325,000 to $450,000 to fund the effort.

Sim-Lewis said she believes no innocent people have been convicted of crimes due to fingerprint mistakes by her department, but she acknowledged there was no way to be sure without a full review.

“We still want outside eyes to come in and make sure we’re doing things right,” she said.

Sandi Gibbons, a spokeswoman for district attorney’s office, said her office was investigating how prosecutors could better guard against faulty evidence.

Time Off For Bad Behavior

Kai Falkenberg, 12.25.08, 05:00 PM EST
Forbes Magazine dated January 12, 2009

White-collar crooks in the U.S. use rehab to shorten their jail time.

Ex-ImClone boss Sam Waksal found the key to getting into a prison rehab program.

Feb. 9 will be a big day for Samuel Waksal, the former chief executive officer of biotech firm ImClone (nasdaq: IMCL - news - people ). That day he’ll be released from federal custody after serving five years, six months, two weeks for insider trading. This is nine months less than his original sentence. Why the shorter time? He was rewarded for participating in a prison rehab program for substance abusers.

Except he’s not a substance abuser–or at least he wasn’t until a few months before his sentencing. Waksal told a probation officer during his presentence interview that he was just a “social drinker” and drank “about five glasses of wine per week.” At his plea hearing Waksal advised the judge under oath that he’d never been treated for drug or alcohol addiction. But a month later Waksal’s lawyers told the feds he had recently developed a “dependence on alcohol” and would benefit from treatment for his newly acquired addiction. How convenient, given that the rehab program is the main way white-collar offenders get time off their sentences. Waksal declined comment on grounds it was a private matter.
Waksal is one of many white-collar inmates who have discovered the great joys of the U.S. Bureau of Prisons’ Residential Drug Abuse Program. Treatment for federal inmates who abuse drugs (that word defined to include ethyl alcohol) has been around since 1919. But inmates weren’t clamoring for rehab programs until Congress passed a law in 1994 offering up to 12 months off a sentence for nonviolent offenders who complete a counseling program. That year only 3,755 inmates were in the rehab program. In 2008 there were 18,000 prisoners in it, with a wait list topping 7,000.

For offenders with lengthy sentences, 12 months may not matter greatly. But for white-collar criminals like class action lawyer William Lerach, serving time in a kickback scheme, it can halve a sentence. Unfortunately for Lerach, in June a judge denied his request for the program, ruling that he didn’t appear to have an alcohol problem requiring intensive treatment.

The drug abuse program is so attractive it has cultivated a cottage industry of consultants who advise convicts and their lawyers on how to get in. Among them is Larry J. Levine, who started American Prison Consultants after serving nine years for drug-related charges. Levine’s Web site boasts that by taking advantage of “obscure” prison policies he can help prospective prisoners “receive extra time off their sentence even with no evidence of drug or alcohol abuse in their [presentence] report.” For a fee of up to $5,000 Levine advises clients how to get into the program and how to maximize the resulting sentence reduction. For example, he suggests that clients show up drunk on the day they surrender so that they get interviewed about their substance abuse problem right away. “BOP is looking for reasons to put people into the program,” he says.

Alan Ellis, a San Francisco attorney who specializes in postconviction issues, says at most half of those seeking advice on how to get into the nifty sentence-cutting program have genuine substance abuse problems. Another consultant, Gareth Lasky, who used to be coordinator of the treatment program for the federal prison in Sheridan, Oregon, says he once had to talk an offender out of having his mother, who worked in a doctor’s office, swipe letterhead for phony treatment notes. Ellis and Lasky say they don’t help candidates game the system.

Former Atlanta mayor Bill C. Campbell was convicted of tax evasion in March 2006 and received a 30-month sentence. He told a probation officer he doesn’t like the taste of alcohol and drinks only when giving a toast. Campbell’s lawyer even argued to the judge at sentencing that imprisonment wasn’t necessary because Campbell had “no health or substance abuse problems” and thus was “not in need of the already thinly spread services offered by the correctional system.”
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Nonetheless, Campbell applied to the program, claiming to be a longtime alcoholic. He got notes from two doctors who purportedly treated him for alcohol abuse. Curiously, one was a cardiologist and the other an anesthesiologist. The anesthesiologist, a college classmate of Campbell’s, submitted a handwritten note saying that he had observed the mayor drinking at a dinner hosted at the doctor’s home. The regional coordinator found the letter “disturbing” and deemed Campbell ineligible for the program. He was overruled by national program coordinator Beth A. Weinman, who said that Campbell met the criteria for admission.

Campbell was already in a halfway house on his way to being released four months early when the feds discovered his lie and had him sent back to prison.

To be eligible for the treatment program an inmate must have a documented drug abuse problem. The Bureau of Prisons says it has rigid eligibility criteria designed to keep out fakers. But many criminal defense lawyers, like Gerald Lefcourt, complain that the bureau’s wide discretion on what constitutes substance abuse leads to arbitrary decisions.

During the trial of Enron’s Jeffrey Skilling, former Enron treasurer Ben F. Glisan Jr. joked from the witness stand about getting early release for a rehab stint despite being only a “social drinker.” Mocking Glisan’s two-drink-a-night dependency, Skilling’s attorney snickered, “If you got a drinking problem, then I’m in serious trouble.” To which Glisan rejoined, “Well, you’ll get a year off.” In his 2007 memoir, Cooked, drug-dealer-turned-celebrity-chef Jeff Henderson admits to scheming his way into the program. Henderson writes that he got admitted to the program in Sheridan even though he “never used drugs and hadn’t even been around any since [he] stopped selling them.”

Some judges may tolerate overstretched abuse claims as a means to lessen unduly harsh sentences required under sentencing guidelines. Says former New York federal district judge John Martin: “A lot of judges feel, if a person is sentenced too long anyway, why not help him get any relief possible to get out earlier.”

There is some good that comes of the treatment program. It’s no joke. It’s an intense 500 hours of cognitive behavioral treatment over a nine-month period, during which participants are housed in a dormlike unit set apart from the general population. The Bureau of Prisons cites a 2000 study finding that male inmates who participate are 16% less likely to commit another crime and 15% less likely to relapse to drug use. The 2009 Criminal Justice Transition Coalition, a group of organizations advocating criminal justice reform, is asking President-elect Barack Obama to expand the program to yet more inmates. Even Sam Waksal might drink to that.

Court Poses Test for U.S. on Arrests of Foreigners

By JESS BRAVIN

A United Nations court handed the incoming Obama administration a diplomatic challenge when it reiterated its 2004 ruling that the U.S. must provide new hearings for nearly 50 Mexicans sent to American death rows without receiving consular access.

The International Court of Justice Monday unanimously found that the U.S. had violated the Hague tribunal’s July order to stay the execution of José Medellín, a Mexican convicted in Texas of murder. The court had called for additional judicial hearings to be held to weigh whether he was entitled to a new trial or other relief because local police failed to provide him consular access after arrest, as required by a 1963 treaty.

Texas authorities, asserting they weren’t bound by the world-court opinion, executed Mr. Medellín in August.

The ruling highlights a perennial irritant between Washington and foreign governments that President-elect Barack Obama will have to address after taking office Tuesday: the spotty compliance by U.S. state and local authorities with the Vienna Convention on Consular Relations, which provides that arrested aliens have access to diplomats from their home country and which the U.S. ratified in 1969.

The U.S. insists that foreign countries afford Vienna Convention privileges to Americans in trouble overseas. But both the Clinton and Bush administrations had argued that they were powerless to force states to comply with the treaty, when it came to the latter’s handling of foreign nationals. Under an annex to the treaty, the U.S. agreed to let the world court resolve disputes over the interpretation of the Vienna Convention.

The International Court of Justice, the U.N.’s principal judicial body, hears disputes between governments. Its decisions can be enforced only by a vote of the Security Council, however, where the U.S. holds a veto.

The controversy “makes the U.S. look like it’s putting itself above the law,” said Diana Shelton, an international law professor at George Washington University. “And it’s also putting U.S. nationals at risk” when they travel abroad, she said, because foreign governments can cite U.S. noncompliance should they deny consular access to Americans.

Spokesmen for Mr. Obama couldn’t be reached for comment.

Frustrated by their nationals being jailed without consular access, foreign governments have increasingly turned to The Hague to pressure Washington to comply. After Paraguay and Germany won world-court cases against the U.S., Mexico in 2003 asked the Hague tribunal to find the U.S. in breach and vacate the death sentences of dozens of Mexican nationals in several states.

In a 2004 opinion, the court stopped short of Mexico’s request but directed the U.S. to conduct additional judicial hearings to see whether the inmates were entitled to new trials or other relief.

The decision sparked a battle early in President George W. Bush’s second term between hard-liners who considered international law largely irrelevant and moderates concerned that perceptions that the Bush administration was ignoring Washington’s international obligations would undercut U.S. diplomacy.

Mr. Bush accepted Secretary of State Condoleezza Rice’s advice to direct states to comply with the world-court opinion. But at then-Attorney General Alberto Gonzales’s urging, Mr. Bush overruled State Department officials and withdrew from the treaty annex giving the world court jurisdiction over Vienna Convention disputes, a person familiar with the discussions said. That prevented future cases from reaching The Hague.

Oklahoma’s governor, noting the diplomatic implications, in 2004 complied with the world-court ruling by commuting an affected inmate’s death sentence to life without parole. But Texas argued that neither the world court nor the president could override the decisions of its state courts. Mr. Bush, on the advice of Ms. Rice, attempted to comply with the world court’s decision by seeking to spare Mr. Medellín from his home state’s death chamber.

In March, the U.S. Supreme Court ruled that Mr. Bush lacked authority to intervene in state criminal proceedings. The 6-3 decision acknowledged Washington’s Vienna Convention obligations, but said the convention, like certain other treaties, isn’t enforceable in American courts without additional legislation by Congress. The justices rejected the Bush administration’s argument that the president, as part of his foreign-policy responsibilities, could force states to set aside rulings of their state courts. In an election year, lawmakers showed little enthusiasm for legislation that at the behest of a U.N. court would spare the lives of aliens convicted of murder.

In its Monday ruling, the world court noted that the Bush administration had taken efforts to comply with the ruling, albeit unsuccessfully. John Bellinger, the departing administration’s chief State Department lawyer, attended the Monday session at the world court.

“It’s underappreciated in the international community and among those who believe this [Bush] administration is not committed to international law, just how hard we worked to comply with the ICJ’s ruling,” Mr. Bellinger said. With the issue unresolved, “it will be an early international law challenge for the new administration to comply with our obligation.”

Donald Donovan, a New York attorney who represents Mexico in the case, said, “We are confident that President-elect Obama’s administration and the new Congress will act together to reassure the world of our nation’s commitment to the rule of law. We now have a tremendous opportunity to demonstrate to the international community that the United States keeps its word.”

Write to Jess Bravin at jess.bravin@wsj.com