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“She’s a woman of principle and deep conviction,” President Bush pleaded on Tuesday in the Rose Garden, trying desperately to justify his nomination of his White House counsel, Harriet Miers, to the Supreme Court. Somehow, the president’s praise belies the record of the corrupt Dallas law firm Ms. Miers managed before being named by Gov. George W. Bush to the Texas Lottery Commission.
While Miers was co-managing partner of Locke, Liddell & Sapp, the firm was involved in a $30 million investment scam for which Miers’ firm had to pony up $22 million to settle an investor suit that the firm aided in defrauding the investors. All this happened on Harriet Miers’ watch.
The case involves Russell Allen Erxleben, a University of Texas football player who shares a record for the longest field goal in NCAA history. Erxleben played 10 seasons in the NFL as a place kicker, first for the New Orleans Saints, then for the Detroit Lions. He never made the Pro Bowl.
Then, in 1977, he set up an investment firm under the name Austin Forex International. The idea was to trade in international currencies. Unfortunately, Erxleben ran a Ponzi scheme which ended up defrauding investors of some $33 million. Locke, Liddell & Sapp were more than passive professional advisers – the firm provided legal documents that Erxleben used to convince investors and potential investors the deal was legit and their investments were secure.
On Sept. 18, 2000, Denise Voigt Crawford, the Texas Securities Commissioner, was able to announce that Russell Allen Erxleben had been sentenced by U.S. District Court Judge James R. Nowlin to a total of 84 months in federal prison, a $1 million fine, and $28 million in restitution in connection with his conviction for one count of conspiracy to commit securities fraud, mail fraud and money laundering, and a second count of securities fraud in connection with his activities as president of Austin Forex International, Inc.
On Oct. 13, 1999, a suit had been filed in Travis County alleging that Miers’ Dallas firm had developed work product including internal memos and notes that aided Austin Forex International in their scheme to defraud investors. When the case naming the law firm as a defendant surfaced in 1999, Harriet Miers was almost as brave in support of Locke, Liddell & Sapp as President George W. Bush was of her in his Rose Garden press conference defense of his nomination. “Locke Liddel has done nothing improper and in our judgment never should have been named as a defendant,” she told the press at the time.
Still, on April 14, 2000, Locke Liddel agreed to pay $22 million to settle the suit. Bankrupt.com noted that the amount was so high because court authorities approving the settlement believe that Locke Liddel’s behavior in the fraud was so outrageous that an example needed to be made of the firm to serve as a warning to other firms that they have an obligation to take action when they become aware that a client’s actions are causing harm to third parties. Moreover, no firm can ever participate in a client’s fraud, whether by advice and internal memos, or by guidance which ends up being communicated to clients.
Think about it. Erxleben’s scheme was slick. Here was a famed University of Texas football player with NFL credentials, backed by a prestigious Dallas firm, peddling sure-to-win arbitrage currency plays to investors who thought they couldn’t lose. In the first stage of a Ponzi, everybody wins and the word-of-mouth alone is good enough to expand the scheme to proportions where no mortal can manage, regardless of how brilliant they are. What will Harriet Miers do on the Supreme Court – recuse herself from any cases involving the Securities and Exchange Commission or investment fraud? We wonder how many seniors lost their lifetime savings in the currency scam because they relied upon Locke Liddel to give honest advice.
According to Bankrupt.com, the case was viewed as a test of the Texas Supreme Court’s April 1999 ruling that a lawyer can be sued by a non-client for negligent representation. This ruling only applies if the lawyer’s actions invited the non-client to rely upon the lawyer’s fraudulent opinions and misrepresentations. Managing a law firm that advises a Ponzi scheme on how best to defraud investors of $33 million is hardly an admirable credential for confirmation to the U.S. Supreme Court.
In the 2004 presidential campaign, John Kerry underestimated the degree to which the Swift Boat Veterans for the Truth remembered his conduct during the Vietnam War and still held resentments sufficient for them to conclude that he was “Unfit for Command.” Who took the time to vet Harriet Miers for President Bush? Or, did President Bush think we would all simply roll over and accept his “stealth” nomination simply because he begged “Trust me”?
Maybe President Bush should be reminded of the admonition of a true conservative who preceded him to the nation’s highest office: “Trust, but verify.” That motto seems more applicable in the present case. Mr. President: Please withdraw this dreadful nomination. There are highly qualified conservatives with stellar credentials who merit your consideration.