Harriet Miers and President Bush
WASHINGTON – While Supreme Court nominee Harriet Miers presided over a major Texas law firm, the company was forced to pay more than $30 million to settle claims with investors cheated out of millions by two clients and came under federal scrutiny for its role in a tax-shelter case.
While Miers’ record of managing Locke Liddell & Sapp LLC has been praised by President Bush as one of the major qualifications for her Supreme Court nomination, her tenure at the helm was “rocked by one investment scam scandal after another,” as characterized by WND columnist Jerome Corsi, who has been investigating her record.
As WND reported previously , the lawsuits were sparked by work done by partners at Locke Purnell Rain Harrell, one of Dallas’ largest law firms when Miers ran it during the late 1990s. By 1998, the law firm, then called Locke Liddell, found itself on the receiving end of lawsuits over two of its clients, Brian Russell Stearns and Russell Erxleben, a star football player at the University of Texas in the 1970s who played 10 years in the NFL as a placekicker.
Erxleben’s firm, Austin Forex Investments, placed short-term investments in volatile foreign currency markets. The investors contended Erxleben and Stearns used money from new investors to pay off old ones until the schemes unraveled. They also said Stearns often bragged that he used the same law firm as Bush.
The investors said they were cheated in part because Locke Liddell helped make the operations look legitimate and ignored signs of fraud and the selling of unregistered securities. They alleged that the law firm used its trust fund to direct millions in investor money to Stearns.
The lawsuit over Erxleben also named Locke Liddell partners Curtis Ashmos, Daniel N. Matheson III and Jane Matheson as defendants, and the case involving Stearns named another partner, Phillip Wylie.
In 2000, Locke Liddell agreed to pay Erxleben’s clients $22 million, and in 2001 it agreed to pay $8.5 million to settle claims by Stearns’ customers.
Locke Liddell’s professional malpractice-insurance policy covered the bulk of the $30.5 million in settlements required by the two cases, reports Corsi.
“Both suits had charged that Locke Liddell lawyers had been negligent in allowing their activities to contribute to the frauds perpetrated,” he writes. “Lawyers who filed the class action suits believed they could have won fraud suits pressed against Locke Liddell. They decided to file negligence suits because the standard of proof required was less stringent and the attorneys believe that as a consequence they could collect from Locke Liddell quicker.”
Then in 1999, Locke Liddell lawyer Brent Clifton wrote an opinion letter supporting an Ernst & Young tax shelter known as “CDS” – or Contingent Deferred Swap, Corsi reports today. The tax scheme was reported Feb. 8, 2005, by the Permanent Subcommittee on Investigations of the Senate Committee on Homeland Security and Government Affairs, as being an abusive tax scheme whose only significant purpose was “the avoidance or evasion of Federal, state or local tax in a manner not intended by the law.” According to the Senate investigative report, from 1999 through 2001, E&Y sold 70 CDS transactions involving 132 high net-worth taxpayers, generating fees of some $27.5 million for E&Y, plus $3.5 million for Locke Liddell, in payment for the marketing use of the Locke Liddell opinion letter.
In May 2004, the U.S. Attorney’s Office for the Southern District of New York reportedly initiated a federal criminal grand jury investigation of E&Y regarding its sale in 1999-2001 of tax shelters to corporations and wealthy individuals to escape or reduce federal taxes.
“How is it possible that Harriet Miers could be co-manager of Locke Liddell through a period rocked by one investment scam scandal after another, without demanding an exhaustive internal review to assure safeguard procedures would be put in place to prevent Locke Liddell’s lawyers from participating in fraudulent investment schemes?” asks Corsi.
While there is no evidence Miers knew about the actions of partners who represented the clients until investors began filing lawsuits against Locke Liddell & Sapp LLC, she publicly defended the firm’s actions saying it never should have been named as a co-defendant in the case.
Erxleben and Stearns were both sentenced to prison terms.
The law firm represented some of the state’s biggest corporations and most famous residents, including George W. Bush before and after he was elected governor in 1994.