AT&T Cooperates with NSA to Wiretap

AT&T Faces Scrutiny for NSA Wiretaps

By Justin Scheck
The Recorder
04-11-2006

Sure, it's exciting to hear Congress and the attorney general bloviate over the Bush administration's legally questionable eavesdropping program.

But a more interesting fight over the National Security Agency's warrantless wiretapping seems to be shaping up in San Francisco federal court, where a longtime Republican foe -- the class action plaintiff firm Lerach Coughlin Stoia Geller Rudman & Robbins -- is suing phone carrier AT&T for allegedly granting the government access to customers' phone and electronic communications.

The case, Hepting v. AT&T, 06-cv-00672, was filed in January, but made its first real waves on Thursday, when a retired AT&T technician alleged that the phone company lets the NSA review all its online and phone traffic, not just the relatively small number of calls the administration has admitted to monitoring.

The explosive and politically charged allegations come before Judge Vaughn Walker, a libertarian-leaning skeptic of law enforcement who has publicly feuded with Lerach firm lawyers.

As the case moves forward, the next few months should provide insight into the extent of the government's wiretaps, as well as difficult legal issues that will determine whether wiretapping may continue.

Lawyers involved in the case are now arguing over whether a trove of documents filed under seal by plaintiffs lawyers from the Lerach firm, the Electronic Frontier Foundation and a handful of other firms may be opened.

The documents have been provided over the last few weeks, and include testimony from the retired phone technician, Mark Klein, as well as an expert witness who agrees with Klein's claims.

The extent of his testimony is not clear, but in his statement on Thursday, Klein wrote of a secret room set up by the NSA to which all communications were diverted.

"Based on my understanding of the connections and equipment at issue, it appears the NSA is capable of conducting what amounts to vacuum-cleaner surveillance of all the data crossing the Internet -- whether that be peoples' e-mail, Web surfing or any other data," Klein wrote. His attorneys, Miles Ehrlich and Ismail Ramsey of Ramsey & Ehrlich in Berkeley, said Friday that they were no longer commenting on the case. They wouldn't say why.

Lerach partner Reed Kathrein and Cindy Cohn, a lawyer with the Electronic Frontier Foundation, said they haven't calculated potential monetary damages in the case.

"I haven't figured out how we're going to prove the monetary damages," Kathrein said. "It's having the ongoing irreparable harm of being eavesdropped on."

Cohn said that federal law provides statutory damages ranging from $100 to $10,000 per violation of wiretap statutes, but that she's not sure how the claim will shake out. "We haven't really done the math, because every time we do the math, the number's very, very big," she said.

Cohn and Kathrein both emphasized that the real point of the suit is to stop the eavesdropping.

Class action specialists said that given the large purported class -- it would encompass all AT&T customers -- the separation of powers issues and the fact that the eavesdropping was apparently done with government authority, it could be a hard case for plaintiffs.

"I think that there will be significant roadblocks under national security interests, as well as the Patriot Act," said Bruce Simon, a partner at the plaintiff firm Cotchett, Pitre, Simon & McCarthy.

"I think there is a separation of powers issue, and I think it's also tough to substitute the opinion of a federal judge for the debate that just occurred in Congress, extending the Patriot Act," Simon added. "It seems like a judge might not be willing to substitute his or her judgment for Congress."

But if there is a judge willing to take a risk, said other class action specialists, Walker is a prime candidate. He's known for a robust skepticism of law enforcement and standing behind controversial decisions, such as sentencing a mail thief to wear a sign proclaiming "I stole mail."

Attorneys who have appeared before Walker -- who won't talk about him on the record -- said they expect his libertarian tendencies to outweigh feelings stemming from his public feud with two partners from the Lerach firm, which was formerly known as Milberg Weiss Bershad Hynes & Lerach.

"He's libertarian first and foremost," said a securities defense lawyer. "I think the animosity is more from Milberg toward him."

AT&T's defense in the case is not entirely clear, given that lawyers for AT&T at Pillsbury Winthrop Shaw Pittman and Sidley Austin Brown & Wood referred requests for comment to a company spokesman, who did not return phone calls.

The EFF's Cohn said she's received notification that AT&T will file a motion for dismissal later this month. Kathrein said he expects the phone company to rely on the government as it argues to get the suit thrown out.

"They're going to try to bury us with state secrets so that it never gets heard before the court," he said.

Whether such an effort succeeds should become clear in coming weeks, when Walker is expected to rule on opening the sealed documents to the public.

Until then, the plaintiffs lawyers are saying that, despite the complex issues the case raises, their underlying arguments rely on the basic principle of a right to privacy.

Searches without probable cause, said San Francisco solo Richard Wiebe, who is representing plaintiffs in the suit, have long been barred.

"It's been absolutely prohibited under English and American law for the last 150 years," he said.

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Feds investigating Frist's HCA stock sale

Should Senator Frist be involved in legislation involving securities fraud? The following incident suggests maybe not.

The Associated Press

Updated: 12:44 p.m. ET Sept. 23, 2005

NASHVILLE, Tenn. - Hospital operator HCA Inc. said Friday that federal prosecutors have issued a subpoena for documents the company believes may be related to the sale of its stock by Senate Majority Leader Bill Frist.

A release from the Nashville-based company said the subpoena came from the U.S. attorney for the Southern District of New York.

Frist’s office confirmed the SEC is looking into the sale.

“Not surprisingly, the Securities and Exchange Commission contacted Senator Frist’s office after the story appeared in the press about the sale of his Hospital Corporation of America stock,” Frist spokesman Bob Stevenson said in an e-mail. “The majority leader will provide the SEC any information that it needs with respect to this matter.”

Frist traded using only public information, and only to eliminate the appearance of a conflict of interest, Stevenson said.

The SEC had not contacted HCA as of Friday morning, said HCA spokesman Jeff Prescott. He declined further comment.

Company founded by Frist's father
HCA, the nation’s largest for-profit hospital company, was founded by Frist’s father and his brother was formerly its CEO and chairman and remains on the board of directors.

Frist asked a trustee to sell all his HCA stock in June, near a 52-week stock price peak of $58.40 and at the same time HCA insiders were selling off shares. Reports to the Securities and Exchange Commission showed insiders sold about 2.3 million shares, worth about $112 million, from January through June, said Mark LoPresti of Thomson Financial.

The sale came about two weeks before the company issued a disappointing earnings forecast that drove its stock price down almost 16 percent by mid-July. They still have not recovered, closing Thursday at $45.90.

The value of Frist’s stock at the time of the sale was not disclosed. Earlier this year, he reported holding blind trusts valued at $7 million to $35 million.

Insider knowledge?
For years, Frist was criticized for holding HCA stock while directing legislation on Medicare reform and patient issues. His office has consistently deflected criticism by noting that his assets were in a blind trust and not under his active control.

Frist, a Tennessee Republican, is widely considered a potential presidential candidate in 2008.

HCA said the subpoena seeks the “production of documents,” and said it plans to fully cooperate with the district attorney’s investigation.

The Wall Street Journal reported Friday that the SEC is looking into whether Frist had any inside knowledge that prompted his sales.

On Thursday, SEC spokesman John Nester would neither confirm nor deny that Frist or any officer or director of HCA is the subject of an investigation, citing the agency’s policy.

Shares of HCA fell 20 cents to $45.70 in premarket trading on the New York Stock Exchange.

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The SEC Caving To Politics?

According to a distrubing article in the WAll Street Journal, the SEC may be falling prey to political influence, leaving investors, like the environment, to fend for themselves.

Link: WSJ.com - Political Capital.

Business Groups Are Seeking Ouster Of SEC's Donaldson December 14, 2004; Page A4 Top business groups in Washington have launched a quiet campaign to persuade the White House to dump Securities and Exchange Commission Chairman William Donaldson. The groups argue that the post-Enron crackdown on big business has gone too far, and now threatens to hurt the economy by discouraging companies from taking risks. Their hope is to replace Mr. Donaldson with a business executive who has a reputation for integrity, but also understands the problems that the corporate crackdown has caused for executives and their boards of directors. Mr. Donaldson, they argue, doesn't. The Business Roundtable, the U.S. Chamber of Commerce, the National Association of Wholesaler-Distributors and other business groups took an unusually active role in this year's election, encouraging their members to reach out to employees and help register and turn out new voters likely to be sympathetic to the president. Bush campaign manager Ken Mehlman has given them generous credit for helping to re-elect President Bush.

In return, these groups are now looking for some easing of the harsher regulatory and enforcement climate that has grown up in the wake of the corporate scandals. The effort isn't discussed much in public, and probably won't get any attention at this week's economic summit. That's because polls show corporate executives still rank low in public esteem, and any effort to ease up on regulation or enforcement against them is likely to be politically unpopular.

But in private, the lobbyists have been pressing their case that easing up on SEC enforcement and regulation is necessary to keep the economy healthy. And they believe the White House has heard their message.

Mr. Donaldson was appointed by Mr. Bush two years ago and has worked to restore the reputation of an agency that often appeared asleep at the switch during an outbreak of corporate accounting scandals. In the push for tougher regulatory and enforcement measures, however, he has generally found himself teamed up with the two Democratic commissioners on the SEC -- Harvey Goldschmid and Roel Campos -- and opposed by the two Republicans -- Paul Atkins and Cynthia Glassman -- in the minority.

As reported in these pages yesterday, Mr. Donaldson broke the mold last week when he sided with the Republicans in opposing a staff recommendation to fine Global Crossing Ltd. Chairman Gary Winnick $1 million for failing to disclose a series of transactions that artificially boosted revenue. Mr. Donaldson argued Mr. Winnick shouldn't be held responsible because he was a nonexecutive chairman of the company. The SEC staff argued Mr. Winnick was up to his elbows in running the company, regardless of his title.

Some SEC watchers wonder whether the unusual vote was an effort by the chairman to save his job. Mr. Donaldson, who has indicated to colleagues he'd like to stay on for another two years, wasn't available to comment. But Matthew Well of the SEC said that "the assertion that any commissioner would vote for political reasons is ridiculous." As for the campaign to oust Mr. Donaldson, Mr. Well said, "Chairman Donaldson is going to stay around as long as he feels he is being effective."

Thomas Donohue, the feisty president of the U.S. Chamber of Commerce, insists he has "no idea about a campaign to get rid of Donaldson." But he has been the most public of the lobbyists in calling for change at the SEC. The Chamber has even sued the agency over its new rules requiring independent directors at mutual-fund companies.

Other business groups are less public in their criticism, but no less concerned. Mr. Atkins, one of the Republican commissioners, also has pushed the case against Mr. Donaldson at the White House, arguing that the chairman is less friendly to free financial markets than was his Democratic predecessor, Arthur Levitt. Mr. Atkins is said to be interested in the top job himself, although business lobbyists argue the job should go to someone with more business experience.

On hold for now is any effort to revise the Sarbanes-Oxley law, which beefed up the SEC, created the Public Company Accounting Oversight Board, and imposed new restrictions on companies. Any effort to revise that law in the current political climate would be opening a can of worms, and could lead to changes that the business community opposes.

But changing attitudes at the SEC could go a long way to satisfy the business groups' concerns. Mr. Donohue is particularly bothered by efforts by the SEC, and by New York Attorney General Eliot Spitzer, to force large settlements out of companies by threatening charges. Mr. Donaldson is a former chief executive himself, and a longtime friend of the Bush family. As a result, everyone involved with the effort seems eager to avoid any personal embarrassment to him. But don't be surprised to see Mr. Donaldson moving on sometime early next year.

Write to Alan Murray at Alan.Murray@wsj.com1

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