Ken Starr's 12/94 Webster Hubbell Charges & Guilty Plea Agreement

(Note: The following is the full text of the information filed in federal court in Arkansas against former U.S. Associate Attorney General Webster Hubbell on Dec. 6, 1994, and of the plea agreement entered the same day in which Hubbell agreed to plead guilty to two felony offenses.) UNITED STATES DISTRICT COURT EASTERN DISTRICT OF ARKANSAS WESTERN DIVISION No. LR-CR-94-241 UNITED STATES OF AMERICA v. WEBSTER LEE HUBBELL INFORMATION THE INDEPENDENT COUNSEL CHARGES: COUNT ONE INTRODUCTION 1. At all times material to this Information: (a) The Rose Law Firm (the ``FIRM'') was a law firm located in downtown Little Rock, Arkansas. The Firm represented a variety of clients, including agencies of the United States Government such as the Federal Deposit Insurance Corporation and the Resolution Trust Corporation. (b) The Firm, through its attorneys, entered into agreements with its clients setting forth the conditions and financial arrangements for the Firm's representation. In many instances the Firm billed clients on a monthly basis for attorneys' fees and expenses. The amount of attorneys' fees normally would be computed on the basis of the number of hours of work performed on the matter by each attorney, multiplied by the agreed hourly rate for that attorney. It was the Firm's usual practice that a client of the Firm normally would be obligated to pay, and would be billed, for all expenses incurred in the course of the Firm's representation of that client, such as: photocopies, long distance telephone calls, court reporter fees, expert witness fees, deposition transcript fees, and case-related travel and lodging. Expenses unrelated to the Firm's representation of a client would not be billed to a client. (c) In the course of representing a client, the Firm often incurred expenses, like those described above, that had to be paid to vendors and other third parties in advance of the Firm's billing the client for such expenses, or receiving payment from the client for such expenses. Thus, the Firm maintained Firm bank accounts--referred to as ``client advance accounts''-- to pay the client. Any member or associate of the Firm was authorized to obtain a ``client advance check'' to pay for legitimate case-related expenses that were incurred in the course of the Firm's representation of the client. If the amount of the check exceeded $1000, two members of the Firm had to sign the client advance check. The amount of the expenses would be paid by the Firm, in advance, on behalf of the client; the Firm subsequently would include a charge for such expenses on the client's statement of services; and the client would reimburse the Firm for the Firm's having paid the expense in advance. (d) On occasion, members and associates of the Firm incurred non-case related expenses in the course of conducting and performing business for the Firm. Such expenses included training, business development, and other costs associated with operating and maintaining a law practice. These general business expenses were not billable to clients. However, when members and associates of the Firm incurred legitimate expenses for Firm business, the Firm would pay for these legitimate business expenses out of a Firm account. In the event such a non-billable expense exceeded $1000, two Firm members had to sign the reimbursement check. (e) The Federal Deposit Insurance Corporation was an agency of the United States Government. The Federal Deposit Insurance Corporation, among other things, regulated federally insured state chartered banks which were not members of the Federal Reserve System, and served as a receiver for all federally insured insolvent banks. (f) The Resolution Trust Corporation was an agency of the United States Government. The Resolution Trust Corporation, among other things, acted as a receiver for savings and loan associations which had become financially insolvent. The Resolution Trust Corporation was appointed receiver or conservator for a number of such associations in Arkansas. (g) Madison Guaranty Savings & Loan Association (``Madison'') was a state chartered, federally insured savings and loan association located in Little Rock, Arkansas. (h) Frost & Co. was a certified public accounting firm doing business in Arkansas. (i) The Firm represented the Federal Deposit Insurance Corporation between May 1994 and December 1992 and the Resolution Trust Corporation between November 1990 and November 1994 and, pursuant to a fee agreement, billed the Federal Deposit Insurance Corporation and the Resolution Trust Corporation for attorneys' fees and expenses. (j) From May 1973 through January 1993, defendant WEBSTER LEE HUBBELL was a practicing attorney who was a member of the Rose Law Firm in Little Rock, Arkansas. As a member of the Firm, he acted as the billing attorney on many legal matters handled for clients, and accordingly, had responsibility for sending statements of services to these clients for the legal work rendered by the Firm on their behalf and any costs associated with such work. In January 1993, defendant WEBSTER LEE HUBBELL resigned from the Firm and became Associate Attorney General of the United States. He held this position until March 14, 1994 when he resigned. 2. From in or about January 1989, and continuing to in or about March 1994, in the Eastern District of Arkansas, and elsewhere, WEBSTER LEE HUBBELL, defendant herein, devised, intended to devise and knowingly participated in a scheme to defraud and to obtain money and property from the Rose Law Firm and its members, and from the Firm's clients, including the Federal Deposit Insurance Corporation and the Resolution Trust Corporation, by means of false and fraudulent pretenses and representations, well knowing that the pretenses and representations would be and were false and fraudulent when made, which scheme is further described in the following paragraphs. 3. In was part of the scheme that defendant WEBSTER LEE HUBBELL fraudulently obtained funds from the Firm's bank accounts in the form of client advance checks and other instruments to pay for personal expenses and purchases. To obtain these funds, defendant WEBSTER LEE HUBBELL fraudulently created, submitted and signed documents falsely purporting to represent legitimate Firm and client billable expenses, when in fact the expenses were not properly billable to clients nor reimbursable by the Firm. By operation of his scheme, defendant WEBSTER LEE HUBBELL fraudulently obtained at least $394,000.00 through the payment of personal expenses with Firm checks. 4. It was a further part of the scheme that defendant WEBSTER LEE HUBBELL indicated on copies of the checks or notes attached thereto that a particular client advance check be charged to a specific client of the Firm. Defendant WEBSTER LEE HUBBELL willfully concealed that the client advance checks were for personal expenses, and instead falsely represented on the internal paperwork of the Firm that he was using the checks to pay for legitimate business expenses or case-related expenses associated with the representation of a particular client. 5. It was further part of the scheme that, in order to further conceal that he was paying for personal expenses with Firm checks, and that certain of the expenses would be billed to clients on statements of services, defendant WEBSTER LEE HUBBELL altered various internal billing memoranda through several means, including: (a) indicating that the amount on the client-advance check was for a fictitious business expense; (b) causing the alleged ``business expense'' to be billed to a client, even though the client was not responsible for that expense, because it was not incurred on behalf of the client; (c) mischaracterizing the expense as something other than that for which payment actually was made; (d) inflating the number of hours of attorney time for which a client was billed, above the actual hours worked, in order to obtain legal fees beyond those to which the Firm and defendant WEBSTER LEE HUBBELL were entitled; and (e) ``writing off' or deleting certain of his personal expenses from final client statements of services thereby causing the Firm and its members to pay for such personal expenses. 6. It was further part of the scheme that defendant WEBSTER LEE HUBBELL knowingly deprived certain clients of property, that is money, by causing them to pay for certain of his personal expenses. 7. It was further part of the scheme to defraud that defendant WEBSTER LEE HUBBELL would cause billing statements which contained misrepresentations and false information to be sent to the following clients: the Resolution Trust Corporation, the Federal Deposit Insurance Corporation, Flintkote, Environmental Systems Company, Money Mortgage Inc., Champion Enterprises, American Cemetery Associates, Air Products, Universal Underwriters, Worthen Bank, American Council of Life Insurance, Tyson Foods Inc., Lovett & Foster Ltd., Sturgis Estate, Brickel Financial Services and Central Texas Iron Works. 8. Further defendant WEBSTER LEE HUBBELL knowingly deprived the Firm and its members of property, that is money, by causing them to pay for certain of his personal expenses and defrauded the Firm of its right to defendant's honest services. 9. It was a further part of the scheme that defendant WEBSTER LEE HUBBELL would cause client advance checks drawn on the Firm to be sent in payment of his and his family's personal expenses for credit card purchases billed to the following credit cards: American Express Centurion Bank, Associates National Bank Execugold Visa, American Express Optima, MBNA Master Card, Associates National Bank Amoco Master Card, Primerica Visa, Associates National Bank Execugold Master Card, Primerica Master Card, First USA Visa, and American Express Gold Card; and that defendant would fraudulently represent to the Firm that all these payments were legitimate client case-related expenses, or legitimate non- case-related business expenses. 10. It was further part of the scheme that defendant WEBSTER LEE HUBBELL, between May 1994 and March 1994, made repeated verbal misrepresentations to members of the Firm that he would provide documentation to prove that the questioned expenses were billed legitimately to the clients or passed on to the Firm. EXECUTION OF FRAUD 11. It was further part of the scheme that on or about March 7, 1990, at the direction of defendant WEBSTER LEE HUBBELL, the Firm prepared a statement of services to be sent to the Federal Deposit Insurance Corporation for the Firm's representation of the Government's suit against Frost & Co., a local accounting firm, in connection with Frost & Co.'s allegedly negligent auditing of Madison Guaranty Savings & Loan. defendant WEBSTER LEE HUBBELL fraudulently caused the statement of services to reflect charges for personal expenses that were misrepresented as charges for legitimate business expenses. 12. On or about March 7, 1990, at Little Rock, Arkansas, in the Eastern District of Arkansas, and elsewhere, defendant WEBSTER LEE HUBBELL defendant herein, for the purpose of executing the above-described scheme to defraud and to obtain money and property by means of false and fraudulent pretenses, representations and promises, and attempting to do so, knowingly and willfully did cause to be placed in an authorized depository for mail matter, to be sent and delivered by the United States Postal Service, according to the directions thereon, an envelope containing a statement of services to the Federal Deposit Insurance Corporation. In violation of Title 18, United States Code, Sections 2 and 1341. COUNT TWO On or about October 15, 1993, in the Eastern District of Arkansas, defendant WEBSTER LEE HUBBELL, defendant herein, a resident of Little Rock, Arkansas, who during the calendar year 1992 was married, did willfully and knowingly attempt to evade and defeat a substantial part of the income tax due and owing by him to the United States of America for the calendar year 1992, by filing and causing to be filed with the Director, Internal Revenue Service Center, a false and fraudulent United States Individual Income Tax Return, Form 1040, wherein he stated that his total income for the calendar year 1992, including his income from the Rose Law Firm, was $194,966, and he stated that his taxable income for the calendar year 1992 was the sum of $122,074, and that the amount of tax due and owing thereon was the sum of $32,193, whereas, as he then and there well knew and believed, his total income for the calendar year 1992, including his income from the Rose Law Firm, was at least $309,168, and his taxable income for the said calendar year was the sum of at least $249,990, upon which said taxable income there was due and owing to the United States of America an income tax of $71,358. In violation of Title 26, United States Code, Section 7201. KENNETH W. STARR Independent Counsel ======================================== IN THE UNITED STATES DISTRICT COURT EASTERN DISTRICT OF ARKANSAS WESTERN DIVISION NO. LR-CR-94-241 UNITED STATES OF AMERICA v. WEBSTER LEE HUBBELL PLEA AGREEMENT This Plea Agreement between the Independent Counsel, KENNETH W. STARR, and the defendant WEBSTER LEE HUBBELL, and his attorney, John W. Nields, Jr., is made pursuant to Rule 11(e)(B) of the Federal Rules of Criminal Procedure. This Plea Agreement is entirely voluntary and represents the entire agreement between the Independent Counsel and the Defendant regarding Defendant's criminal liability in case No. LR-CR94-241. This Plea Agreement finally resolves all of Defendant's criminal liability involving his billing and expense practices while a member of the Rose Law Firm as set forth in the Information, and nothing herein shall limit or in any way waive or release any administrative or judicial civil claim, demand or cause of action, whatsoever, of the United States or its agencies relating to the conduct of the Defendant set forth in the Information in this case. Moreover, this Agreement is limited to the Independent Counsel, Kenneth W. Starr, and cannot bind other federal, state, or local prosecuting, administrative, or regulatory authorities except as expressly set forth in this Agreement. By this Plea Agreement, KENNETH W. STARR, Independent Counsel, and the Defendant, WEBSTER LEE HUBBELL, and his attorney, John W. Nields, Jr., agree upon the following: 1. Defendant WEBSTER LEE HUBBELL agrees to waive in open court prosecution by Indictment and consents that the proceeding may be by Information instead of by Indictment. Defendant acknowledges that he has been charged in the Information in this case with Mail Fraud, in violation of Title 18, United States Code, Section 1341, and with Tax Evasion, in violation of Title 26, United States Code, section 7201. 2. Defendant has read the charges against him contained in the Information and those charges have been fully explained to him by his attorney. 3. Defendant fully understands the nature and elements of the crimes with which he has been charged. 4. Defendant will enter voluntary pleas of guilty to Counts One and Two of the Information in this case. 5. Defendant will plead guilty because he is in fact guilty of the charges contained in Counts One and Two of the Information. In pleading guilty, defendant admits that he did, in fact, devise a scheme to defraud as described in Count One of the Information. Defendant admits that he did in fact, attempt to evade and defeat his income tax as set forth in Count Two of the Information. 6. For purposes of applying the Guidelines promulgated by the United States Sentencing Commission pursuant to Title 28, United States Code, Section 994, the parties agree on the propositions set forth in Paragraphs 7 through 11 below. 7. (a) Pursuant to Sentencing Guideline 2F1.1(a) and 2F1.1(b)(1), and the fact that the amount of the fraud committed by the Defendant between 1989 and 1992, as charged in Count One of the Information, is at least $394,000.00, the base offense level for the offense set forth in Count One is at least level 15. The parties agree to present their final calculations as to the exact dollar amount of the fraud prior to sentencing. (b) Pursuant to Sentencing Guideline 2F1.1(b)(2), and the fact that the offense charged in Count One of the Information involved (A) more than minimal planning, and (B) a scheme to defraud more than one victim, an upward increase of 2 levels is appropriate. (c) Pursuant to Sentencing Guideline 3B1.3, and the fact that the Defendant abused a position of trust, and used a special skill (he being a lawyer) in a manner that significantly facilitated the commission and concealment of the offense, as set forth in Count One of the Information, an additional upward increase of 2 levels is appropriate. 8. (a) Pursuant to the Sentencing Guidelines 2T1.1(a) and 2T4.1, and the fact that the Defendant's unreported income for the years 1989 through 1992 is at least $394,000.00, and the tax loss pertaining to all of Defendant's relevant criminal conduct in violation of the tax laws (for the years 1989 through 1992) is more than $120,000.00, the base offense level for the tax offense set forth in Count Two is level 15. (b) Pursuant to Sentencing Guideline 2T1.3(b)(1), and the fact that the Defendant failed to report income exceeding $10,000.00 from criminal activity in 1992, the base offense level for the offense set forth in Count Two is to receive an upward adjustment of 2 levels. 9. Defendant has demonstrated a recognition of affirmative acceptance of personal responsibility for his criminal conduct. If the Independent Counsel does not receive additional evidence in conflict with this provision, and if the Defendant continues to accept full responsibility for his actions, within the meaning of Sentencing Guideline 3E1.1, a three-level reduction in the offense level is appropriate. 10. Based on the facts known to the government as of the date of this Agreement and stipulated in subparagraphs above, the Defendant's criminal history points equal 0 and the Defendant's criminal history category is 1; and 11. Defendant and his attorney and the Independent Counsel acknowledge that the above calculations are preliminary in nature and based on facts known to the government as of the time of this Agreement. In the case of the amount listed in subparagraphs 7 and 8 above, the figure indicated is a minimum figure, and is not intended to be a final calculation. The Defendant understands that the Probation Office will conduct its own investigation and that the Court ultimately determines the facts and law relevant to sentencing, and that the Court's determinations govern the final Sentencing Guidelines calculation. Accordingly, the validity of this Agreement is not contingent upon the Probation Office's or the Court's concurrence with the above calculations. 12. Errors in calculations or interpretation of any of the guidelines may be corrected or amended by either party prior to sentencing. The parties may correct these errors or misinterpretations either by stipulation or by a statement to the Probation Office and/or Court setting forth the disagreement as to the correct guidelines and their application. The validity of this Agreement will not be affected by such corrections or amendments, and the Defendant shall not have a right to withdraw his plea on the basis of such corrections or amendments. 13. Defendant understands that Count One of the Information to which he will plead guilty carries a maximum penalty of five years imprisonment; a maximum fine of $250,000.00 [18 USC 3571(b)(3)]; or an alternative fine based on gain or loss [18 USC 3571(d)]; and any restitution ordered by the Court. 14. Defendant understands that Count Two of the Information to which he will plead guilty carries a maximum penalty of five years imprisonment, a maximum fine of $250,000.00 [18 USC 3571(b)(3)], together with the costs of the prosecution, and any restitution ordered by the Court. 15. Defendant understands that in accordance with the federal law, Title 18, United States Code, Section 3013, upon entry of judgment of conviction, the Defendant will be assessed $50.00 on each count to which he has pled guilty, in addition to any other penalty imposed. 16. Defendant agrees to cooperate by providing full, complete, accurate and truthful information concerning matters under investigation by the Office of the Independent Counsel. If, in the judgment of the Independent Counsel, the Defendant has provided substantial assistance in an investigation or prosecution, within the meaning of Section 5K1.1 of the Sentencing Guidelines, the Independent Counsel will move pursuant to Section 5K1.1 for a downward departure. Defendant has the right to seek a downward departure on grounds other than that set forth in paragraph 16 above, and the Independent Counsel is free to take whatever position it deems appropriate with respect thereto. 17. Nothing in this Agreement shall limit the Internal Revenue Service in its collection of any taxes, interest or penalties from the Defendant. 18. Defendant agrees to fill accurate amended income tax returns, Form 1040X, with the Internal Revenue Service for the calendar years 1989 through 1992. 19. Defendant understands that the Independent Counsel will fully apprise the District Court and the United States Probation Office of the nature, scope and extent of Defendant's conduct regarding the charges against him, and related conduct relevant to and including all matters in aggravation or mitigation on the issue of sentencing. 20. It is understood by the parties that the sentencing Judge is neither a party to nor bound by this Agreement and is free to impose the maximum penalties as set forth in paragraphs 13 and 14 above. 21. The Independent Counsel agrees that the Defendant should be released on his own recognizance pending sentence. 22. Defendant may request designation to a particular facility, and the Independent Counsel agrees to take no position with respect to such designation. 23. The Independent Counsel agrees that the Defendant should be permitted to self-surrender to the facility to which he is designated. 24. Should the Judge refuse to accept the Defendant's plea of guilty to Counts One and Two of the Information, this Agreement shall become null and void and neither party will be bound thereto. 25. Defendant acknowledges that he has read this Agreement and carefully reviewed each provision with his attorney. Defendant further acknowledges that he understands and voluntarily accepts each and every term and condition of this Agreement. AGREED THIS DATE: DECEMBER 6, 1994 Kenneth W. Starr Independent Counsel W. Hickman Ewing, Jr. Senior Counsel Webster Lee Hubbell Defendant John W. Nields, Jr. Attorney for Defendant