For the plaintiffs, defending the legitimacy of the Ecuadorian process is critical. Chevron has no assets in Ecuador, and the plaintiffs will have to try and enforce any ruling in a country where the oil company operates, most likely the U.S. If Chevron can prove that the Ecuadorian ruling was based on fraud, it will be harder for the plaintiffs to recover any money. (Emphasis addedd).

What interests me is that it appears that supposedly seasoned business journalists writing for the Wall Street Journal seem to completely misunderstand the significance of Chevron’s fraud offensive. If a hypothetical Ecuadorian judgment were shown to be based on fraud, it wouldn’t be “harder for the plaintiffs to recover any money ….” as the Journal story suggests. It would, rather, likely be impossible. It is a very old and longstanding precept of law – in Pennsylvania, at least and, I suspect, in pretty much every jurisdiction in the United States – that obligations that are based on fraud, including judgments, are not only not enforceable, but legally void. As a plaintiff holding a judgment based on fraud can’t collect any money on the judgment. That’s why, it seems to me, Chevron is pushing the fraud argument so hard, and why the issue is so significant. And it also seems to me that the Wall Street Journal’s reporters and editors ought to have known that.

Goldman Sachs Group Inc., Citigroup Inc., JPMorgan Chase & Co. and 23 more underwriters of Countrywide Financial Corp. were sued by three New York agencies for allegedly helping the home lender defraud investors. New York’s city and state comptrollers and their pension funds added the securities firms, two accounting firms and Countrywide officers and directors as defendants in a federal securities-fraud lawsuit filed last August.

“The underwriters and accountants enabled Countrywide to release false statements. Investors lost millions and New Yorkers lost their homes,” New York State Comptroller Thomas DiNapoli said in a statement. “We need to recover the pension fund’s losses and find a way to help all those families.”

Falling home prices and rising defaults pushed Countrywide down 85 percent in the past year and Chief Executive Officer Angelo Mozilo has called the housing market the worse since the Great Depression. That view contrasts with his view during the previous three years that Countrywide’s superior risk management disciplines set it apart from other lenders, according to the lawsuit.

The state and city pension funds’ combined losses due to Countrywide’s declining stock price were as much as $100 million, City Comptroller William Thompson Jr. said on Nov. 30. Countrywide’s market value, which peaked at $25.9 billion last January, is now $3.5 billion.

Losses, Writedowns

The world’s biggest financial companies have posted at least $133 billion in credit losses and writedowns tied to declining values of subprime mortgages, typically given to people with weak credit. Overdue payments on subprime loans rose to a 10-year high in the third quarter, according to the Mortgage Bankers Association.

Calls to Calabasas, California-based Countrywide’s media office weren’t returned.

Grant Thornton LLP and KPMG are the accounting firms named in the lawsuit. Grant Thornton spokeswoman Kristi Grgeta didn’t return voice-mail and e-mail messages. KPMG spokesman Dan Ginsburg said, “We have not seen any filing referenced in the Bloomberg article and have no basis for comment.”

Lucas van Praag, a spokesman for Goldman, Citigroup spokeswoman Danielle Romero-Apsilos and Bank of America Corp. spokesman Scott Silvestri declined to comment. JPMorgan Chase & Co. spokesman Tom Kelly also declined to comment. Wachovia Corp. spokeswoman Christy Phillips-Brown said the company hadn’t seen the lawsuit and couldn’t comment.

Buyout Pending

Bank of America Corp., the nation’s second-largest bank by assets after Citigroup, agreed to buy Countrywide on Jan. 11 for stock then valued at $4 billion. The transaction involves “the mother of all due-diligence deals” because of risks from litigation and increasing defaults and late payments by Countrywide borrowers, Bank of America Chief Executive Officer Kenneth Lewis said in a Jan. 15 interview.

U.S. District Judge Mariana Pfaelzer in Los Angeles appointed the New York State Common Retirement Fund, the second- largest U.S. pension fund, as co-lead plaintiff on Nov. 28 and consolidated five related suits. The lawsuit is on behalf of everyone who bought shares of Countrywide from April 7, 2004, to Aug. 9, 2007, when the company disclosed in a regulatory report that “unprecedented market conditions” were forcing it to secure new funding sources, according to the lawsuit.

Lead plaintiffs choose the course of securities litigation, assign tasks to other parties and usually get the largest share of a settlement or verdict.

Housing Crisis

The securities and accounting firms and the lender misled investors by “falsely representing that Countrywide had strict and selective underwriting and loan origination practices, ample liquidity” and “a conservative approach that set it apart from other mortgage lenders,” according to the lawsuit.

Mozilo told investors in March 2007 that the deepening housing crisis would “be great for Countrywide” adding that “at the end of the day, all of the irrational competitors will be gone,” according to the lawsuit.

Countrywide’s growth “resulted from the company’s continuing to aggressively originate risky loans without regard to its stated origination policies and in spite of worsening market conditions,” according to the lawsuit.

The securities and accounting firms took part in Countrywide’s capital raising and financial statements without making a “reasonable investigation” of the facts and without exercising “reasonable care,” according to the lawsuit.

Strict Liability

U.S. securities law allows investment banks, accounting firms and others to be held strictly liable for the wrongdoing of the companies for whom they sell securities. Their only defense is to show that no reasonable person could have discovered a fraud even after performing a diligent investigation.

Mozilo and other company insiders sold $869 million of Countrywide stock from April 7, 2004, to August 9, 2007, according to the lawsuit. On Aug. 22, Bank of America bought $2 billion of preferred stock in Countrywide to help rescue the lender and secured the right to match any buyout offer.

Countrywide fell 9 cents to $6.02 in New York Stock Exchange composite trading.

Source: Bloomberg.com

A jury in the racketeering and fraud trial of fallen media tycoon Conrad Black sent a note to the judge Tuesday saying they are unable to reach a verdict after nine days of deliberations and asking for advice.

In response, U.S. District Judge Amy St. Eve briefly called the jurors into her courtroom and told them they must make ”every reasonable effort” to reach a unanimous decision. The jurors then returned to their deliberations.

The jurors’ note, read to the court by St. Eve, said: ”We have discussed and deliberated on all the evidence and are still unable to reach a unanimous verdict on one or more counts. Please advise.”

The note was signed by the jury foreman and ended with: ”P.S. We have read the jury instructions very carefully.”

Black and three other defendants are accused of swindling shareholders in the Hollinger International Inc. newspaper empire out of more than $60 million. Black faces 13 criminal counts, including mail fraud, wire fraud and racketeering.

The trial began March 20. In total, the jurors are considering 42 counts against the four individuals and had available for review thousands of pages of factual documents about newspaper sales.

Black, 62, a member of the British House of Lords, faces a maximum penalty of 101 years in federal prison if convicted on all counts against him, although lawyers said a sentence anywhere near that stiff was unrealistic.

After St. Eve read the jurors’ note but before she called them back into the courtroom, Ronald Safer — an attorney for defendant Mark Kipnis and speaking for the defense — said the judge should accept that the jury was unable to reach a verdict.

He later told reporters outside court that he was not calling for a mistrial, instead saying the jurors should be able to come back with verdicts on ”whatever they have.”

Lead prosecutor Eric Sussman told St. Eve that the government put the actual time of deliberations at only about seven full days and urged that the jurors continue trying to reach a verdict. He also raised the possibility of giving the jurors the option of returning a partial verdict, meaning the decisions they had already agreed upon.

The judge told the attorneys the jury has paid ”incredible attention” throughout the trial. ”I do think there is some benefit to bringing the jury back into the courtroom and reinstructing them,” she said before calling the jurors to appear before her.

Bernard Harcourt, a University of Chicago law professor, said judges in such cases try to impress upon jurors the importance of reaching a verdict. Harcourt has been following the trial but was not at the courthouse.

”Basically, it’s to give them a kick in the pants, and to say let’s finish this thing,” he said.

Of the jury’s note on the impasse, Harcourt said, ”I suspect that it must be somewhat more reassuring to the defense team more so than the prosecutors,” he said.

Harcourt said the impasse might fuel the argument that there are some cases that are simply too complicated for lay juries. But he dismissed the argument in this instance, calling the trial a ”relatively conventional white-collar case.”

”The allegation is one of self-dealing and excessive self-dealing and I think jurors are good at figuring out” such allegations, he said.

Hollinger International once owned community papers across the United States and Canada as well as the Chicago Sun-Times, the Toronto-based National Post, The Daily Telegraph of London and Israel’s Jerusalem Post. The Sun-Times is the only large paper remaining and the name of the company has been changed to Sun-Times News Group.

Black and fellow ex-Hollinger executives Jack Boultbee and Peter Atkinson, along with Chicago lawyer Kipnis, are accused of participating in schemes in which more than $60 million was siphoned from the company. Most of that was from payments received in exchange for promises not to compete with the new owners of U.S. and Canadian newspapers the executives had just sold. All have pleaded not guilty.

Black and former Hollinger International vice presidents Boultbee and Atkinson got the money along with the company’s No. 2 man, F. David Radler, who has pleaded guilty and was the government’s star witness. Radler was promised a lenient 29-month sentence for testifying.

Kipnis, who is accused of helping to engineer the payments, never pocketed any of them. But he received $150,000 in bonuses under Black.

It looks like we may be headed for a mistrial and, in all likelihood a re-trial for Lord Black.