Wednesday, October 26, 2005

Bad News for Harriet Miers

Written by Gary Halbert - Investor's Insight

This story has not yet made it into the mainstream media (I do not know why); apparently none of the Senators on the Judiciary Committee know about it; and it remains to be seen if the Bush administration knows about it. What follows is a bizarre story, and it happened right here in Austin, Texas.

In the late 1970's, a former NFL football player named Russell Erxleben set up a foreign currency trading company called Austin Forex International. Erxleben had been the star kicker for the Texas Longhorns before going pro, so he was widely-known in the Austin area. Erxleben held the record for the longest field goal in NCAA history.

I first met Russell Erxleben in late 1997 when I was coaching my son's Pop Warner football team. I coached and served on the Board of the Lake Travis Pop Warner Youth Association for a number of years. Erxleben had a son a year younger than my son, and he was one of the coaches on that team (I never actually coached with him).

According to the Texas State Securities Board and the Texas Attorney General, Erxleben raised over $50 million from some 800 investors, most of whom lived in Austin, for his foreign currency business. As it turned out, it was pretty much a Ponzi scheme. The State Securities Board and the Attorney General shut him down in September of 1998. Shortly thereafter, the Feds got involved (SEC, IRS, etc.). All of the money had disappeared.

On September 18, 2000, a US District Court sentenced Erxleben to 84 months in 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.
So what does any of this have to do with Harriet Miers? A bunch!

The main law firm that Erxleben used was Locke, Liddell & Sapp in Dallas. In 1996, Harriet Miers was elected president of Locke, Purnell, Rain & Harrell -- which later became Locke, Liddell & Sapp. On Oct. 13, 1999, a suit was filed in Austin alleging that Locke, Liddell & Sapp, under Harriet Miers' reign, had developed "work product" including internal memos and notes that aided Austin Forex International in its scheme to defraud investors.

When the case naming the law firm as a defendant surfaced in 1999, Harriet Miers was adamant that Locke, Liddell & Sapp had done nothing wrong. "Locke Liddell 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 Liddell agreed to pay $22 million to settle the suit. I don't know if this is true, but noted that the amount was so high because court authorities approving the settlement believe that Locke Liddell'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.
In fairness to Miss Miers, during this same period she had been selected by then Governor Bush to head-up the scandal-ridden Texas Lottery Commission. She may not have even known about Erxleben's fraudulent activities. But she was, after all, president of Locke, Liddell and the co-managing partner.