Fen-phen scamming attorneys get no relief from the 6th Circuit

SHIRLEY A. CUNNINGHAM , JR.

A federal appeals court has affirmed the convictions of lawyers William Gallion and Shirley Cunningham Jr. for running a “massive scheme to defraud their clients” in a major Kentucky fen-phen case. The two prominent plaintiff's lawyers were convicted of wire fraud for stealing the bulk of a 2001 settlement from 440 clients, who ended up receiving only about 37% of the $200 million that the manufacturer of fen-phen, American Home Products, agreed to pay for their injuries. The once popular diet drug was shown to cause heart valve damage and was the subject of many lawsuits following its having been pulled from the market.

The 6^th Circuit Court of Appeals held while there were minor flaws in their 2009 trial, all were harmless given the extent of their crimes. The attorneys were convicted of scamming clients by taking nearly two-thirds of a $200 million settlement. 

The Court refused to believe that the two attorneys were simply in over their heads, deciding instead that they had actively lied to clients and the court, engaged in destruction of documents and shifted money between a multitude of accounts all to avoid detection. 

The panel affirmed an order that required the two lawyers pay $127.6 million to their victims as restitution. 

One of the defendant’s lawyer claimed that while he’s disappointed with the ultimate ruling he’s not done fighting for his client. He said he would now be asking the full court to reconsider the ruling and if that fails, ask that the US Supreme Court hear the case. 

Kerry Harvey, the U.S. attorney for the Eastern District of Kentucky, who was responsible for prosecuting the two said the ruling was gratifying because “it brings us one step closer to securing justice for the many victims.” Harvey said the government had been collecting assets but was legally not permitted to distribute them while the case was on appeal. Angela Ford, an attorney representing most of the victims of Gallion’s and Cunningham’s fraud, said, “It has been a long fight, and this is a tremendous milestone.”

Gallion, 61, who is serving 25 years at a federal prison camp in Oakdale, La., is not eligible for release until Dec. 8, 2029, while Cunningham, 57, who is serving 20 years at a camp in Yazoo, Miss., has a release date of Aug. 15, 2025.

USA. v. SHIRLEY A. CUNNINGHAM , JR. Read: “Fen-Phen lawyers' convictions upheld for defrauding clients,” by Andrew Wolfson, published at Courier-Journal.com.

Earlier:

Lawyers convicted of scamming millions from fen-phen suit get unsympathetic hearing at 6th Circuit 

Federal sentencing discretion under attack

Sixth Circuit Upholds Conviction for 51 counts of fraud, money laundering and conspiracy to commit fraud against Nashville Mortgage Broker

• US v. HAROLD STAFFORD

In this well written opinion, Judge Sutton summed up the activity of Mr. Stafford of Nashville:  "Harold Stafford set out to make money from a quaint phenomenon once known as rising home prices.  The first premise of his plan was legitimate but mistaken—that residential real estate would continue to appreciate in value. The second premise of his plan was illegitimate and equally mistaken—that he could get away with filing a series of fraudulent loan applications to purchase the properties.  When the predictable happened, a jury convicted him for violating several white-collar criminal laws, and a judge sentenced him to 96 months in prison."


On appeal to the Sixth Circuit, Stafford raises three issues; the most serious of which is enhancement at his sentencing.  The Sixth Circuit affirmed the District Court on all grounds. 


Regarding an enhancement for obstruction of justice, the Court noted, Stafford told a straw buyer of a home that, if he faced questioning, “we can’t say anything, we have got to stick together.” Because Stafford impeded an ensuing investigation of the mortgages in question, it sufficed as an enhancement for obstruction.

Sophisticated Means was satisfied as an enhancement when Stafford instructed others to submit applications for owner-occupied loans; told straw buyers to purchase all of their houses in the same month before the purchases appeared on their credit reports; directed others to apply for loans from different lenders; supplied people with falsified tax returns; and otherwise misused his specialized knowledge of the mortgage industry to create and sustain this conspiracy.  


Lastly, the Court found he was an organizer or leader because he recruited many straw buyers, enlisted builders to sell nearly two dozen homes and brought others in on the scheme. He gave direction and oversight at all levels of the scheme the Sixth Circuit found.

Sixth Circuit Reverses TN Senator John Ford's Convictions for Wire Fraud and Concealing a Material Fact to The Feds.

• US v. JOHN FORD

This case is the second federal prosecution of State Senator John Ford and involves his failure to disclose his financial interests in certain organizations working with TennCare.  A jury convicted Ford of “honest services” wire fraud and of concealing a material fact, that is failing to disclose his relationships with Omnicare and another company that paid him and who also who did business with TennCare.

The Sixth Circuit found that Ford did not owe TennCare a contractual duty to report his financial interests with Omnicare. The only reporting duties owed by Ford here were owed to the senate and election registry.  Therefore, reasoned the court, failing to disclose those business relationships to TennCare was not a violation of federal law. We see from the result that Ford engaged in obviously poor ethics and perhaps violations of state election law but his actions did not amount to a federal crime.

Senator Ford argues too that in light of the Supreme Court's holding in the recent Skilling case (Enron prosecution) his wire fraud conviction should be set aside.  The Supreme Court in Skilling held that the honest services wire fraud statute “covers only bribery and kickback schemes.”  Senator Ford's convictions were for his failure to disclose his financial interests, not bribes or kickbacks.  It was on this ground that the Sixth Circuit vacated and reversed his wire fraud convictions.

• John Ford photos from the Commercial Appeal