Legal News for Mon 8/5 - Musk PAC Under Investigation, Girardi Wire Fraud Trial, Bed Bath and Beyond Insider Trading and Transactional Work Boom

Minimum Competence

This Day in Legal History: Ronald Reagan Fires Air Traffic Controllers

On August 5, 1981, President Ronald Reagan made a landmark decision to fire over 11,000 striking air traffic controllers. These federal employees, members of the Professional Air Traffic Controllers Organization (PATCO), had initiated a strike on August 3, demanding better pay, shorter working hours, and improved working conditions. The strike posed significant risks to national air travel safety and disrupted the aviation system.

President Reagan responded with a firm stance, citing the controllers' sworn oath not to strike against the government. In a nationally televised address on August 3, Reagan warned that if the controllers did not return to work within 48 hours, they would face termination. When the deadline passed without compliance, Reagan followed through on his ultimatum, effectively dismantling PATCO.

The mass firings had profound implications for labor relations and federal employment policies in the United States. It underscored the government's commitment to maintaining uninterrupted air traffic services and demonstrated a strict enforcement of federal labor laws. This event marked a pivotal moment in the Reagan administration, showcasing its determination to curb union influence and assert governmental authority. The firings also led to long-term changes in air traffic control, with the federal government embarking on extensive recruitment and training programs to replace the dismissed controllers.

A political action committee (PAC) supported by Elon Musk is under investigation in Michigan for potential legal violations. The Michigan Secretary of State's office confirmed the inquiry on Sunday. The Musk-backed America PAC has been collecting detailed voter information through its website, prompting scrutiny from state authorities.

Although America PAC is a federal entity, Michigan officials are reviewing its actions to determine if state laws have been breached. If violations are found, the case may be referred to the Michigan Attorney General. The investigation is in its early stages, and specific focuses have not been disclosed.

Musk, CEO of Tesla and SpaceX, has previously stated he created a PAC to support candidates but denied making specific pledges. He has publicly supported Donald Trump and criticized various Democratic policies and initiatives.

Neither the Michigan Attorney General's office nor America PAC has commented on the investigation. Musk also has not responded to requests for comment. The situation underscores concerns about how PACs use personal information collected from citizens, particularly in voter registration efforts.

Musk-backed PAC under investigation for potential violations of Michigan laws | Reuters

Thomas V. Girardi, the famed attorney behind the landmark $333 million Pacific Gas & Electric settlement featured in the film "Erin Brockovich," faces a criminal trial for wire fraud in Los Angeles federal court. At 85, Girardi has been disbarred and bankrupt, charged with misappropriating $15 million in settlement funds intended for his clients over the past decade. This trial could mark the end of his distinguished legal career, tainted by allegations of unethical conduct and questionable ties to the state’s lawyer disciplinary agency.

Plaintiff’s attorney Jay Edelson emphasizes the broader implications for the legal community, suggesting it could either prompt reform or be dismissed as an isolated incident. Girardi also faces additional fraud charges in Illinois, and numerous civil lawsuits. His once-celebrated career has become a cautionary tale of legal misconduct.

Prosecutors allege that since 2010, Girardi diverted millions from his firm, Girardi Keese, for personal luxuries and to fund EJ Global, an entertainment company of his estranged wife, Erika Jayne. Girardi’s defense argues that he was not responsible for financial mismanagement, attributing it to the firm’s CFO, Christopher Kamon, whose trial has been separated. They also claim Girardi’s cognitive decline impairs his ability to have intentionally defrauded clients.

Girardi’s case stands out not just for the legal drama but also for its celebrity connections, given his marriage to a reality TV star, influencing public and juror perception. The trial will focus on whether Girardi's cognitive state affects his culpability for the alleged crimes committed during his competent years. The court’s ruling on his competency to stand trial, despite cognitive impairments, adds a layer of complexity to this high-profile case.

Thomas Girardi’s Legal Drama Approaches Its Hollywood Ending

Former Bed Bath & Beyond Inc. has sued GameStop CEO Ryan Cohen and his company, RC Ventures LLC, seeking to recover $47 million from alleged insider trading in 2022. Cohen, also the founder of Chewy Inc., allegedly used nonpublic information to trade Bed Bath & Beyond (BBBY) stock profitably between January and August 2022 while serving as a statutory director.

The lawsuit, filed in the US District Court for the Southern District of New York, claims Cohen and RC Ventures made numerous profitable trades of BBBY securities, which were executed within a six-month period. Under Section 16(b) of the 1934 Securities Exchange Act, the company seeks to reclaim these short-swing profits because Cohen and RC Ventures owned more than 10% of BBBY's common stock and had access to inside information through their board appointees.

This legal action is part of a broader effort by the bankrupt company and its plan administrator, Michael Goldberg, to recover funds for creditors. Goldberg has also filed a separate suit to reclaim $19 million in tax credits from a New Jersey agency and is pursuing over $300 million from Hudson Bay Capital Management for trading profits related to a failed financing plan.

RC Ventures is GameStop's largest shareholder with an 8.7% stake. Bed Bath & Beyond, now operating as 20230930-DK-BUTTERFLY-1 Inc., is demanding monetary damages and legal costs. Cohen and RC Ventures have not commented on the lawsuit. The case is titled 20230930-DK-BUTTERFLY-I Inc. v. Cohen.

GameStop CEO Sued by Bed Bath & Beyond for Insider Trading (1)

The demand for transactional legal work is recovering after nearly three years of decline, according to the Thomson Reuters Institute’s Law Firm Financial Index. The report shows a 2.2% increase in corporate transactional work, including contract drafting, real estate deals, and bank financing, in the second quarter of 2024 compared to the previous year. This rise contributed to a 2.4% overall increase in law firm demand.

Additionally, U.S. law firms have seen a 6.6% increase in billing rates and a 5.3% rise in direct expenses, putting them in one of their strongest financial positions in the last decade. Profits per equity partner have increased by 8.8% over the past year.

While transactional practices are rebounding, counter-cyclical practices like litigation and bankruptcy continue to drive significant demand. Litigation demand rose by 3.4% and bankruptcy by 2.4% in the same period. These trends provide law firms with greater stability by diversifying their revenue streams.

However, the gains are not uniform across the industry. The Am Law 50 firms have not seen the same increase in litigation demand as other firms, and midsize firms have not experienced the same growth in transactional demand as Am Law 100 firms.

Overall, the second quarter of 2024 has been positive for the legal sector, with significant improvements in demand and profitability.

Law firm transactional work rebounds after 3-year slump, report says | Reuters

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