by Harry V. Martin
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EDITOR'S NOTE: When discussing the widespread corruption in the federal Bankruptcy Courts, it is difficult to focus on just the Northern California jurisdiction. This new series will focus on the extent of the corruption throughout the nation and its linkage to various courts.
When the U.S. Government sent Anthony Souza to Northern California to investigate what government officials called "the dirtiest system" in the United States, it was aware that the entire bankruptcy system is unraveling. Former LendVest Trustee Charles Duck was the main focal point of Souza's investigation -- even though a local bankruptcy judge called him the most "honest man" he had ever known. Duck's ties to bankruptcy judges throughout the Bay Area is providing a picture of intense corruption going deep inside the law enforcement agencies. Even Souza admits privately that his hands are tied.
There has been one known murder in Northern California that has strong possible links to the bankruptcy system. There have been several more in Texas. This series will focus on different incidents from various parts of the country.
One of the most bizarre cases of corruption in the bankruptcy system involves a small Washington-based computer software firm called INSLAW. In 1982 the firm signed a three year contract for $10 million with the U.S. Department of Justice. The software program INSLAW developed was a case-management computer program called PROMIS. The software, which was developed by Bill Hamilton, enabled the U.S. attorneys to keep track of information on cases, witnesses and defendants, and to manage their caseloads more effectively.
Though the U.S. Attorney's Office placed the PROMIS program into operation in several of its offices, it refused to pay Hamilton. Subsequently Hamilton was forced into the bankruptcy court. Former U.S. Attorney General Elliot Richardson, representing Hamilton, advised him to sue the Justice Department for stealing his software.
Anthony Pasciuto, who was the deputy director of the Executive Office for U.S. Trustees, which oversees bankruptcy estates on behalf of the court, had stated that the Justice Department was improperly applying pressure on his office to convert INSLAW's Chapter 11 reorganization into a Chapter 7 liquidation, which would mean that all company assets, including the rights to PROMIS would be sold at auction.
U.S. Trustee Cornelius Blackshear corroborated Pasciuto's story. Two days after he was visited by Justice Department officials, Blackshear issued a sworn affidavit recanting his earlier testimony.
The Justice Department recommended that Pasciuto be fired. The memo seeking his dismissal reads "But for Mr. Pasciuto's highly irresponsible actions, the Department would be in a much better litigation posture than it presently finds itself."
Federal Bankruptcy Judge George F. Bason, Jr., ruled in 1987 that the Justice Department had acted illegally in trying to put INSLAW out of business. Bason sent Edwin Meese a letter recommending that he designate an appropriate outside official to review the dispute because of the prima facie evidence of perjury by Justice Department officials, Meese did not respond.
Later that year after nearly three weeks of trial, Bason ruled in favor of INSLAW in its suit against the Justice Department. "The department (of Justice) took, converted, stole INSLAW's software by trickery, fraud and deceit," the judge stated, adding, "the Justice Department engaged in an outrageous, deceitful, fraudulent game of cat and mouse, demonstrating contempt for both the law and any principle of fair dealing." Judge Bason ordered the Justice Department to pay INSLAW $6.8 million. Bason's verdict was upheld on appeal by U.S. District Court Judge William B. Bryant. Three months after Bason's ruling, he was denied re-appointment to the bankruptcy court.
Hamilton's trouble began when a friend of Meese attempted to buy out INSLAW, but Hamilton turned him down. In a court document, the potential buyer is quoted as saying, "We have ways of making you sell." It was after that the trouble for INSLAW began.
The Senate Permanent Subcommittee on investigations, chaired by Senator Sam Nunn, began an investigation into the INSLAW case. Once the inquiry got under way, the Senate Judiciary Committee's chief investigator, Ronald LeGrand, received a phone call from an unnamed senior officer at the Justice Department, a person LeGrand has known for years. The caller told LeGrand that the "INSLAW case was a lot dirtier for the Department of Justice than Watergate had been, both in its breadth and its depth."
The Nunn Committee completed its investigation and published its report. It recognized that INSLAW has been a victim of the system and stated that "the Justice Department had been uncooperative, refusing to allow witnesses to testify without representatives of the litigation division being present to advise them. The effect of their presence was to intimidate those who might otherwise have cooperated with the investigation." The report states, "The staff learned through various channels of a number of Department employees who desired to speak to the Subcommittee, but who chose not to out of fear for their jobs."
Congressman Jack Brooks of Texas has opened a new investigation into the INSLAW case. Brooks is investigating allegations that Justice Department officials, including Meese, conspired to force INSLAW into bankruptcy in order to deliver the firm's software to a rival company. The rival firm, according to court records and law enforcement officials, was headed by Earl W. Brian, a former Cabinet officer under then California Governor Ronald Reagan and a longtime friend of several high-ranking Republican officials. Meese had accepted a $15,000 interest-free loan from Brian. Meese's wife was an investor in the rival company. This is the same company that allegedly sought to buy INSLAW from Hamilton and made the alleged threat.
What happened to PROMIS?
* The program is in use throughout the nation and has been used also for military intelligence information. It has the ability to track troop movements.
* An official of the Israeli government claims Brian sold the PROMIS program to Iraqi military intelligence at a meeting in Santiago, Chile. The software could have been used in the recent Persian Gulf War to track U.S. and allied troop movements. Ari Ben-Menashe, a 12 year veteran of Israeli intelligence, made the statement in a sworn affidavit to the court.
* The software is now operative with the CIA, the National Security Agency, the Defense Intelligence Agency, and the U.S. Department of Justice. Only the Justice Department is authorized by the court to use the software.
* Brian now claims he acquired the property rights to the software and consummated a sale to Israel, although he had allowed its use by the Israeli intelligence forces for as many as five years before the actual sale.
In essence, a small company in Washington developed a very sensitive computer program which the Justice Department obtained. The courts ruled in favor of the developer and the judge who made the ruling was never re-appointed. The software was acquired by a friend of Meese and the Justice Department has never paid for its use and has allowed other agencies the right of its use.
The bankruptcy court was a tool, as it appears to be with other jurisdictions, to support the economic gain of a few. Charles Duck was not alone, as the record will prove.