PGHIMC - Pittsburgh Independent Media Center

Salt Lake City Weekly, July 1, 2004

Seven years ago, David Novak cast his lot with this generation's crop of robber barons, tax cheats, market manipulators and a host of other briefcase bandits. Now he holds their hands as they traverse the federal justice system, doing whatever he can to finagle the best deals possible.

Since he launched into his now-booming line of work, Novak has found that the white-collar breed of criminal, by and large, doesn't set out to pilfer any and everything not bolted down, as some would like to think. Instead, theirs is an insidious progression that starts out with cutting an innocent corner somewhere. "To be real honest with you, it's a very negatively seductive group of people to be around," he says.

His clientele, mostly made up of high-stakes hucksters, may or may not include the likes of ImClone insider Sam Waksal, his domestic diva crime partner Martha Stewart, the blue-blooded plunderers at WorldCom, Tyco, Adelphia, Dynegy, Arthur Anderson, Global Crossing, Enron and the list goes on. Confidentiality constraints prevent Novak from disclosing exactly who has commissioned his services, but he assures City Weekly he's been called in on several high-profile cases.

Novak learned how to be a white-collar criminal consultant firsthand--from his own experiences while serving a year and a day for mail fraud at Eglin's Federal Prison Camp. The minimum-security pen on the Florida Panhandle was once aptly coined "Club Fed" for its countryclub-like ambiance. He figured he'd be doing time with a more refined criminal element, "Caucasians, doctors, lawyers, Congresspeople."

To Novak's surprise "bunky" was a 34-year-old African-American crack dealer who'd spent half his life in a maximum-security penitentiary in Atlanta before earning his way into the prison camp. He notes that, "80% of people in federal minimum security facilities, 'Club Fed' type facilities, are there as a result of the War on Drugs," most of them are non-white, and only about 1% of federal inmates are serving time for white-collar offenses.

"The myth is that because they're not in a place with razor wire and gun towers, they're playing bocce ball all day. Minimum security, low security, medium security: Every federal prison is run by the exact same policies and procedures. The difference is whether or not there is perimeter security, because the people inside either do or do not pose a risk to the public.

A Marine Corps officer's son, Novak attended 13 different schools and was six weeks shy of graduating from of a prestigious Catholic high school in Connecticut when he left for a telecommunications firm out West. "Because I moved around as much as I did ... and chose to leave school and never went back and got credentialed, I think I always had a sense of inadequacy."

After a yearlong jaunt around the globe, he took his next position with Boeing Defense and Space. For five years, Novak managed contracts with international governments and various branches of the U.S. military while learning to flying for free. By 1996 he was on his own, supplementing a semi-successful aviation company by assisting Microsoft's development of flight simulation technology.

Not mincing a word, Novak confesses, "I staged the aircraft accident and ended up going to prison." His $80,000 airplane needed a $20,000 replacement engine, and so he acted on a greedy impulse and cheated the insurance company. "I was always attempting to outpace my peers. I simply could not allow myself to fail at anything ... and walk away." Today, Novak recognizes the trait in some of his clients.

"They put themselves under such pressure to perform that they often win Pyrrhic victories," he says. "They might keep the company going, but in order to have done that they lied on an SEC quarterly report. Two years later, the company folds, everybody's out of work, and they go to prison." About a third of the time they lose their loved ones--Novak's disgraced parents essentially disowned him. "I broke their hearts, and they thought they taught me better."

Novak has an astute understanding of federal sentencing guidelines and an institutional knowledge of the Federal Bureau of Prisons, but his true knack is relating to his clients. Carolyn Ryberg, a corporate headhunter, interior designer, and 35-year-old mother of two living in the upper Midwest, hired Novak in February. She credits Novak with helping her come to terms with a misguided value system, "White-collar offenses are what I like to call 'affluenza. It's an insidious disease that has struck right at the core, right at the heartland of America."

One of Novak's biggest challenges is to disabuse his clients of their hubris, and get them to realize that they are, in fact, criminals. Novak advises his clients to avoid trial like the plague. "If you have the audacity to go to trial with the federal government, and you are found guilty, and statistically you will be, you'll receive a sentence 300% longer than if you had accepted the plea that was offered."

Two recently publicized cases show the Justice Department for the strong arm of federal government Novak is so wary of. Jamie Olis, a midlevel financial executive at the Houston energy firm Dynegy, was sentenced to 24 years for fudging cash-flow numbers that benefited him personally to the tune of zilch, and arguably cost Dynegy stockholders in the hundreds of millions. Andrew Fastow, dubbed the "mastermind" of the Enron meltdown by the Justice Department, pleaded to two attempted conspiracy charges, got a recommended 10-year sentence and agreed to forfeit $29 million in personal, ill-gotten gains. To say nothing of the gobs of cash pilfered from employee pension accounts and stockholders' share value, the bill for Enron's bankruptcy proceedings alone is expected to top $1 billion. The x-factor, as it were, is that Fastow agreed to roll over on his cronies. Olis, who still maintains his innocence, would not.

Novak has had only one client he knew to be innocent. At least, somewhat innocent. The guy was a "mad-scientist" engineer type. He founded a technology startup that he was priming to take public, but realized he had no business sense whatsoever. So he brought in a management team, a member of which "cut some corners" as they say. Technically, by signing the incriminating documents he was presented, the entrepreneur had violated the law. But Novak, the prosecutor and the judge knew there was no criminal intent.

Novak doesn't carry a particularly bright torch for any of the corporate criminals he represents. In fact, he says he's disgusted by them, "because I see myself seven years ago. "I, for one, don't see any difference between white-collar criminals and drug dealers. They're just operating in a different business model." But Novak fears that in the rush to punish, an underlying yet pervasive lapse in ethics stands to go unchallenged.

He says, "In a strange way, there's no accountability. Look at the number of companies that have gone bankrupt. Look at the number of companies that have laid off thousands and thousands. There's no drive for companies to be socially redemptive or socially responsible anymore." Shifting the entire social paradigm is too tall an order for any individual, and Novak is content going about it one warped value system at a time.

Although David Novak is bound by honor not to disclose the identities of his clients, he permitted City Weekly to construct this lineup of Wall Street's usual suspects and recent convicts. Novak assures us that more than one of the following have retained his services:

Jamie Olis - The 38-year-old former mid-level number cruncher for Houston-based electricity broker Dynegy was convicted for inflating cash-flow reports to the Securities and Exchange Commission. His co-conspirators negotiated deals and will be out in less than five. Dynegy higher-ups have so far gone uncharged.

Martha Stewart - The McGyver of home improvements was found guilty of trying to cover up a suspect stock trade. Experts speculate she'll be sentenced to a year and a day.

Sam Waksal - The New York socialite and ImClone founder pleaded guilty to insider trading in 2002 and began serving a seven-year term in July 2003 at a minimum-security prison camp in Pennsylvania. It was Waksal's hot stock tip that allegedly was funneled to Martha.

David and Lea Fastow - The Houston power couple rode high on Enron's phantom profits, but the wave crashed, and they pleaded. Lea Fastow ultimately was sentenced to a year in prison for her misdemeanor tax crime. Her husband hopes to receive a 10-year sentence--predicated on complete cooperation with the federal government.

Kenneth Lay - The elusive former chairman and founder of Enron, and trusted adviser and pal to President George W. Bush, will likely be indicted very soon.

Jeffrey Skilling - The Enron chief executive left just six months after he accepted the post in 2001, but still faces 35 felony counts, including insider trading, securities fraud, wire fraud and conspiracy. If convicted on all counts, Skilling could be looking at more than 300 years.

Arthur Andersen - Enron's accounting firm was convicted of obstructing justice for shredding and altering Enron's financial records, fined $500,000, and placed on five years probation. The once-powerful accounting firm, which boasted 28,000 employees at its zenith, has since been whittled down to 250 people.

Frank Quattrone - The investment banker of Credit Suisse First Boston was convicted of obstructing justice and witness tampering. He'll probably get 18 months.

John, Timothy and Michael Rigas - The father and his sons allegedly hid over $2 billion in debt from Adelphia stockholders, while stealing from the company and running it into the ground. If convicted, between them, the family could next be divvying up 90 years behind bars.

According to the Houston Chronicle, 27 other individuals stand accused, are awaiting sentences, or are serving time in connection with the Enron collapse.