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Sharon Pierce isn’t one to mince words. “I have never spoken to Dan Morales. I don’t know why he did what he did,” says Pierce, an assistant U.S. attorney for the Western District of Texas. Nevertheless, there’s no doubt Pierce communicated a message to the former Texas attorney general when, over the course of four years and through the administrations of three different U.S. attorneys in the Western District, she spearheaded the investigation into Morales’ financial affairs. Pierce’s persistence paid off. The federal prosecutor managed to do what most observers — including other prosecutors and Morales’ own defense lawyers — believed no one could do: successfully bring charges against the former Texas AG, the once-shining star of the Democratic Party. On July 17, in United States v. Daniel C. Morales, et al., Morales entered a guilty plea to one count of tax evasion — for diverting some campaign funds to personal use — and one count of mail fraud — for attempting to get his friend, Marc Murr, contingent fees from the litigation against Big Tobacco. (Murr, the prosecutors allege in an indictment filed in March, did little to no work on the tobacco case.) On Oct. 31, U.S. District Court Judge Sam Sparks in Austin sentenced Morales to four years in prison. Pierce’s investigation culminated on Nov. 18, when Morales was assigned to reside with about 1,300 other convicts in a low-security federal prison in Texarkana. “Trust me, there were a lot of people, a lot of the lawyers we spoke to about this case, who didn’t believe we were going to run all the way with this thing,” Pierce says during one of several recent interviews, during which she explained how she and her team — including two other assistant U.S. attorneys, Jim Blankenship and John Phinizy, and FBI agent Bob Hightower — built a case against Morales. Pierce’s resolve was pivotal to Morales’ conviction, according to other prosecutors and three of Morales’ former defense lawyers. “One of the things that I knew from the very beginning was that Sharon Pierce would be absolutely single-minded and dogged. She has a deserved reputation of being very thorough. If the mandate is to turn over rocks in a field, she will do it,” says Sam Millsap Jr., a solo practitioner in San Antonio and one of Morales’ former defense attorneys. “A lot of prosecutors would have been scared off from a complicated case,” says Johnny Sutton, U.S. attorney for the Western District of Texas and Pierce’s boss. “But Sharon, Hightower, and their team get the credit for having the determination and will. She was tough and determined, and I pulled the trigger.” During the lengthy investigation, Pierce became so familiar with Morales’ pattern of behavior and his finances that she was able to predict that Morales, after being indicted, would try to generate some quick cash with the sale of his cars, including a 1999 Lexus. “I knew he was in dire financial straits. I had a sense he was going to do something with those cars,” Pierce says. So she asked FBI agent Hightower to keep a close eye on Morales’ transactions related to the cars. Prosecutors alleged at a June 25 hearing that Morales claimed some $20,000 in monthly income on car loan applications to finance purchases of a Mercedes and to trade in his existing vehicles for cash. Previously, Morales had told Judge Sparks that he was indigent. When Sparks learned of the income Morales had claimed on the car loans, he wasted no time revoking Morales’ bond and ordering him to jail. Within two weeks of that June 25 hearing, Morales, who up to that point had adamantly denied the 12 counts in the indictment against him, entered guilty pleas to two of the counts. INVESTIGATION BEGINS Pierce launched an investigation of Morales in 1999. Since then, the 44-year-old prosecutor says, she’s culled through most of the former Texas attorney general’s business and personal financial records multiple times and interviewed nearly 100 witnesses — the majority of whom were lawyers, sometimes with two or three lawyers representing them. She sighs as she talks about it; just thinking about it exhausts her. The team spent 30 days on drafting the indictment, trying to keep it succinct even though the state’s litigation against Big Tobacco itself — out of which the case against Morales arose — had taken years and gone through many complicated twists and turns. Throughout the investigation, Pierce was discreet, not necessarily a common trait for prosecutors. Pierce learned in 1999 that Morales had diverted some political contributions for personal use. But Pierce did not disclose that — particularly to Morales’ lawyers — until a few weeks before the March 2003 indictment was filed. “She kept us comfortable as long as possible,” Millsap says. During the four-year investigation, Pierce, a graduate of the University of Texas School of Law, who had an initial interest in the law because of working on trusts and estates, gave birth to her second child, Rachel, who is now 3. She took her 9-year-old son, Pierce, who had heard about the case during many dinner-table discussions, to Morales’ sentencing hearing on Oct. 31. “I think he was very interested,” Pierce says of her son’s reaction to the hearing. She was happy her son finally got to see her work product after so many long days spent on the case. “It was incredible, the number of lawyers we talked to. I have never done anything like it, and that is an experience I don’t want to repeat,” says Pierce, who has worked as a prosecutor since 1987, 15 of those years in the Western District. When Pierce started her investigation of Morales, the former Texas AG had left office and was working as a lobbyist. Morales’ former assistant in the AG’s office, Harry Potter, now a solo practitioner in Austin, contacted FBI agent Hightower because he was suspicious about the contracts Morales had drawn up between Murr (a Houston plaintiffs lawyer, and a friend and former colleague of Morales) and the state of Texas. As alleged in the indictment against Morales and Murr, Morales had created two “fake” and “bogus” contracts between the state and Murr; one contract called for Murr to receive a “reasonable fee” and the other for a 3 percent contingent fee for his work on the tobacco litigation, the indictment alleges. Morales’ current lawyer, William Ibbotson, an assistant federal public defender for the Western District of Texas, declines to comment for this article. An assistant in his office says Ibbotson is not talking to the media about Morales’ sentencing. On Oct. 3, Murr entered a guilty plea to one count of mail fraud in an attempt to get $520 million awarded fraudulently to him by the national arbitration panel that was determining legal fees for Texas’ case against Big Tobacco. His lawyer, Michael Ramsey, a solo practitioner in Houston, says about Pierce: “[She] seems to be a good lady” who is “strong in her opinions.” He notes, “She had not misled me in any way.” Ramsey says he’s quite pleased with the plea offer to Murr. The indictment against Morales and Murr alleges that Murr had not, until he began seeking the contingency fees in 1997, made an appearance in the state’s case against Big Tobacco or consulted with the Tobacco Five, as the group of lawyers the state hired to sue the tobacco industry became known. The Tobacco Five includes Walter Umphrey, a partner in Provost & Umphrey in Beaumont; John Eddie Williams, a partner in Williams Bailey Law Firm in Houston; John O’Quinn, a partner in O’Quinn, Laminack & Pirtle in Houston; Wayne Reaud, a partner in Beaumont’s Reaud Law Firm; and Harold Nix, a partner in Nix, Patterson & Roach in Daingerfield. Potter, who had handled the day-to-day responsibilities for the tobacco case, told the Pierce-led prosecution team that he had concerns about Morales’ activities related to Murr’s proposed fees. “Harry [Potter] realized the contracts were [allegedly] backdated,” FBI agent Hightower recalls, “based on his looking at the computer records.” After talking with Potter, Pierce and Hightower say, they subpoenaed Morales’ personal bank records. They went through them and compared them with the campaign finance reports Morales had made to the Texas Ethics Commission. By poring over the bank records and the reports to the TEC, the prosecutor and FBI agent determined that from 1997 to 1999, Morales had siphoned some money from his political contributions allegedly to help pay for his $1.2 million West Austin home — which is now listed as for sale. From looking at the campaign finance reports Morales had been required to file with the TEC, Pierce says, it was not immediately apparent that Morales had dipped into his political funds for personal use. That’s why Hightower and Pierce had to compare alleged expenses charged to the political accounts with the deposits into Morales’ personal bank accounts. Pierce alleges Morales had in some instances misrepresented his transactions to the TEC, a violation of state law. But Pierce, who only has jurisdiction to prosecute violations of federal law, says she still wasn’t sure he had committed a violation of federal laws regulating the use of political contributions. So Pierce then began to look into whether Morales had committed mail fraud, a violation of federal law, in connection with those reports to the TEC. That possibility raised a rash of questions because Morales hadn’t mailed all of his submissions to the TEC. He had hand-delivered some. Pierce spent more time than she would have liked, she says, looking around the TEC’s mailroom for envelopes to verify that some of Morales’ reports had indeed been sent through the U.S. Postal Service. Pierce says it also wasn’t clear if Morales, with what she alleged were some false reports to the TEC, had allegedly defrauded someone of property rights, a necessary component of a mail-fraud charge. “Who exactly was losing money?” she says they had to ask themselves about the transfer of some funds from Morales’ political campaign to his personal accounts. The answer “was not that straightforward,” Pierce says. But eventually her legal research led her to believe he owed the money either to his contributors or the state of Texas. With some $400,000 allegedly going from his political accounts to his personal ones, the Pierce-led investigators began to look at Morales’ house loan documents to see what he had claimed as income. “Statements to get car and house loans is always of interest to a federal prosecutor. It always proves fruitful for me,” Pierce says. With the loan documents showing that some of the money from Morales’ political campaigns allegedly was reported as income, the prosecutor began to look at Morales’ income tax claims for that year. To pursue an Internal Revenue Service-related charge, however, the prosecutor had to get approval from the IRS and the Department of Justice Tax Division. A BIG BREAK As she awaited approval from those agencies, Pierce got what she considers her biggest break in the case when in 2000 she interviewed Reaud, one of the Tobacco Five. Reaud told Pierce about a conversation he allegedly had with Morales at a 1996 Christmas party that the plaintiffs lawyer hosted. According to the indictment, Morales allegedly had asked the Tobacco Five to each make a $50,000 donation to his political campaign for a total of $250,000. At the Christmas party, Reaud refused, the indictment against Morales alleges. Since Pierce had evidence at the time that Morales had used some political funds for personal use, her conversation with Reaud confirmed what she had already been piecing together: Morales was allegedly constantly looking for ways to enrich his political contributions to then convert for his personal use. “I often imagined what it would be like to be in the room with Morales and Reaud [during that alleged conversation in 1996]. . . . I personally think that was brave of Reaud to do that [to say no to Morales' alleged request],” Pierce says. “I started thinking about that a lot because I knew that Dan was pilfering from his political accounts.” With information from Reaud, Pierce says, she began to draw a connection between Morales’ personal use of some political funds and his alleged attempts to generate contingency fees from the state’s litigation against the tobacco industry. “It was a whole piece of cloth,” she says. After Pierce’s conversation with Reaud, she began talking to Will Pryor Jr., a former first assistant in the AG’s office and now a Dallas solo and mediator. According to the indictment against Morales, at a January 1997 meeting in Austin, Morales allegedly told Umphrey, one of the Tobacco Five, that he wanted to hire Murr and Pryor to work on the tobacco case. Umphrey balked at the idea, according to the indictment. But Morales allegedly forged ahead to get contingency fees for Murr and Pryor. At a meeting later that month, Morales allegedly told Pryor and Murr that each would have to pay up to $2.5 million in expenses on the tobacco litigation. Pryor didn’t have the money, the indictment against Morales alleges, and Morales allegedly agreed to remove the requirement for Pryor. In the indictment against Morales, the prosecutors allege that the Tobacco Five filed hundreds of pleadings, collected millions of documents, took statements from hundreds of witnesses, and spent millions of dollars to prepare Texas’ case. Murr and Pryor participated in none of these activities, the indictment alleges. Morales told Texas Lawyer in 1999 that Murr helped him pick the trial team and helped him monitor ancillary issues, such as talks in Congress about a possible national settlement and the status of tobacco litigation in Florida and Mississippi. Over the next few months, Pryor says in an interview, he did little on the suit, so he asked Morales to “tear up” Pryor’s fee contract. “I wasn’t comfortable with my situation,” Pryor says. “I thought, ‘This doesn’t make any sense. It could be harmful to the whole process [of suing the tobacco industry].’ “ Morales did not tear up Murr’s contract. Indeed, the indictment alleges that just a few days before Morales announced the state’s settlement with Big Tobacco, he and Murr were meeting with the Tobacco Five and asking for millions for Murr. On Jan. 16, 1998, the day Morales announced and entered the settlement in State of Texas v. American Tobacco Co., et al., Murr made his first appearance before U.S. District Judge David Folsom of Texarkana to apply for fees, the indictment alleges. Later that year, sitting before the national arbitration panel established to determine the amount of attorneys’ fees to be paid in the Texas tobacco case, Murr and Morales made a request for Murr to get money, the indictment alleges. During the national arbitration panel hearing on Dec. 5, 1998, Morales defended his hiring of Murr. Morales argued that he needed lawyers such as Murr who, unlike the Tobacco Five, had no interests in related tobacco litigation for other states. (Some of the Tobacco Five had alliances with plaintiffs lawyers in other states pursuing the tobacco industry.) “I believe it would have bordered on malpractice for me to not to have at least one law firm focused like a laser beam on Texas and only Texas,” Morales told the panel, which subsequently awarded Murr $1 million in fees. In May 1999, John Cornyn, who had succeeded Morales as Texas attorney general, announced that an investigation his staff had conducted had shown Morales allegedly “backdated” contracts with Murr. As a result, Murr did not defend the fee he had been awarded by the national arbitration panel. He asked the court to vacate it. For Pierce, the timing of Morales’ alleged attempts to get Pryor and Murr into the tobacco litigation and set up with fee contracts was significant. She says it was just a few weeks after Reaud rejected Morales’ alleged request for Tobacco Five contributions to his political campaign that Morales allegedly began to look for ways to get contingency fees for Murr and, at that point, Pryor. STUMBLING BLOCKS During Pierce’s investigation of Morales, there were stumbling blocks, many logistical, she says. For instance, although Potter and Cornyn raised questions about alleged backdated fee contracts, Pierce says that was not something the prosecutors ever firmly nailed down with physical evidence. “My feeling was our best efforts at trial would be to present circumstantial evidence about those [allegedly backdated] contracts,” Pierce says. She sent computer files dating back to when Morales was in office to Washington, D.C.-based DOJ computer specialists to analyze for any proof of Morales’ alleged backdating. But the computer specialists’ work was interrupted, Pierce says, after the Sept. 11 terrorist attacks on America and the specialists turned their attention toward preventing terrorist attacks. Pierce also opted to slow things down when Morales announced he would seek a bid for the Democratic gubernatorial nomination in 2002. “We wanted to keep a low profile then,” Pierce says. Even though Pierce and her team had at that point completed 90 percent of their investigation, Pierce says, she wanted to avoid filing charges during the campaign because of the appearance of interfering with the election. Despite the setbacks, Pierce persevered. Bill Blagg, Sutton’s predecessor as U.S. attorney in the Western District, told Texas Lawyer in March that his office had investigated Morales in the late 1990s, but they did not have enough information at that time to pursue charges. But, Pierce says, “I never stopped the investigation.” Pierce, who up to that point hadn’t had face-to-face contact with Morales during her investigation, says his formidably articulate nature became apparent at his sentencing hearing. “The errors, misrepresentations, and misjudgments upon which my plea is predicated fall far short of the standard of absolute probity demanded from our justice system,” Morales told the court on Oct. 31. “That’s one way to put,” says Pierce, more than a little bit sarcastically. Miriam Rozen is a contributing reporter at Texas Lawyer, the American Lawyer Media newspaper where this article first appeared.

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