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Former Texas Attorney General Dan Morales and Houston lawyer Marc D. Murr were indicted on March 6 in Austin on federal charges stemming in part from their alleged attempt to secure Murr a portion of the attorney fees from the state’s tobacco litigation. The indictment alleges Morales and Murr attempted to fraudulently obtain as much as $260 million for Murr “disguised” as legal fees. The indictment also alleges Morales attempted to convert more than $400,000 in campaign funds and use them in connection with his purchase of a $775,000 house in 1998. Morales is charged with mail fraud, conspiracy, filing a false tax return and making false statements on a loan application. Murr is charged with mail fraud and conspiracy. Morales and his lawyer, criminal defense attorney Sam Millsap of San Antonio, deny the allegations. Murr’s criminal defense attorney, Michael Ramsey of Houston, declines comment. Morales and Murr surrendered to authorities on March 7 and will enter pleas on March 18. Each mail fraud and conspiracy charge is punishable by up to five years in prison, a $250,000 fine and three years of supervised release. Filing a false return carries a sentence of up to three years in prison, a $100,000 fine and up to a year of supervised release. The other charge, making a false statement on a loan application, is punishable by up to 30 years in prison, a $1 million fine and five years of supervised release. The indictment, announced by Johnny Sutton, U.S. Attorney for the Western District of Texas, alleges Morales perpetuated two “schemes” to defraud the state of Texas. “This is a case of an elected official charged with abusing the public trust,” Sutton said in a statement on March 6. “As attorney general of Texas, Dan Morales had an obligation to the people of this state to be honest, loyal and fair. The indictment alleges that he violated that trust by back dating contracts, forging government records and converting campaign contributions to personal use.” Sutton declines comment beyond his statement. The indictment alleges that from 1997 through 1999, Morales defrauded the state, the Texas Ethics Commission, contributors, his campaign finance report preparer and others by converting political contributions to personal use and making false representations to cover it up. As alleged in the indictment, Morales cashed four certificates of deposit containing political contributions totaling more than $400,000 and transferred the money into a checking account in his name and used the money for his house and other personal expenses. He is also charged with making a false statement when applying in 1999 for a $600,000 mortgage loan. The charges against Murr relate to the tobacco litigation. In 1996, Morales hired five prominent plaintiffs’ lawyers in Texas to sue Big Tobacco. The contract between the state and the private counsel, known as the Tobacco Five, called for them to pay $10 million in expenses on the litigation for a 15 percent contingent fee. But the indictment alleges that in 1997, Morales announced that he also would hire Murr, a friend, and another lawyer, Morales’ former first assistant Will Pryor, to work on the tobacco litigation along with the private counsel for a 3 percent fee each. Pryor later backed out from working on the suit and agreed with Morales to tear up his contract, as alleged in the indictment, but after the litigation settled in 1998, Murr sought an estimated $260 million in fees. The tobacco litigation settled in January 1998 for $17.3 billion and became final six months later. The Tobacco Five were entitled under their contract to 15 percent of the recovery, roughly $2.3 billion, but in 1999 they renounced their rights in the contract, opting instead for a $3.3 billion fee awarded by an arbitration panel in December 1998. Murr was awarded $1 million by the same arbitration panel, but he later vacated his fee request after former Texas Attorney General John Cornyn alleged that Morales had backdated the contract with Murr that gave the outside lawyer a 3 percent fee in the tobacco suit, the indictment alleges. The indictment alleges that beginning in 1997 and until 1999, Morales and Murr attempted to defraud the state in a plan that would allow them to fraudulently obtain for Murr millions of dollars from the tobacco litigation disguised as attorney fees. The indictment alleges that Murr’s fee contract was backdated. The indictment also alleges that Morales filed a false tax return in 1998 on behalf of himself and his wife in which he claimed joint taxable income of $39,734.

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