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The battle between the federal government and the white-collar defense bar over frozen assets and the right to counsel in corporate fraud actions was at the forefront of two separate cases this month. In a federal court in Alabama, lawyers representing Richard Scrushy, the fired chairman of the HealthSouth Corp., asked Judge Inge Johnson to limit the federal government’s attempt to freeze Scrushy’s personal assets. The move comes after Johnson ruled that the Securities and Exchange Commission failed to present sufficient evidence that Scrushy was tied to the alleged scheme that inflated HealthSouth’s worth by more than $1 billion. In addition to lifting the temporary freeze on Scrushy’s personal assets, the judge on May 7 put the SEC civil action on hold until the Justice Department completed its criminal probe of Scrushy and HealthSouth. But that didn’t stop the government. U.S. Attorney Alice Martin of the Northern District of Alabama then gave notice that she would seek to freeze Scrushy’s money. According to a defense motion filed last week, a federal prosecutor on May 8 sent an e-mail letter to Scrushy’s defense team — including Jonathan Rose and Robert McDermott Jr. of the Washington, D.C., office of Jones Day — warning the team that “it is a crime to take action that interferes with seizure or forfeiture of property that is known to be subject to forfeiture.” Scrushy’s lawyers took the letter to mean they could be prosecuted for accepting payment for their work. Martin subsequently revoked the letter, stating “it was not meant as a ‘threat’ but was artlessly worded for our intention in this case,” according to another letter sent to defense counsel. In a separate matter further north, D.C. lawyer Thomas Green told a federal judge in New York on May 15 that he would not be representing D.C. businessman C. Gregory Earls, according to prosecutors. Earls is charged with defrauding investors in his company, U.S. Technologies Inc., out of $13.8 million. A week earlier, Green had persuaded U.S. District Judge James Robertson in D.C. to allow the company to pay Earls $92,500 he said was owed to Earls, who remains the company’s chief executive. Green, a partner in the D.C. office of Sidley, Austin, Brown & Wood, argued that Earls, whose personal assets were frozen in March, needed the money to hire a defense lawyer for the criminal case in New York. Green did not return calls for comment. D.C. lawyer Barry Coburn of Coburn & Schertler says he is in discussions with Earls and that there’s a “good chance” he’ll take the case. Not so fast, the government says. Prosecutors told the New York judge that they were concerned there may be a possible conflict if Coburn were allowed to represent both U.S. Technologies and Earls, according to a spokesman for the U.S. Attorney’s Office for the Southern District of New York. Earls has until Thursday to find a lawyer.

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