A prominent Texas Republican has sued Rudy Giuliani’s law firm and a close friend and partner of Giuliani’s, Kenneth Caruso, alleging that Caruso, the firm and others "schemed and conspired to steal $10 million."

J. Virgil Waggoner, a Houston businessman and philanthropist, filed the in New York State Supreme Court in Manhattan in July. He alleges that Caruso, his former lawyer, conspired with Waggoner’s investment adviser to cover up the disappearance of $10 million Waggoner invested through a Caribbean bank, the British Trade & Commerce Bank.

Waggoner claims Caruso "may have also been romantically involved"with the investment adviser.

The Caribbean bank was shut down after its handling of Waggoner’s investment came to light, and its president was later jailed for money laundering.

Caruso, Bracewell & Giuliani, and Caruso’s two former firms — all named as defendants — have filed motions to dismiss the complaint on largely procedural grounds, and Caruso’s personal defense lawyer, Fred Warder, called it "meritless."

"It’s a pretty familiar tale of a deal gone bad and the principal trying to scapegoat his lawyers,"Warder said. "We expect it will go away on motions."

The Waggoner lawsuit is the latest messy allegation to hit Giuliani’s private businesses, which include the law firm and his consulting firm, Giuliani Partners, located five blocks from each other in Midtown Manhattan.

His former police commissioner, Bernard Kerik, left the consulting firm after his nomination to head the Department of Homeland Security collapsed amid questions about his personal ethics. Kerik was convicted and fined in 2006 for illegally accepting gifts and failing to report a personal loan while running the police department.

Giuliani and his firm have also faced protests for employing a Giuliani childhood friend and Catholic priest, Alan Placa, who was barred from priestly duties after being accused of molesting boys more than two decades ago. Placa has insisted the charges are false, and Giuliani has stoutly defended him.

Caruso, who joined Bracewell & Giuliani in 2005, was, like many of the former New York mayor’s tight inner circle, an assistant U.S. attorney when Giuliani was U.S. attorney for the Southern District in the Reagan administration.

Later, he worked on Giuliani’s mayoral campaigns. In Giuliani’s book, "Leadership," he describes Caruso as "a close friend"whose advice he sought when he was diagnosed with prostate cancer in 2000.

"Reid produced sufficient evidence that Google's (stated) reasons for terminating him were untrue or pretextual, and that Google acted with discriminatory motive such that a fact-finder would conclude Google engaged in age discrimination," Presiding Justice Conrad L. Rushing wrote.

The Mountain View-based search engine company has denied Reid's allegations but also refused to say why he was fired. In court documents, the company said Reid was fired when the program he managed was canceled.

Reid, a former associate electrical engineering professor at Stanford University, sued Google in July 2004, five months after he lost his job as its director of operations.

He alleged in his suit that his supervisors did not initially tell him why he was being fired. Director of Engineering Wayne Rosing, 55, eventually said he was not a good "cultural fit" at Google, where some colleagues referred to him as an "old guy" and "fuddy-duddy," Reid said.

Another supervisor, Urs Hoelzle allegedly said Reid, who is a diabetic, was too sluggish and "too old to matter" and his ideas were obsolete.

Reid is seeking back pay and punitive damages. He made $200,000 a year and lost stock options valued at millions of dollars when he lost his job.

Two weeks ago, a federal jury in Kansas City, Kan. ruled that Vonage violated Sprint's patents and ordered the company to pay $69.5 million in damages.

Holmdel, N.J.-based Vonage is engaged in a similar patent dispute with Verizon Communications Inc. that could prove quite costly.

Battered by legal setbacks, Vonage stock has taken a nosedive since the company went public in May 2006 at $17 a share. Yet the Sprint settlement sent the company's stock up more than 40% to $1.67 in early trades.

In March, a federal jury in Virginia ruled that Vonage violated three Verizon patents related to technology used to link Internet calls to traditional phone networks and to retrieve voice mail. The company was ordered to pay $58 million in damages on top of a 5.5% royalty fee.

Just one day after the Sprint decision, the U.S. Court of Appeals for the Federal Circuit in Washington, D.C. upheld the earlier Verizon ruling. The court found that Vonage violated two of the three patents, but send the third patent back to the lower court for further review.

Vonage has developed and deployed technological fixes to get around the Verizon patents in question, but the courts have not ruled on whether the "workarounds" are valid.
"Vonage has taken steps to ensure that the workarounds do not infringe on the Verizon patents as construed by the court," spokesman Charles Sahner said.

Vonage provides inexpensive Internet-phone service to almost 2.5 million customers, although growth has slowed recently. The company has scaled back marketing expenses to save money while it sorts through its legal issues.

Representative John R. Kuhl Jr. of New York received just his second telephone call ever from his state's Democratic governor, Eliot Spitzer, last week and was not surprised at the topic: children's health insurance.

"He said, 'I am calling you to come over to the dark side,' " said Mr. Kuhl, who was urged by the governor to drop his opposition to health care legislation and join the effort to override President Bush's veto of the bill.

Mr. Kuhl, a Republican who narrowly survived the Democratic sweep of 2006, said he was unlikely to budge. As a result, voters in his district will also be getting calls - from Democrats and advocacy groups who are planning a telephone, radio, television and even text-message barrage against Republicans over what is shaping up as a defining domestic policy issue of the 2008 campaign.

Democrats believe they have Republicans - short on campaign cash, contending with a spurt of retirements and quarreling - on the run over the legislation, the State Children's Health Insurance Program. Party leaders say the willingness of so many House Republicans to stick with Mr. Bush in the face of bipartisan backing for a $35 billion expansion of the program to provide insurance for poor children will prove costly as Election Day looms a year from now.

"They know they cannot sustain this vote in the fall of 2008 and they are praying it gets worked out before then," said Representative Rahm Emanuel of Illinois, chairman of the House Democratic Caucus.

The Health and Human Services secretary, Michael O. Leavitt, said Sunday that Mr. Bush was ready to work it out. "The president has already said, 'I want a compromise,' " Mr. Leavitt said on the ABC program "This Week." But Democrats say that they have already compromised with Senate Republicans and they are in no hurry to scale back the plan.

Republicans acknowledge they could suffer some short-term damage from an issue easily framed as either favoring health care for poor children - or not.

"Certainly in the immediate, superficial look, everybody is for covering kids who don't have health insurance," said Representative Adam H. Putnam of Florida, chairman of the House Republican Conference.

But he and other Republicans say they eventually can turn the issue to their advantage by making the case that Democrats are spending too much, taking a first step toward national health care and devoting tax money to coverage for some families who can afford insurance. They contend their stance could have special resonance with conservatives unhappy with the recent Republican reluctance to resist popular spending programs.

"If this was October of next year, I'd be really worried," said Representative Roy Blunt of Missouri, the second-ranking House Republican. "But this is October of this year and the beginning of us getting our credibility back by showing that we are willing to take principled stands on spending."

House Republican leaders are confident they can hold their forces together and sustain the president's veto in a vote scheduled for Oct. 18. But over the next two weeks, Mr. Kuhl and more than two dozen other Republicans will face an onslaught of advertisements and public activities intended to put pressure on them to vote to override it.

The Democratic Congressional Campaign Committee is taking on eight Republicans in competitive districts with a series of automated calls and radio advertisements that remind listeners that their lawmaker gets taxpayer-paid health care while opposing the expansion of the program administered by each state.

Beginning Monday, a coalition of liberal and labor groups will start a $1 million advertising effort, with a national advertisement to run on cable channels and local advertisements aimed at specific lawmakers. The national commercial shows a series of children beginning with a baby girl and states, "George Bush just vetoed Abby." It says Mr. Bush puts excessive war spending over health care at home.

"The president's 'yes men' in Congress need to stand up to Bush and stand up for families who work hard but simply can't afford insurance," said Brad Woodhouse, president of Americans United for Change, one group leading the effort.

The health care fight is coming at an inopportune moment for Congressional Republicans. In the Senate, a string of retirements has created openings for Democrats to increase their slim majority. House Republicans have had retirements of their own and party fund-raising is lagging behind Democrats by a wide margin.

The Republican targets of the advocacy campaign say they do not view it as much of a threat, saying many of their voters will not consider the advertisements credible and that tactics like robocalls can backfire.

"I don't worry about it," said Representative Steve Chabot of Ohio, who noted that he strongly supported the insurance program when it was created in 1997. "I am perfectly satisfied with my vote and there is a range of reasons why I think this is a bad bill."

Characterized by some as the "Roe vs. Wade for the securities industry" and others as "the most important securities case in a generation," the eventual decision will have a significant impact on whether investors in companies that commit securities fraud should be able to sue investment banks, accountants, lawyers and others who were direct "participants" in that deception. Current shareholders' rights for going after third parties that aid or abet corporate fraud are not as clearly defined as one would think.

First, a quick synopsis of the StoneRidge vs. Scientific Atlanta case: In 2000 to 2001, technology companies Motorola and Scientific Atlanta (now owned by Cisco Systems) allegedly agreed to supply cable TV provider Charter Communications with equipment at a $20 premium over the traditional cost with the knowledge that Charter intended to account for the transactions improperly as advertising revenues (the vendors used the extra funds to buy advertising space).

These "sham" transactions inflated Charter's revenue by $17 million. When the revenue inflation came to light in 2002, Charter's stock crashed from $26.31 to 76 cents, a $7 billion loss in market cap. StoneRidge, an institutional investor in Charter, accused the two vendors of participating in a "scheme to defraud" investors and now wants the right to sue them for remediation.

StoneRidge's ability to go after the tech companies remains thwarted, however, by the outcome of a 1994 Supreme Court case known as Central Bank vs. First Interstate. The Court held that while all "primary actors"--those who were directly part of a scheme (the emphasis is mine) to defraud investors--can be sued for federal securities fraud, the "secondary actors" who aided and abetted the fraud cannot be sued. This case once again raises this all-important issue of third-party liability in securities cases, settling it once and for all.

As an advocate for individual investors, it's not surprising, I'm sure, to hear me contend that all participants who directly engage in activities to deliberately defraud investors be held liable for their actions. Whether the Court will agree with me depends on their definition of the word "scheme" under the federal securities statute.

If you look it up in the dictionary, one definition for the word has it as a synonym for an underhand plot or conspiracy. Since it generally takes two or more to plot and conspire, it could be reasonably argued that the use of the word "scheme" in the statute should allow for more than just one party (such as the investment banks, accountants and lawyers) to be labeled the "participants" in the fraud and hence be held accountable.

If the Court's strict constructionists are to be intellectually honest in their interpretation of the meaning of "scheme" liability in StoneRidge next week, it would prove a revolutionary milestone in the saga of investor rights. Shareholders would be granted a much more level playing field to target for recourse those who had targeted them for fraud.

Sadly, smart money is probably better waged on the Court reaffirming the Central Bank decision from 13 years ago, thereby remaining consistent with its general pro-business stance and previous decisions that limit lawsuits against public companies. While such a toe-the-line decision would generate sighs of relief in the boardrooms of otherwise culpable investment banks, accounting firms and law firms, it is the groans of disappointment at the kitchen tables of victimized shareholders that should ultimately resonate more loudly.

The corporate scandals of recent years may have faded from the headlines, but they are still fresh in the minds of American investors. Their confidence in Wall Street already badly shaken, shareholders need more than empty "we've changed" promises from a mostly self-regulating Wall Street to restore their trust in the system. What they need is for the Court to hold all participants in a fraudulent "scheme" just as responsible as those considered the primary actors.

Bush volunteered his thoughts on a report on two secret 2005 memos that authorized extreme interrogation tactics against terror suspects. "This government does not torture people," the president said. Meanwhile, Senate Armed Services Committee Chairman Carl Levin, D-Mich., demanded a copy of a third Justice Department memo justifying military interrogations of terror suspects held outside the United States.

In a letter to Attorney General-nominee Michael Mukasey, Levin wrote that two years ago he requested - and was denied - the March 14, 2003, legal opinion. Levin asked if Mukasey would agree to release the opinion if the Senate confirms him as attorney general, and cited what he described as a history of the Justice Department stonewalling Congress.

Allowing investors to file class-action lawsuits in such cases would "threaten the safety and soundness of individual financial institutions and the nation's banking system," a coalition of business groups, including the American Bankers Association, said in court papers.

Firms and corporations that enabled companies such as Enron to defraud stockholders should now have to pay, lawyers for the investors say.

"The banks orchestrated the fraud; they weren't sideline viewers," said Patrick Coughlin, the lead lawyer for Enron shareholders. "So when the question comes up about who should be on the hook for Enron, it's the banks."

Meir Feder, a New York lawyer who defends companies in securities cases, said "everybody understands that the Enron shareholders are victims here, but there's a reason that Congress and the Supreme Court haven't allowed people to sue third parties."

He added, "In the real world, for every third party who actually had a role in a fraud, you're going to get lots of suits against other third parties who really didn't."

When the Supreme Court hears arguments on the issue Tuesday, Enron investors will be on the sidelines. The court is dealing with a suit by Stoneridge Investment Partners against Motorola Inc. and Scientific-Atlanta Inc., which Cisco Systems Inc. now owns.

Only eight of the nine justices will participate. Justice Stephen Breyer has withdrawn from the case; he gave no reason, but financial disclosure documents state he owned Cisco stock.

Chief Justice John Roberts, who did not participate in the court's decision to take the suit, has come back into it.

The Stoneridge case has strong parallels to the one pursued by Enron shareholders, which the high court has left alone. The Enron suit was up for consideration June 21 at one of the justices' regularly scheduled private conferences, but the court has neither accepted nor rejected it.

"It's easier to decide a legal issue in a noncharged atmosphere, which may have been what the justices had in mind by not taking on Enron," Coughlin said.

Stoneridge accused Motorola and Scientific-Atlanta of engaging in sham transactions with a cable television company, Charter Communications Inc. The alleged motive was to inflate Charter's revenue by $17 million, help meet Wall Street expectations and avoid a drop in the company's stock price.

Because of a number of deals including the ones involving Motorola and Scientific-Atlanta, Charter eventually restated its financial statements, reducing revenue by $292 million from 2000-2002. In addition, four former Charter executives pleaded guilty in the matter after the Justice Department investigated the deals.

Stoneridge's efforts to recoup investment losses from Motorola and Scientific-Atlanta were turned back by lower courts, which said that the allegations were nothing more than claims that the two companies aided and abetted the fraud by Charter. Neither Motorola nor Scientific-Atlanta was alleged to have engaged in any deceptive act, the courts said.

Enron investors got a similar ruling from the 5th U.S. Circuit Court of Appeals, which found that Enron had a duty to disclose financial problems to shareholders, but the company's banks did not.

In both cases, the issue comes down to the meaning of the word "deceptive" in federal securities law.

At stake in the Enron case is more than $30 billion sought by hundreds of thousands of investors from banks that allegedly helped the company, once the nation's seventh-largest, hide billions in debt and make failing ventures appear profitable.

The Enron case and the Stoneridge investors' suit are the latest chapter in the struggle between plaintiffs attorneys and the business world over class-action suits.

When lawyers who file such suits persuade a court to certify a large class of plaintiffs, companies almost always settle rather than risk going to trial. A 2002 study for the conservative Federalist Society found that three of every four federal securities fraud cases were settled, with the remainder thrown out of court.

Since 2000, investors filing federal class-action suits alleging securities fraud have settled for $42 billion, according to the Stanford Law School Securities Class Action Clearinghouse.

So far, some banks have settled with Enron investors: Citibank for $2 billion; J.P. Morgan Chase for $2.2 billion; Canadian Imperial Bank of Commerce for $2.4 billion.

Others are still fighting: Merrill Lynch & Co. Inc.; Credit Suisse First Boston; Barclays Bank PLC; Pershing LLC, now a subsidiary of Bank of New York Mellon Corp. For investors, recent developments have gone against them.

The Securities and Exchange Commission voted to intervene in the Stoneridge case on the side of investors. But the Justice Department solicitor general, after pitches from President Bush and Treasury Secretary Henry Paulson, rejected the SEC's recommendation and filed a brief on the side of Motorola and Scientific-Atlanta.