10 July 2009

"Two War Criminals"


A tale of two war criminals: Bush and Clinton do Toronto

by Krystalline Kraus

As originally posted on: rabble.ca
June 2, 2009


When you accuse anyone of war crimes, you’d better be sure you have the evidence to back it up; such an accusation is the equivalent of yelling “fire” in a crowded shopping mall.

It’s a serious charge, something that sits heavily on our psyche as fragile human beings who generally tend to disbelieve that any one could be capable of committing crimes against humanity, especially if they have elected him president.

Perhaps that’s why such a presidential event as a “conversation” between George W. Bush and Bill Clinton happened in Toronto, Canada on May 29, 2009 - the event was billed as a “conversation,” maybe because the terms “meeting of the minds” or “great intellectual debate” would embarrass one of the two parties involved?).

The two men got a standing ovation from a packed audience that paid from $200 to over $2,000 a ticket at the Metro Toronto Convention Centre.

Yes, that’s right, a standing ovation from the crowd inside the Convention Centre. And both Presidents got paid for their time. While no one is telling how much each ex-President made off the 90 minute conversation, Bush reportedly received (US) $160,000 for his last appearance in Canada, in Calgary Alberta in March 2009. Clinton can charge up to (US) $350,000 per speaking engagement. Good work if you can get it.

But ask the 500 or so protesters across the street from the Convention Centre, organized by the Toronto Coalition to Stop the War, and the only standing up the presidents got were erect middle fingers. It was this side third and uninvited side of the conversation that chanted slogans such as "Bush and Clinton, war criminals: shame on you!”

Here are a few of the numerous examples of war crimes committed by each of the two men.

Bush as a war criminal

Bush is accused of numerous war crimes, resulting from him ignoring his own constitution’s “supremacy clause,” Article II, section 4, and the War Crimes Act of 1996 (18USC §2441).

Regarding the United States’ War Crimes Acts, author Mike Ferner from Veterans for Peace, writes: “To give just a snapshot of how serious these laws are, consider this portion of 18 USC 2441 which defines a war crime as '... a grave breach in any of the international conventions signed at Geneva 12 August 1949, or any protocol to such convention to which the United States is a party ...' The guilty can be '... fined under this title or imprisoned for life or any term of years, or both, and if death results to the victim, shall also be subject to the penalty of death.'"

Not to mention important international treaties and conventions such as the Geneva Conventions, the Nuremberg rulings, the Laws and Customs of War on Land and UN General Assembly Resolution 3314. Breaches of these international treaties and conventions amounting to war crimes are too numerous to mention here (though they are listed at the website War Criminals Out, which has lists of charges and broken resolutions.)

The invasion of Iraq is cited as a prime example of Bush’s war crimes, where activists insist Bush should be charged under the UN Resolution 3314, Article 5 (codified from the principles of Nuremberg concerning “Wars of Aggression,” which cites as an historical example Hitler’s invasion of Poland) for committing a “crime against peace.” The invasion of Iraq is thus considered a war crime and a crime against humanity, which is spelled out in detail in the Geneva Conventions.

In Iraq alone, Ferner points out that Bush is responsible for, among other things, “illegally invading a sovereign state, using banned weapons such as white phosphorous and napalm, bombing hospitals and civilian infrastructure, withholding aid and medical supplies, terrorizing and knowingly killing civilians, torturing prisoners, killing a million people and displacing 4 million more in Iraq alone.”

Now, we’re talking big crimes here, a big fire someone should point out to the general public.

Clinton as a war criminal

While Clinton's presidency might enjoy a different reputation (think blue dress), there’s a case to be made regarding his culpability in committing war crimes. He was not the focus of the demo, but I don’t think he should get a free pass. Again, using the same international conventions and treaties listed above, there’s a list of actions to consider in regards to charging him with war crimes and crimes against humanity.

Clinton imposed, through the UN Security Council, sanctions on Iraq between 1990 and 2003, which had a devastating effect on the Iraqi population. The UN, in 1999, reported more that hundreds of thousands of Iraqis died as a result of the sanctions, disproportionately among children.

On June 26, 1993, the Clinton administration bombed Baghdad in retaliation for an alleged but unproven Iraq plot to assassinate former President George Bush, Sr.

Clinton’s administration and NATO conducted the bombing campaign of Bosnia from March 22 to June 11, 1999 without UN Security Council approval, against the rules of the Geneva Conventions.

Again, big fire here! Not only should Bush and Clinton’s actions translate into war crimes charges, but their disregard for not only American law but also international treaties and conventions undermines the rule of international law and undermines the consensus of the international community.

And we’re not even talking torture charges against Bush regarding his country’s treatment of foreign nationals at military and CIA run prisons, military or rendition sites around the world, an obvious breach of the Geneva Conventions. Reports from Abu Ghraib and Guantanamo Bay alone might be enough to prosecute Bush and win convictions.

These reasons alone were enough to compel the group Lawyers Against The War to issue this statement to the RCMP on March 12, 2009, asking that Bush be denied entry into Canada under Canada’s Immigration and Refugee Protection Act (section 35(1)(a)), because Bush is a war criminal (Crimes against Humanity and War Crimes Act (CAHWC)).

War crimes in World Court

The latest rumour regarding actually holding Bush and his administration accountable for war crimes comes from Spain, where Harper’s reports that the Spanish press El País and Público state, “the Spanish national security court has opened a criminal probe focusing on Bush Administration lawyers who pioneered the descent into torture at the prison in Guantánamo.”

This could be the first step of bringing the Commander and Chief himself before an international court if the lawyers claim they were just following orders.

Is prosecuting the leaders enough?

While I am certainly not against using international criminal courts to prosecute political leaders with war crimes, I believe their function and scope to be too limiting to bring about real justice to victims of crimes against humanity. The problem with any war crimes court stems from the fact that, as prosecution goes, the international community at best gets to nail one of two ringleaders with convictions but leaves the functioning war machine or war bureaucracy untouched, the unknown number of faceless bureaucrats and military personnel untouched.

While we get a vicarious sense of justice because we got the top brass, those big arrests give the media permission to declare justice complete and us permission to move on to the next conflict of the day. And by “us,” I mostly mean the Western world, as if prosecuting international, political criminals has become a judicial white man’s burden.

This assumed distance can also amount to a coolly calculated mood of international NIMBY and moral superiority, where one nation can quickly vilify another by pointing out the atrocities committed in that country while claiming such crimes could never occur in their own.

It also assumes a stance of culpability after the fact. Regarding Iraq, the American public needs to look inwards to whether domestically they did enough to prevent the events of Iraq from occurring in the first place.

But can we as Canadians sit so smugly with the notion that we did not invade Iraq, or that it was the progressive Left that kept Canada out of Iraq and therefore we have clean hands and the permission to look the other way. Can we point to Bush and Clinton, two American presidents, and declare their country the new international fixture of Evil while in contrast considering ourselves the good guys?

Instead of sitting on our presumed laurels and pointing to our deified notion of peacekeeping, perhaps we should be more aware of our own actions, non-actions and culpability in global and domestic affairs. Everything from Rwanda, Darfur, Sri Lanka to the treatment of our aboriginal citizens.

If Americans need to look inward to understand their own heart of darkness, then we must demand that we as Canadians do the same.


krystalline kraus is a Toronto-based writer.

09 July 2009

The Goldman Sachs Group, Inc. and the American "Gangster State"


THE GREAT AMERICAN BUBBLE MACHINE

From tech stocks to high gas prices, Goldman Sachs has engineered every major market manipulation since the Great Depression - and they're about to do it again

by Matt Taibbi

As originally published in: Rolling Stone
July 9-23, 2009


THE FIRST THING YOU NEED TO KNOW about Goldman Sachs is that it's everywhere. The world's most powerful investment bank is a great vampire squid wrapped around the face of humanity, relentlessly jamming its blood funnel into anything that smells like money. In fact, the history of the recent financial crisis, which doubles as a history of the rapid decline and fall of the suddenly swindled-dry American empire, reads like a Who's Who of Goldman Sachs graduates.

By now, most of us know the major players. As George Bush's last Treasury secretary, former Goldman CEO Henry Paulson was the architect of the bailout, a suspiciously self-serving plan to funnel trillions of Your Dollars to a handful of his old friends on Wall Street. Robert Rubin, Bill Clinton's former Treasury secretary, spent 26 years at Goldman before becoming chairman of Citigroup - which in turn got a $300 billion taxpayer bailout from Paulson. There's John Thain, the asshole chief of Merrill Lynch who bought an $87,000 area rug for his office as his company was imploding; a former Goldman banker, Thain enjoyed a multibillion-dollar handout from Paulson, who used billions in taxpayer funds to help Bank of America rescue Thain's sorry company. And Robert Steel, the former Goldmanite head of Wachovia, scored himself and his fellow executives $225 million in golden-parachute payments as his bank was self-destructing. There's Joshua Bolten, Bush's chief of staff during the bailout, and Mark Patterson, the current Treasury chief of staff, who was a Goldman lobbyist just a year ago, and Ed Liddy, the former Goldman director whom Paulson put in charge of bailed-out insurance giant AIG, which forked over $13 billion to Goldman after Liddy came on board. The heads of the Canadian and Italian national banks are Goldman alums, as is the head of the World Bank, the head of the New York Stock Exchange, the last two heads of the Federal Reserve Bank of New York - which, incidentally, is now in charge of overseeing Goldman - not to mention ...

But then, any attempt to construct a narrative around all the former Goldmanites in influential positions quickly becomes an absurd and pointless exercise, like trying to make a list of everything. What you need to know is the big picture: If America is circling the drain, Goldman Sachs has found a way to be that drain - an extremely unfortunate loophole in the system of Western democratic capitalism, which never foresaw that in a society governed passively by free markets and free elections, organized greed always defeats disorganized democracy.

The bank's unprecedented reach and power have enabled it to turn all of America into a giant pump-and-dump scam, manipulating whole economic sectors for years at a time, moving the dice game as this or that market collapses, and all the time gorging itself on the unseen costs that are breaking families everywhere - high gas prices, rising consumer-credit rates, half-eaten pension funds, mass layoffs, future taxes to pay off bailouts. All that money that you're losing, it's going somewhere, and in both a literal and a figurative sense, Goldman Sachs is where it's going: The bank is a huge, highly sophisticated engine for converting the useful, deployed wealth of society into the least useful, most wasteful and insoluble substance on Earth - pure profit for rich individuals.

They achieve this using the same playbook over and over again. The formula is relatively simple: Goldman positions itself in the middle of a speculative bubble, selling investments they know are crap. Then they hoover up vast sums from the middle and lower floors of society with the aid of a crippled and corrupt state that allows it to rewrite the rules in exchange for the relative pennies the bank throws at political patronage. Finally, when it all goes bust, leaving millions of ordinary citizens broke and starving, they begin the entire process over again, riding in to rescue us all by lending us back our own money at interest, selling themselves as men above greed, just a bunch of really smart guys keeping the wheels greased. They've been pulling this same stunt over and over since the 1920s - and now they're preparing to do it again, creating what may be the biggest and most audacious bubble yet.

If you want to understand how we got into this financial crisis, you have to first understand where all the money went - and in order to understand that, you need to understand what Goldman has already gotten away with. It is a history exactly five bubbles long - including last year's strange and seemingly inexplicable spike in the price of oil. There were a lot of losers in each of those bubbles, and in the bailout that followed. But Goldman wasn't one of them.

BUBBLE #1

THE GREAT DEPRESSION

GOLDMAN WASN'T ALWAYS A TOO-BIG-TO-FAIL Wall Street behemoth, the ruthless face of kill-or-be-killed capitalism on steroids - just almost always. The bank was actually founded in 1869 by a German immigrant named Marcus Goldman, who built it up with his son-in-law Samuel Sachs. They were pioneers in the use of commercial paper, which is just a fancy way of saying they made money lending out short-term IOUs to small-time vendors in downtown Manhattan.

You can probably guess the basic plotline of Goldman's first 100 years in business: plucky, immigrant-led investment bank beats the odds, pulls itself up by its bootstraps, makes shitloads of money. In that ancient history there's really only one episode that bears scrutiny now, in light of more recent events: Goldman's disastrous foray into the speculative mania of pre-crash Wall Street in the late 1920s.

This great Hindenburg of financial history has a few features that might sound familiar. Back then, the main financial tool used to bilk investors was called an "investment trust." Similar to modern mutual funds, the trusts took the cash of investors large and small and (theoretically, at least) invested it in a smorgasbord of Wall Street securities, though the securities and amounts were often kept hidden from the public. So a regular guy could invest $10 or $100 in a trust and feel like he was a big player. Much as in the 1990s, when new vehicles like day trading and e-trading attracted reams of new suckers from the sticks who wanted to feel like big shots, investment trusts roped a new generation of regular-guy investors into the speculation game.

Beginning a pattern that would repeat itself over and over again, Goldman got into the investment-trust game late, then jumped in with both feet and went hog-wild. The first effort was the Goldman Sachs Trading Corporation; the bank issued a million shares at $100 apiece, bought all those shares with its own money and then sold 90 percent of them to the hungry public at $104. The trading corporation then relentlessly bought shares in itself, bidding the price up further and further. Eventually it dumped part of its holdings and sponsored a new trust, the Shenandoah Corporation, issuing millions more in shares in that fund - which in turn sponsored yet another trust called the Blue Ridge Corporation. In this way, each investment trust served as a front for an endless investment pyramid: Goldman hiding behind Goldman hiding behind Goldman. Of the 7,250,000 initial shares of Blue Ridge, 6,250,000 were actually owned by Shenandoah - which, of course, was in large part owned by Goldman Trading.

The end result (ask yourself if this sounds familiar) was a daisy chain of borrowed money, one exquisitely vulnerable to a decline in performance anywhere along the line. The basic idea isn't hard to follow. You take a dollar and borrow nine against it; then you take that $10 fund and borrow $90; then you take your $100 fund and, so long as the public is still lending, borrow and invest $900. If the last fund in the line starts to lose value, you no longer have the money to pay back your investors, and everyone gets massacred.

In a chapter from The Great Crash, 1929 titled "In Goldman Sachs We Trust," the famed economist John Kenneth Galbraith held up the Blue Ridge and Shenandoah trusts as classic examples of the insanity of leverage-based investment. The trusts, he wrote, were a major cause of the market's historic crash; in today's dollars, the losses the bank suffered totaled $475 billion. "It is difficult not to marvel at the imagination which was implicit in this gargantuan insanity," Galbraith observed, sounding like Keith Olbermann in an ascot. "If there must be madness, something may be said for having it on a heroic scale."

BUBBLE #2

TECH STOCKS

FAST-FORWARD ABOUT 65 YEARS. GOLDMAN NOT only survived the crash that wiped out so many of the investors it duped, it went on to become the chief underwriter to the country's wealthiest and most powerful corporations. Thanks to Sidney Weinberg, who rose from the rank of janitor's assistant to head the firm, Goldman became the pioneer of the initial public offering, one of the principal and most lucrative means by which companies raise money. During the 1970s and 1980s, Goldman may not have been the planet-eating Death Star of political influence it is today, but it was a top-drawer firm that had a reputation for attracting the very smartest talent on the Street.

It also, oddly enough, had a reputation for relatively solid ethics and a patient approach to investment that shunned the fast buck; its executives were trained to adopt the firm's mantra, "long-term greedy." One former Goldman banker who left the firm in the early Nineties recalls seeing his superiors give up a very profitable deal on the grounds that it was a long-term loser. "We gave back money to 'grown-up' corporate clients who had made bad deals with us," he says. "Everything we did was legal and fair - but 'long-term greedy' said we didn't want to make such a profit at the clients' collective expense that we spoiled the marketplace."

But then, something happened. It's hard to say what it was exactly; it might have been the fact that Goldman's co-chairman in the early Nineties, Robert Rubin, followed Bill Clinton to the White House, where he directed the National Economic Council and eventually became Treasury secretary. While the American media fell in love with the story line of a pair of baby-boomer, Sixties-child, Fleetwood Mac yuppies nesting in the White House, it also nursed an undisguised crush on Rubin, who was hyped as without a doubt the smartest person ever to walk the face of the Earth, with Newton, Einstein, Mozart and Kant running far behind.

Rubin was the prototypical Goldman banker. He was probably born in a $4,000 suit, he had a face that seemed permanently frozen just short of an apology for being so much smarter than you, and he exuded a Spock-like, emotion-neutral exterior; the only human feeling you could imagine him experiencing was a nightmare about being forced to fly coach. It became almost a national cliche that whatever Rubin thought was best for the economy - a phenomenon that reached its apex in 1999, when Rubin appeared on the cover of Time with his Treasury deputy, Larry Summers, and Fed chief Alan Greenspan under the headline THE COMMITTEE TO SAVE THE WORLD. And "what Rubin thought," mostly, was that the American economy, and in particular the financial markets, were over-regulated and needed to be set free. During his tenure at Treasury, the Clinton White House made a series of moves that would have drastic consequences for the global economy - beginning with Rubin's complete and total failure to regulate his old firm during its first mad dash for obscene short-term profits.

The basic scam in the Internet Age is pretty easy even for the financially illiterate to grasp. Companies that weren't much more than pot-fueled ideas scrawled on napkins by up-too-late bong-smokers were taken public via IPOs, hyped in the media and sold to the public for megamillions. It was as if banks like Goldman were wrapping ribbons around watermelons, tossing them out 50-story windows and opening the phones for bids. In this game you were a winner only if you took your money out before the melon hit the pavement.

It sounds obvious now, but what the average investor didn't know at the time was that the banks had changed the rules of the game, making the deals look better than they actually were. They did this by setting up what was, in reality, a two-tiered investment system - one for the insiders who knew the real numbers, and another for the lay investor who was invited to chase soaring prices the banks themselves knew were irrational. While Goldman's later pattern would be to capitalize on changes in the regulatory environment, its key innovation in the Internet years was to abandon its own industry's standards of quality control.

"Since the Depression, there were strict underwriting guidelines that Wall Street adhered to when taking a company public," says one prominent hedge-fund manager. "The company had to be in business for a minimum of five years, and it had to show profitability for three consecutive years. But Wall Street took these guidelines and threw them in the trash." Goldman completed the snow job by pumping up the sham stocks: "Their analysts were out there saying Bullshit.com is worth $100 a share."

The problem was, nobody told investors that the rules had changed. "Everyone on the inside knew," the manager says. "Bob Rubin sure as hell knew what the underwriting standards were. They'd been intact since the 1930s."

Jay Ritter, a professor of finance at the University of Florida who specializes in IPOs, says banks like Goldman knew full well that many of the public offerings they were touting would never make a dime. "In the early Eighties, the major underwriters insisted on three years of profitability. Then it was one year, then it was a quarter. By the time of the Internet bubble, they were not even requiring profitability in the foreseeable future."

Goldman has denied that it changed its underwriting standards during the Internet years, but its own statistics belie the claim. Just as it did with the investment trust in the 1920s, Goldman started slow and finished crazy in the Internet years. After it took a little-known company with weak financials called Yahoo! public in 1996, once the tech boom had already begun, Goldman quickly became the IPO king of the Internet era. Of the 24 companies it took public in 1997, a third were losing money at the time of the IPO. In 1999, at the height of the boom, it took 47 companies public, including stillborns like Webvan and eToys, investment offerings that were in many ways the modern equivalents of Blue Ridge and Shenandoah. The following year, it underwrote 18 companies in the first four months, 14 of which were money losers at the time. As a leading underwriter of Internet stocks during the boom, Goldman provided profits far more volatile than those of its competitors: In 1999, the average Goldman IPO leapt 281 percent above its offering price, compared to the Wall Street average of 181 percent.

How did Goldman achieve such extraordinary results? One answer is that they used a practice called "laddering," which is just a fancy way of saying they manipulated the share price of new offerings. Here's how it works: Say you're Goldman Sachs, and Bullshit.com comes to you and asks you to take their company public. You agree on the usual terms: You'll price the stock, determine how many shares should be released and take the Bullshit.com CEO on a "road show" to schmooze investors, all in exchange for a substantial fee (typically six to seven percent of
the amount raised). You then promise your best clients the right to buy big chunks of the IPO at the low offering price - let's say Bullshit.com's starting share price is $15 - in exchange for a promise that they will buy more shares later on the open market. That seemingly simple demand gives you inside knowledge of the IPO's future, knowledge that wasn't disclosed to the day-trader schmucks who only had the prospectus to go by: You know that certain of your clients who bought X amount of shares at $15 are also going to buy Y more shares at $20 or $25, virtually guaranteeing that the price is going to go to $25 and beyond. In this way, Goldman could artificially jack up the new company's price, which of course was to the bank's benefit - a six percent fee of a $500 million IPO is serious money.

Goldman was repeatedly sued by shareholders for engaging in laddering in a variety of Internet IPOs, including Webvan and NetZero. The deceptive practices also caught the attention of Nicholas Maier, the syndicate manager of Cramer & Co., the hedge fund run at the time by the now-famous chattering television asshole Jim Cramer, himself a Goldman alum. Maier told the SEC that while working for Cramer between 1996 and 1998, he was repeatedly forced to engage in laddering practices during IPO deals with Goldman.

"Goldman, from what I witnessed, they were the worst perpetrator," Maier said. "They totally fueled the bubble. And it's specifically that kind of behavior that has caused the market crash. They built these stocks upon an illegal foundation - manipulated up - and ultimately, it really was the small person who ended up buying in." In 2005, Goldman agreed to pay $40 million for its laddering violations - a puny penalty relative to the enormous profits it made. (Goldman, which has denied wrongdoing in all of the cases it has settled, refused to respond to questions for this story.)

Another practice Goldman engaged in during the Internet boom was "spinning," better known as bribery. Here the investment bank would offer the executives of the newly public company shares at extra-low prices, in exchange for future underwriting business. Banks that engaged in spinning would then undervalue the initial offering price - ensuring that those "hot" opening price shares it had handed out to insiders would be more likely to rise quickly, supplying bigger first-day rewards for the chosen few. So instead of Bullshit.com opening at $20, the bank would approach the Bullshit.com CEO and offer him a million shares of his own company at $18 in exchange for future business - effectively robbing all of Bullshit's new shareholders by diverting cash that should have gone to the company's bottom line into the private bank account of the company's CEO.

In one case, Goldman allegedly gave a multimillion-dollar special offering to eBay CEO Meg Whitman, who later joined Goldman's board, in exchange for future i-banking business. According to a report by the House Financial Services Committee in 2002, Goldman gave special stock offerings to executives in 21 companies that it took public, including Yahoo! co-founder Jerry Yang and two of the great slithering villains of the financial-scandal age - Tyco's Dennis Kozlowski and Enron's Ken Lay. Goldman angrily denounced the report as "an egregious distortion of the facts" - shortly before paying $110 million to settle an investigation into spinning and other manipulations launched by New York state regulators. "The spinning of hot IPO shares was not a harmless corporate perk," then-attorney general Eliot Spitzer said at the time. "Instead, it was an integral part of a fraudulent scheme to win new investment-banking business."

Such practices conspired to turn the Internet bubble into one of the greatest financial disasters in world history: Some $5 trillion of wealth was wiped out on the NASDAQ alone. But the real problem wasn't the money that was lost by shareholders, it was the money gained by investment bankers, who received hefty bonuses for tampering with the market. Instead of teaching Wall Street a lesson that bubbles always deflate, the Internet years demonstrated to bankers that in the age of freely flowing capital and publicly owned financial companies, bubbles are incredibly easy to inflate, and individual bonuses are actually bigger when the mania and the irrationality are greater.

Nowhere was this truer than at Goldman. Between 1999 and 2002, the firm paid out $28.5 billion in compensation and benefits - an average of roughly $350,000 a year per employee. Those numbers are important because the key legacy of the Internet boom is that the economy is now driven in large part by the pursuit of the enormous salaries and bonuses that such bubbles make possible. Goldman's mantra of "long-term greedy" vanished into thin air as the game became about getting your check before the melon hit the pavement.

The market was no longer a rationally managed place to grow real, profitable businesses: It was a huge ocean of Someone Else's Money where bankers hauled in vast sums through whatever means necessary and tried to convert that money into bonuses and payouts as quickly as possible. If you laddered and spun 50 Internet IPOs that went bust within a year, so what? By the time the Securities and Exchange Commission got around to fining your firm $110 million, the yacht you bought with your IPO bonuses was already six years old. Besides, you were probably out of Goldman by then, running the U.S. Treasury or maybe the state of New Jersey. (One of the truly comic moments in the history of America's recent financial collapse came when Gov. Jon Corzine of New Jersey, who ran Goldman from 1994 to 1999 and left with $320 million in IPO-fattened stock, insisted in 2002 that "I've never even heard the term 'laddering' before.")

For a bank that paid out $7 billion a year in salaries, $110 million fines issued half a decade late were something far less than a deterrent - they were a joke. Once the Internet bubble burst, Goldman had no incentive to reassess its new, profit-driven strategy; it just searched around for another bubble to inflate. As it turns out, it had one ready, thanks in large part to Rubin.

BUBBLE #3

THE HOUSING CRAZE

GOLDMAN'S ROLE IN THE SWEEPING GLOBAL disaster that was the housing bubble is not hard to trace. Here again, the basic trick was a decline in underwriting standards, although in this case the standards weren't in IPOs but in mortgages. By now almost everyone knows that for decades mortgage dealers insisted that home buyers be able to produce a down payment of 10 percent or more, show a steady income and good credit rating, and possess a real first and last name. Then, at the dawn of the new millennium, they suddenly threw all that shit out the window and started writing mortgages on the backs of napkins to cocktail waitresses and ex-cons carrying five bucks and a Snickers bar.

None of that would have been possible without investment bankers like Goldman, who created vehicles to package those shitty mortgages and sell them en masse to unsuspecting insurance companies and pension funds. This created a mass market for toxic debt that would never have existed before; in the old days, no bank would have wanted to keep some addict ex-con's mortgage on its books, knowing how likely it was to fail. You can't write these mortgages, in other words, unless you can sell them to someone who doesn't know what they are.

Goldman used two methods to hide the mess they were selling. First, they bundled hundreds of different mortgages into instruments called Collateralized Debt Obligations. Then they sold investors on the idea that, because a bunch of those mortgages would turn out to be OK, there was no reason to worry so much about the shitty ones: The CDO, as a whole, was sound. Thus, junk-rated mortgages were turned into AAA-rated investments. Second, to hedge its own bets, Goldman got companies like AIG to provide insurance - known as credit-default swaps - on the CDOs. The swaps were essentially a racetrack bet between AIG and Goldman: Goldman is betting the ex-cons will default, AIG is betting they won't.

There was only one problem with the deals: All of the wheeling and dealing represented exactly the kind of dangerous speculation that federal regulators are supposed to rein in. Derivatives like CDOs and credit swaps had already caused a series of serious financial calamities: Procter & Gamble and Gibson Greetings both lost fortunes, and Orange County, California, was forced to default in 1994. A report that year by the Government Accountability Office recommended that such financial instruments be tightly regulated - and in 1998, the head of the Commodity Futures Trading Commission, a woman named Brooksley Born, agreed. That May, she circulated a letter to business leaders and the Clinton administration suggesting that banks be required to provide greater disclosure in derivatives trades, and maintain reserves to cushion against losses.

More regulation wasn't exactly what Goldman had in mind. "The banks go crazy - they want it stopped," says Michael Greenberger, who worked for Born as director of trading and markets at the CFTC and is now a law professor at the University of Maryland. "Greenspan, Summers, Rubin and [SEC chief Arthur] Levitt want it stopped."

Clinton's reigning economic foursome - "especially Rubin," according to Greenberger - called Born in for a meeting and pleaded their case. She refused to back down, however, and continued to push for more regulation of the derivatives. Then, in June 1998, Rubin went public to denounce her move, eventually recommending that Congress strip the CFTC of its regulatory authority. In 2000, on its last day in session, Congress passed the now-notorious Commodity Futures Modernization Act, which had been inserted into an 1l,000-page spending bill at the last minute, with almost no debate on the floor of the Senate. Banks were now free to trade default swaps with impunity.

But the story didn't end there. AIG, a major purveyor of default swaps, approached the New York State Insurance Department in 2000 and asked whether default swaps would be regulated as insurance. At the time, the office was run by one Neil Levin, a former Goldman vice president, who decided against regulating the swaps. Now freed to underwrite as many housing-based securities and buy as much credit-default protection as it wanted, Goldman went berserk with lending lust. By the peak of the housing boom in 2006, Goldman was underwriting $76.5 billion worth of mortgage-backed securities - a third of which were subprime - much of it to institutional investors like pensions and insurance companies. And in these massive issues of real estate were vast swamps of crap.

Take one $494 million issue that year, GSAMP Trust 2006-S3. Many of the mortgages belonged to second-mortgage borrowers, and the average equity they had in their homes was 0.71 percent. Moreover, 58 percent of the loans included little or no documentation - no names of the borrowers, no addresses of the homes, just zip codes. Yet both of the major ratings agencies, Moody's and Standard & Poor's, rated 93 percent of the issue as investment grade. Moody's projected that less than 10 percent of the loans would default. In reality, 18 percent of the mortgages were in default within 18 months.

Not that Goldman was personally at any risk. The bank might be taking all these hideous, completely irresponsible mortgages from beneath-gangster-status firms like Countrywide and selling them off to municipalities and pensioners - old people, for God's sake - pretending the whole time that it wasn't grade-D horseshit. But even as it was doing so, it was taking short positions in the same market, in essence betting against the same crap it was selling. Even worse, Goldman bragged about it in public. "The mortgage sector continues to be challenged," David Viniar, the bank's chief financial officer, boasted in 2007. "As a result, we took significant markdowns on our long inventory positions .... However, our risk bias in that market was to be short, and that net short position was profitable." In other words, the mortgages it was selling were for chumps. The real money was in betting against those same mortgages.

"That's how audacious these assholes are," says one hedge-fund manager. "At least with other banks, you could say that they were just dumb - they believed what they were selling, and it blew them up. Goldman knew what it was doing."

I ask the manager how it could be that selling something to customers that you're actually betting against - particularly when you know more about the weaknesses of those products than the customer - doesn't amount to securities fraud.

"It's exactly securities fraud," he says. "It's the heart of securities fraud."

Eventually, lots of aggrieved investors agreed. In a virtual repeat of the Internet IPO craze, Goldman was hit with a wave of lawsuits after the collapse of the housing bubble, many of which accused the bank of withholding pertinent information about the quality of the mortgages it issued. New York state regulators are suing Goldman and 25 other underwriters for selling bundles of crappy Countrywide mortgages to city and state pension funds, which lost as much as $100 million in the investments. Massachusetts also investigated Goldman for similar misdeeds, acting on behalf of 714 mortgage holders who got stuck holding predatory loans. But once again, Goldman got off virtually scot-free, staving off prosecution by agreeing to pay a paltry $60 million - about what the bank's CDO division made in a day and a half during the real estate boom.

The effects of the housing bubble are well known - it led more or less directly to the collapse of Bear Stearns, Lehman Brothers and AIG, whose toxic portfolio of credit swaps was in significant part composed of the insurance that banks like Goldman bought against their own housing portfolios. In fact, at least $13 billion of the taxpayer money given to AIG in the bailout ultimately went to Goldman, meaning that the bank made out on the housing bubble twice: It fucked the investors who bought their horseshit CDOs by betting against its own crappy product, then it turned around and fucked the taxpayer by making him pay off those same bets.

And once again, while the world was crashing down all around the bank, Goldman made sure it was doing just fine in the compensation department. In 2006, the firm's payroll jumped to $16.5 billion - an average of $622,000 per employee. As a Goldman spokesman explained, "We work very hard here."

But the best was yet to come. While the collapse of the housing bubble sent most of the financial world fleeing for the exits, or to jail, Goldman boldly doubled down - and almost single-handedly created yet another bubble, one the world still barely knows the firm had anything to do with.

BUBBLE #4

$4 A GALLON

BY THE BEGINNING OF 2008, THE FINANCIAL world was in turmoil. Wall Street had spent the past two and a half decades producing one scandal after another, which didn't leave much to sell that wasn't tainted. The terms junk bond, IPO, subprime mortgage and other once-hot financial fare were now firmly associated in the public's mind with scams; the terms credit swaps and CDOs were about to join them. The credit markets were in crisis, and the mantra that had sustained the fantasy economy throughout the Bush years - the notion that housing prices never go down - was now a fully exploded myth, leaving the Street clamoring for a new bullshit paradigm to sling.

Where to go? With the public reluctant to put money in anything that felt like a paper investment, the Street quietly moved the casino to the physical-commodities market - stuff you could touch: corn, coffee, cocoa, wheat and, above all, energy commodities, especially oil. In conjunction with a decline in the dollar, the credit crunch and the housing crash caused a "flight to commodities." Oil futures in particular skyrocketed, as the price of a single barrel went from around $60 in the middle of 2007 to a high of $147 in the summer of 2008.

That summer, as the presidential campaign heated up, the accepted explanation for why gasoline had hit $4.11 a gallon was that there was a problem with the world oil supply. In a classic example of how Republicans and Democrats respond to crises by engaging in fierce exchanges of moronic irrelevancies, John McCain insisted that ending the moratorium on offshore drilling would be "very helpful in the short term," while Barack Obama in typical liberal-arts yuppie style argued that federal investment in hybrid cars was the way out.

But it was all a lie. While the global supply of oil will eventually dry up, the short-term flow has actually been increasing. In the six months before prices spiked, according to the U.S. Energy Information Administration, the world oil supply rose from 85.24 million barrels a day to 85.72 million. Over the same period, world oil demand dropped from 86.82 million barrels a day to 86.07 million. Not only was the short-term supply of oil rising, the demand for it was falling - which, in classic economic terms, should have brought prices at the pump down.

So what caused the huge spike in oil prices? Take a wild guess. Obviously Goldman had help - there were other players in the physical-commodities market - but the root cause had almost everything to do with the behavior of a few powerful actors determined to turn the once-solid market into a speculative casino. Goldman did it by persuading pension funds and other large institutional investors to invest in oil futures - agreeing to buy oil at a certain price on a fixed date. The push transformed oil from a physical commodity, rigidly subject to supply and demand, into something to bet on, like a stock. Between 2003 and 2008, the amount of speculative money in commodities grew from $13 billion to $317 billion, an increase of 2,300 percent. By 2008, a barrel of oil was traded 27 times, on average, before it was actually delivered and consumed.

As is so often the case, there had been a Depression-era law in place designed specifically to prevent this sort of thing. The commodities market was designed in large part to help farmers: A grower concerned about future price drops could enter into a contract to sell his corn at a certain price for delivery later on, which made him worry less about building up stores of his crop. When no one was buying corn, the farmer could sell to a middleman known as a "traditional speculator," who would store the grain and sell it later, when demand returned. That way, someone was always there to buy from the farmer, even when the market temporarily had no need for his crops.

In 1936, however, Congress recognized that there should never be more speculators in the market than real producers and consumers. If that happened, prices would be affected by something other than supply and demand, and price manipulations would ensue. A new law empowered the Commodity Futures Trading Commission - the very same body that would later try and fail to regulate credit swaps - to place limits on speculative trades in commodities. As a result of the CFTC's oversight, peace and harmony reigned in the commodities markets for more than 50 years.

All that changed in 1991 when, unbeknownst to almost everyone in the world, a Goldman-owned commodities-trading subsidiary called J. Aron wrote to the CFTC and made an unusual argument. Farmers with big stores of corn, Goldman argued, weren't the only ones who needed to hedge their risk against future price drops - Wall Street dealers who made big bets on oil prices also needed to hedge their risk, because, well, they stood to lose a lot too.

This was complete and utter crap - the 1936 law, remember, was specifically designed to maintain distinctions between people who were buying and selling real tangible stuff and people who were trading in paper alone. But the CFTC, amazingly, bought Goldman's argument. It issued the bank a free pass, called the "Bona Fide Hedging" exemption, allowing Goldman's subsidiary to call itself a physical hedger and escape virtually all limits placed on speculators. In the years that followed, the commission would quietly issue 14 similar exemptions to other companies.

Now Goldman and other banks were free to drive more investors into the commodities markets, enabling speculators to place increasingly big bets. That 1991 letter from Goldman more or less directly led to the oil bubble in 2008, when the number of speculators in the market - driven there by fear of the falling dollar and the housing crash - finally overwhelmed the real physical suppliers and consumers. By 2008, at least three quarters of the activity on the commodity exchanges was speculative, according to a congressional staffer who studied the numbers - and that's likely a conservative estimate. By the middle of last summer, despite rising supply and a drop in demand, we were paying $4 a gallon every time we pulled up to the pump.

What is even more amazing is that the letter to Goldman, along with most of the other trading exemptions, was handed out more or less in secret. "I was the head of the division of trading and markets, and Brooksley Born was the chair of the CFTC," says Greenberger, "and neither of us knew this letter was out there." In fact, the letters only came to light by accident. Last year, a staffer for the House Energy and Commerce Committee just happened to be at a briefing when officials from the CFTC made an offhand reference to the exemptions.

"I had been invited to a briefing the commission was holding on energy," the staffer recounts. "And suddenly in the middle of it, they start saying, 'Yeah, we've been issuing these letters for years now.' I raised my hand and said, 'Really? You issued a letter? Can I see it?' And they were like, 'Duh, duh.' So we went back and forth, and finally they said, 'We have to clear it with Goldman Sachs.' I'm like, 'What do you mean, you have to clear it with Goldman Sachs?'"

The CFTC cited a rule that prohibited it from releasing any information about a company's current position in the market. But the staffer's request was about a letter that had been issued 17 years earlier. It no longer had anything to do with Goldman's current position. What's more, Section 7 of the 1936 commodities law gives Congress the right to any information it wants from the commission. Still, in a classic example of how complete Goldman's capture of government is, the CFTC waited until it got clearance from the bank before it turned the letter over.

Armed with the semi-secret government exemption, Goldman had become the chief designer of a giant commodities betting parlor. Its Goldman Sachs Commodities Index - which tracks the prices of 24 major commodities but is overwhelmingly weighted toward oil - became the place where pension funds and insurance companies and other institutional investors could make massive long-term bets on commodity prices. Which was all well and good, except for a couple of things. One was that index speculators are mostly "long only" bettors, who seldom if ever take short positions - meaning they only bet on prices to rise. While this kind of behavior is good for a stock market, it's terrible for commodities, because it continually forces prices upward. "If index speculators took short positions as well as long ones, you'd see them pushing prices both up and down," says Michael Masters, a hedge-fund manager who has helped expose the role of investment banks in the manipulation of oil prices. "But they only push prices in one direction: up."

Complicating matters even further was the fact that Goldman itself was cheerleading with all its might for an increase in oil prices. In the beginning of 2008, Arjun Murti, a Goldman analyst, hailed as an "oracle of oil" by The New York Times, predicted a "super spike" in oil prices, forecasting a rise to $200 a barrel. At the time Goldman was heavily invested in oil through its commodities-trading subsidiary, J. Aron; it also owned a stake in a major oil refinery in Kansas, where it warehoused the crude it bought and sold. Even though the supply of oil was keeping pace with demand, Murti continually warned of disruptions to the world oil supply, going so far as to broadcast the fact that he owned two hybrid cars. High prices, the bank insisted, were somehow the fault of the piggish American consumer; in 2005, Goldman analysts insisted that we wouldn't know when oil prices would fall until we knew "when American consumers will stop buying gas-guzzling sport utility vehicles and instead seek fuel-efficient alternatives."

But it wasn't the consumption of real oil that was driving up prices - it was the trade in paper oil. By the summer of2008, in fact, commodities speculators had bought and stockpiled enough oil futures to fill 1.1 billion barrels of crude, which meant that speculators owned more future oil on paper than there was real, physical oil stored in all of the country's commercial storage tanks and the Strategic Petroleum Reserve combined. It was a repeat of both the Internet craze and the housing bubble, when Wall Street jacked up present-day profits by selling suckers shares of a fictional fantasy future of endlessly rising prices.

In what was by now a painfully familiar pattern, the oil-commodities melon hit the pavement hard in the summer of 2008, causing a massive loss of wealth; crude prices plunged from $147 to $33. Once again the big losers were ordinary people. The pensioners whose funds invested in this crap got massacred: CalPERS, the California Public Employees' Retirement System, had $1.1 billion in commodities when the crash came. And the damage didn't just come from oil. Soaring food prices driven by the commodities bubble led to catastrophes across the planet, forcing an estimated 100 million people into hunger and sparking food riots throughout the Third World.

Now oil prices are rising again: They shot up 20 percent in the month of May and have nearly doubled so far this year. Once again, the problem is not supply or demand. "The highest supply of oil in the last 20 years is now," says Rep. Bart Stupak, a Democrat from Michigan who serves on the House energy committee. "Demand is at a 10-year low. And yet prices are up."

Asked why politicians continue to harp on things like drilling or hybrid cars, when supply and demand have nothing to do with the high prices, Stupak shakes his head. "I think they just don't understand the problem very well," he says. "You can't explain it in 30 seconds, so politicians ignore it."

BUBBLE #5

RIGGING THE BAILOUT

AFTER THE OIL BUBBLE COLlapsed last fall, there was no new bubble to keep things humming - this time, the money seems to be really gone, like worldwide-depression gone. So the financial safari has moved elsewhere, and the big game in the hunt has become the only remaining pool of dumb, unguarded capital left to feed upon: taxpayer money. Here, in the biggest bailout in history, is where Goldman Sachs really started to flex its muscle.

It began in September of last year, when then-Treasury secretary Paulson made a momentous series of decisions. Although he had already engineered a rescue of Bear Stearns a few months before and helped bail out quasi-private lenders Fannie Mae and Freddie Mac, Paulson elected to let Lehman Brothers - one of Goldman's last real competitors - collapse without intervention. ("Goldman's superhero status was left intact," says market analyst Eric Salzman, "and an investment-banking competitor, Lehman, goes away.") The very next day, Paulson greenlighted a massive, $85 billion bailout of AIG, which promptly turned around and repaid $13 billion it owed to Goldman. Thanks to the rescue effort, the bank ended up getting paid in full for its bad bets: By contrast, retired auto workers awaiting the Chrysler bailout will be lucky to receive 50 cents for every dollar they are owed.

Immediately after the AIG bailout, Paulson announced his federal bailout for the financial industry, a $700 billion plan called the Troubled Asset Relief Program, and put a heretofore unknown 35-year-old Goldman banker named Neel Kashkari in charge of administering the funds. In order to qualify for bailout monies, Goldman announced that it would convert from an investment bank to a bank-holding company, a move that allows it access not only to $10 billion in TARP funds, but to a whole galaxy of less conspicuous, publicly backed funding - most notably, lending from the discount window of the Federal Reserve. By the end of March, the Fed will have lent or guaranteed at least $8.7 trillion under a series of new bailout programs - and thanks to an obscure law allowing the Fed to block most congressional audits, both the amounts and the recipients of the monies remain almost entirely secret.

Converting to a bank-holding company has other benefits as well: Goldman's primary supervisor is now the New York Fed, whose chairman at the time of its announcement was Stephen Friedman, a former co-chairman of Goldman Sachs. Friedman was technically in violation of Federal Reserve policy by remaining on the board of Goldman even as he was supposedly regulating the bank; in order to rectify the problem, he applied for, and got, a conflict-of-interest waiver from the government. Friedman was also supposed to divest himself of his Goldman stock after Goldman became a bank-holding company, but thanks to the waiver, he was allowed to go out and buy 52,000 additional shares in his old bank, leaving him $3 million richer. Friedman stepped down in May, but the man now in charge of supervising Goldman - New York Fed president William Dudley - is yet another former Goldmanite.

The collective message of all this - the AIG bailout, the swift approval for its bank-holding conversion, the TARP funds - is that when it comes to Goldman Sachs, there isn't a free market at all. The government might let other players on the market die, but it simply will not allow Goldman to fail under any circumstances. Its edge in the market has suddenly become an open declaration of supreme privilege. "In the past it was an implicit advantage," says Simon Johnson, an economics professor at MIT and former official at the International Monetary Fund, who compares the bailout to the crony capitalism he has seen in Third World countries. "Now it's more of an explicit advantage."

Once the bailouts were in place, Goldman went right back to business as usual, dreaming up impossibly convoluted schemes to pick the American carcass clean of its loose capital. One of its first moves in the post-bailout era was to quietly push forward the calendar it uses to report its earnings, essentially wiping December 2008 - with its $1.3 billion in pretax losses - off the books. At the same time, the bank announced a highly suspicious $1.8 billion profit for the first quarter of 2009 - which apparently included a large chunk of money funneled to it by taxpayers via the AIG bailout. "They cooked those first-quarter results six ways from Sunday," says one hedge-fund manager. "They hid the losses in the orphan month and called the bailout money profit."

Two more numbers stand out from that stunning first-quarter turnaround. The bank paid out an astonishing $4.7 billion in bonuses and compensation in the first three months of this year, an 18 percent increase over the first quarter of 2008. It also raised $5 billion by issuing new shares almost immediately after releasing its first-quarter results. Taken together, the numbers show that Goldman essentially borrowed a $5 billion salary payout for its executives in the middle of the global economic crisis it helped cause, using half-baked accounting to reel in investors, just months after receiving billions in a taxpayer bailout.

Even more amazing, Goldman did it all right before the government announced the results of its new "stress test" for banks seeking to repay TARP money - suggesting that Goldman knew exactly what was coming. The government was trying to carefully orchestrate the repayments in an effort to prevent further trouble at banks that couldn't pay back the money right away. But Goldman blew off those concerns, brazenly flaunting its insider status. "They seemed to know everything that they needed to do before the stress test came out, unlike everyone else, who had to wait until after," says Michael Hecht, a managing director of JMP Securities. "The government came out and said, 'To pay back TARP, you have to issue debt of at least five years that is not insured by FDIC - which Goldman Sachs had already done, a week or two before."

And here's the real punch line. After playing an intimate role in four historic bubble catastrophes, after helping $5 trillion in wealth disappear from the NASDAQ, after pawning off thousands of toxic mortgages on pensioners and cities, after helping to drive the price of gas up to $4 a gallon and to push 100 million people around the world into hunger, after securing tens of billions of taxpayer dollars through a series of bailouts overseen by its former CEO, what did Goldman Sachs give back to the people of the United States in 2008?

Fourteen million dollars.

That is what the firm paid in taxes in 2008, an effective tax rate of exactly one, read it, one percent. The bank paid out $10 billion in compensation and benefits that same year and made a profit of more than $2 billion - yet it paid the Treasury less than a third of what it forked over to CEO Lloyd Blankfein, who made $42.9 million last year.

How is this possible? According to Goldman's annual report, the low taxes are due in large part to changes in the bank's "geographic earnings mix." In other words, the bank moved its money around so that most of its earnings took place in foreign countries with low tax rates. Thanks to our completely fucked corporate tax system, companies like Goldman can ship their revenues offshore and defer taxes on those revenues indefinitely, even while they claim deductions upfront on that same untaxed income. This is why any corporation with an at least occasionally sober accountant can usually find a way to zero out its taxes. A GAO report, in fact, found that between 1998 and 2005, roughly two-thirds of all corporations operating in the U.S. paid no taxes at all.

This should be a pitchfork-level outrage - but somehow, when Goldman released its post-bailout tax profile, hardly anyone said a word. One of the few to remark on the obscenity was Rep. Lloyd Doggett, a Democrat from Texas who serves on the House Ways and Means Committee. "With the right hand out begging for bailout money," he said, "the left is hiding it offshore."

BUBBLE #6

GLOBAL WARMING

Fast-Forward to today. It's early June in Washington, D.C. Barack Obama, a popular young politician whose leading private campaign donor was an investment bank called Goldman Sachs - its employees paid some $981,000 to his campaign - sits in the White House. Having seamlessly navigated the political minefield of the bailout era, Goldman is once again back to its old business, scouting out loopholes in a new government-created market with the aid of a new set of alumni occupying key government jobs.

Gone are Hank Paulson and Neel Kashkari; in their place are Treasury chief of staff Mark Patterson and CFTC chief Gary Gensler, both former Goldmanites. (Gensler was the firm's co-head of finance.) And instead of credit derivatives or oil futures or mortgage-backed CDOs, the new game in town, the next bubble, is in carbon credits - a booming trillion-dollar market that barely even exists yet, but will if the Democratic Party that it gave $4,452,585 to in the last election manages to push into existence a groundbreaking new commodities bubble, disguised as an "environmental plan," called cap-and-trade.

The new carbon-credit market is a virtual repeat of the commodities-market casino that's been kind to Goldman, except it has one delicious new wrinkle: If the plan goes forward as expected, the rise in prices will be government-mandated. Goldman won't even have to rig the game. It will be rigged in advance.

Here's how it works: If the bill passes; there will be limits for coal plants, utilities, natural-gas distributors and numerous other industries on the amount of carbon emissions (a.k.a. greenhouse gases) they can produce per year. If the companies go over their allotment, they will be able to buy "allocations" or credits from other companies that have managed to produce fewer emissions. President Obama conservatively estimates that about $646 billions worth of carbon credits will be auctioned in the first seven years; one of his top economic aides speculates that the real number might be twice or even three times that amount.

The feature of this plan that has special appeal to speculators is that the "cap" on carbon will be continually lowered by the government, which means that carbon credits will become more and more scarce with each passing year. Which means that this is a brand-new commodities market where the main commodity to be traded is guaranteed to rise in price over time. The volume of this new market will be upwards of a trillion dollars annually; for comparison's sake, the annual combined revenues of an electricity suppliers in the U.S. total $320 billion.

Goldman wants this bill. The plan is (1) to get in on the ground floor of paradigm-shifting legislation, (2) make sure that they're the profit-making slice of that paradigm and (3) make sure the slice is a big slice. Goldman started pushing hard for cap-and-trade long ago, but things really ramped up last year when the firm spent $3.5 million to lobby climate issues. (One of their lobbyists at the time was none other than Patterson, now Treasury chief of staff.) Back in 2005, when Hank Paulson was chief of Goldman, he personally helped author the bank's environmental policy, a document that contains some surprising elements for a firm that in all other areas has been consistently opposed to any sort of government regulation. Paulson's report argued that "voluntary action alone cannot solve the climate-change problem." A few years later, the bank's carbon chief, Ken Newcombe, insisted that cap-and-trade alone won't be enough to fix the climate problem and called for further public investments in research and development. Which is convenient, considering that 'Goldman made early investments in wind power (it bought a subsidiary called Horizon Wind Energy), renewable diesel (it is an investor in a firm called Changing World Technologies) and solar power (it partnered with BP Solar), exactly the kind of deals that will prosper if the government forces energy producers to use cleaner energy. As Paulson said at the time, "We're not making those investments to lose money."

The bank owns a 10 percent stake in the Chicago Climate Exchange, where the carbon credits will be traded. Moreover, Goldman owns a minority stake in Blue Source LLC, a Utah-based firm that sells carbon credits of the type that will be in great demand if the bill passes. Nobel Prize winner Al Gore, who is intimately involved with the planning of cap-and-trade, started up a company called Generation Investment Management with three former bigwigs from Goldman Sachs Asset Management, David Blood, Mark Ferguson and Peter Harris. Their business? Investing in carbon offsets. There's also a $500 million Green Growth Fund set up by a Goldmanite to invest in green-tech ... the list goes on and on. Goldman is ahead of the headlines again, just waiting for someone to make it rain in the right spot. Will this market be bigger than the energy-futures market?

"Oh, it'll dwarf it," says a former staffer on the House energy committee.

Well, you might say, who cares? If cap-and-trade succeeds, won't we all be saved from the catastrophe of global warming? Maybe - but cap-and-trade, as envisioned by Goldman, is really just a carbon tax structured so that private interests collect the revenues. Instead of simply imposing a fixed government levy on carbon pollution and forcing unclean energy producers to pay for the mess they make, cap-and trade will allow a small tribe of greedy-as-hell Wall Street swine to turn yet another commodities market into a private tax-collection scheme. This is worse than the bailout: It allows the bank to seize taxpayer money before it's even collected.

"If it's going to be a tax, I would prefer that Washington set the tax and collect it," says Michael Masters, the hedge fund director who spoke out against oil-futures speculation. "But we're saying that Wall Street can set the tax, and Wall Street can collect the tax. That's the last thing in the world I want. It's just asinine."

Cap-and-trade is going to happen. Or, if it doesn't, something like it will. The moral is the same as for all the other bubbles that Goldman helped create, from 1929 to 2009. In almost every case, the very same bank that behaved recklessly for years, weighing down the system with toxic loans and predatory debt, and accomplishing nothing but massive bonuses for a few bosses, has been rewarded with mountains of virtually free money and government guarantees - while the actual victims in this mess, ordinary taxpayers, are the ones paying for it.

It's not always easy to accept the reality of what we now routinely allow these people to get away with; there's a kind of collective denial that kicks in when a country goes through what America has gone through lately, when a people lose as much prestige and status as we have in the past few years. You can't really register the fact that you're no longer a citizen of a thriving first-world democracy, that you're no longer above getting robbed in broad daylight, because like an amputee, you can still sort of feel things that are no longer there.

But this is it. This is the world we live in now. And in this world, some of us have to play by the rules, while others get a note from the principal excusing them from homework till the end of time, plus 10 billion free dollars in a paper bag to buy lunch. It's a gangster state, running on gangster economics, and even prices can't be trusted anymore; there are hidden taxes in every buck you pay. And maybe we can't stop it, but we should at least know where it's all going.

Canadian Prime Minister Stephen Harper


HARPER BOTCHES ROMAN CATHOLIC COMMUNION: Attempt to hustle RC votes collapses

by Darryl Raymaker

As originally posted on: Darryl Raymaker
July 8, 2009


Astonishing! Scandalous! Sacrilege! Heresy! Sinful! In his ongoing effort to shamelessly hustle votes by trying to be all things to all people, Prime Minister Harper recently tried to pass himself off as a Roman Catholic at the funeral service for former Governor General Romeo Leblanc in Memramcook, New Brunswick by accepting sacramental communion.

Given his sparse worldliness, his early background as a frequenter of United and Presbyterian Churches, and his current affiliation with his fellow arch-social conservatives in the Evangelical Christian and Missionary Alliance, it is little wonder that the klutzy Harper found the ceremony quite foreign and confusing to him. Unlike Roman Catholics who rise and gulp the wafer and bolt real vino (if they so wish) when communion is served by the Priest, in Harper’s ho-hum religious world communion involves seated parishioners discretely passing along wafers which each of them consume, together with small glasses of unfermented grape juice.

It would appear from a video of the Harper communion that when the Priest gave Harper the wafer, he did not immediately gulp or devour it. He slipped it into his pocket! See it for yourself here: http://www.huffingtonpost.com/2009/07/08/stephen-harper-puts-commu_n_228023.html as it disappears amongst his loose change, kleenex and other personal debris.

What made the Prime Minister do such a thing? Was he confused? Disoriented? Did he have qualms of guilt? Was he playing an improvised shell game? See: http://en.wikipedia.org/wiki/Shell_game

In the Roman Catholic Church, not to swallow the wafer immediately is a grave no-no! In case you are interested in this ancient practice, read: http://en.wikipedia.org/wiki/Eucharist

The Roman Catholic clergy in New Brunswick is up in arms at the insult and is demanding an explanation. The wafer – properly called “the host” in Roman Catholic ritual – is the body and blood of Christ and must be consumed when received. No ifs, ands, or buts. Not only that, in order to receive “the host” you must be a Roman Catholic, unless perhaps there is a real emergency - like imminent death.

Monsignor Brian Henneberry the vicar general and chancellor in the Diocese of Saint John says, if Harper accepted the wafer but did not eat it, ". . it's worse than a faux pas, it's a scandal from the Catholic point of view." See: http://telegraphjournal.canadaeast.com/front/article/722036

So with a multitude of Canadian Roman Catholics being irked and upset at the gaffe (or sin, insult, heresy, scandal and/or sacrilege), all of this bodes ill for Harper’s audience with the Pope, expected to take place over the next few days in Rome.

Today, Dimitri Soudas, Harper’s chosen mouthpiece in the debacle, said that Harper ate the wafer within seconds and that all is well with the world. And surprise, surprise, he blamed the CBC for the whole affair saying that regardless of what the video shows, the cameras were not on the prime minister long enough. Read: http://www.cbc.ca/canada/new-brunswick/story/2009/07/08/harper-archbishop.html

Well, have another look at the video and see if you agree: http://www.huffingtonpost.com/2009/07/08/stephen-harper-puts-commu_n_228023.html

"7 Former Civic Candidates"


7 former civic candidates charged

by Bartley Kives

As originally published: Winnipeg Free Press
January 6, 2006


SEVEN former Winnipeg mayoral and council hopefuls - including ex-councillors Al Golden, Garth Steek, Shirley Timm-Rudolph and Ken Wong - have been charged with failing to file audited campaign-expenditure statements during the 2004 civic byelection.


The high-profile quartet and three lesser-known candidates will appear in provincial court on Jan. 12 to face the first batch of allegations ever made under the city's campaign-finance bylaws, said Craig Murray, special prosecutor for the City of Winnipeg.

Golden, Steek and Timm-Rudolph ran for mayor in the nine-candidate race won by Sam Katz, finishing third, fifth and seventh, respectively. Wong, a city councillor during the 1970s, lost the River Heights-Fort Garry ward contest to Donald Benham.

Also going to court are River Heights hopeful Jocelyn Greenwood, St. Boniface candidate Marcel Boille and John Scoles, a colourful Winnipeg club owner who briefly ran for mayor before withdrawing his name from the ballot.

"We're cracking down on election finance reports. We should have done this before, but we didn't," said Coun. Jae Eadie, who chairs the secretariat, the council committee that governs rules and regulations. "I'm embarrassed it took so long, because I'm the guy who brought in this legislation in 1989."

In previous civic elections, candidates who did not file audited financial statements were not taken to court, but merely barred from running in further elections.

In the 2004 byelection, seven out of a total number of 22 mayoral and council candidates did not file audited statements. The statements were supposed to be filed by May 31, 2005, for candidates who participated in the byelection or Aug. 23, 2004, for candidates who withdrew or were not nominated.

Special prosecutor Murray took action at the end of 2005 at the request of the secretariat. Eadie said the prosecution has nothing to do with a city hall probe into questionable credit-card expenses racked up by Steek during his final few months in office.

"That is a separate issue and it will be resolved by the end of the month," Eadie said.

"This has no political ramifications," added city clerk Richard Kachur. "It does not have anything to do with the fact there are some high-profile names."

The campaign-finance bylaw applies to all candidates, including fringe candidates who don't spend or receive a penny. Fringe candidate Scoles, who aborted a short-lived mayoral run to support Dan Vandal, says he didn't cough up a dime and was shocked when he received his summons in December.

"This is very silly. My lawyer has informed the city they should take a serious look at this," said Scoles, who runs Main Street's Times Change(d) High & Lonesome Club.

Former councillor Wong, meanwhile, said he actually turned over his numbers to the city, but refused to spend $600 on a formal audit by a certified accountant.

"I'd have to have a social just to pay for it," he quipped. "They're trying to make a big statement because we're all former city councillors. Dozens and dozens of people didn't file in the past, and nothing happened to them."

Nick Ternette, a perennial Winnipeg fringe candidate who did not file audited statements for his last mayoral campaign in 2002 - and has been barred from running ever since - said he believes the finance bylaw should not apply to people who lose the vote.

"Obviously, you have to be accountable if you're elected. But if you're not elected, who the hell cares?" asked Ternette, a columnist for Uptown magazine. "To me, this is just a move to make sure only people who have money and can afford (the audit) are able to participate in the political process."

Coun. Eadie dismissed the criticism, noting the rules are in place to make sure the public knows who's paying for what, with the help of whom.

"Whether you're a fringe candidate or not, it doesn't matter. When you run, you have to file."

Steek did not return phone calls. Timm-Rudolph was unavailable for comment.

Golden, meanwhile, denied the allegations.


bartley.kives@freepress.mb.ca

08 July 2009

"The Intervener"


Fundamentals of Intervention

by Murray N. Rothbard

The following is partially excerpted, with permission from the Ludwig von Mises Institute, from Chapter 2 of Rothbard's Power and Market: Government and the Economy [2nd ed., 1977], 4th ed. (Auburn, Ala.: Ludwig von Mises Institute, 2006), pp. 11-28. It has been edited in terms of both its original content and formatting.


1. Types of Intervention

[. . . .] Our major task [. . .] is to analyze the effects of various types of violent intervention in society and, especially, in the market. Most of our examples will deal with the State, since the State is uniquely the agency engaged in regularized violence on a large scale. However, our analysis applies to the extent that any individual or group commits violent invasion. Whether the invasion is “legal” or not does not concern us, since we are engaged in praxeological, not legal, analysis.

One of the most lucid analyses of the distinction between State and market was set forth by Franz Oppenheimer. He pointed out that there are fundamentally two ways of satisfying a person’s wants: (1) by production and voluntary exchange with others on the market and (2) by violent expropriation of the wealth of others.[1] The first method Oppenheimer termed “the economic means” for the satisfaction of wants; the second method, “the political means.” The State is trenchantly defined as the “organization of the political means.”[2]

A generic term is needed to designate an individual or group that commits invasive violence in society. We may call intervener, or invader, one who intervenes violently in free social or market relations. The term applies to any individual or group that initiates violent intervention in the free actions of persons and property owners.

What types of intervention can the invader commit? Broadly, we may distinguish three categories. In the first place, the intervener may command an individual subject to do or not to do certain things when these actions directly involve the individual’s person or property alone. In short, he restricts the subject’s use of his property when exchange is not involved. This may be called an autistic intervention, for any specific command directly involves only the subject himself. Secondly, the intervener may enforce a coerced exchange between the individual subject and himself, or a coerced “gift” to himself from the subject. Thirdly, the invader may either compel or prohibit an exchange between a pair of subjects. The former may be called a binary intervention, since a hegemonic relation is established between two people (the intervener and the subject); the latter may be called a triangular intervention, since a hegemonic relation is created between the invader and a pair of exchangers or would-be exchangers. The market, complex though it may be, consists of a series of exchanges between pairs of individuals. However extensive the interventions, then, they may be resolved into unit impacts on either individual subjects or pairs of individual subjects.

All these types of intervention, of course, are subdivisions of the hegemonic relation—the relation of command and obedience—as contrasted with the contractual relation of voluntary mutual benefit.

Autistic intervention occurs when the invader coerces a subject without receiving any good or service in return. Widely disparate types of autistic intervention are: homicide, assault, and compulsory enforcement or prohibition of any salute, speech, or religious observance. Even if the intervener is the State, which issues the edict to all individuals in the society, the edict is still in itself an autistic intervention, since the lines of force, so to speak, radiate from the State to each individual alone. Binary intervention occurs when the invader forces the subject to make an exchange or a unilateral “gift” of some good or service to the invader. Highway robbery and taxes are examples of binary intervention, as are conscription and compulsory jury service. Whether the binary hegemonic relation is a coerced “gift” or a coerced exchange does not really matter a great deal. The only difference is in the type of coercion involved. Slavery, of course, is usually a coerced exchange, since the slaveowner must supply his slaves with subsistence.

Curiously enough, writers on political economy have recognized only the third category as intervention.[3] It is understandable that preoccupation with catallactic problems has led economists to overlook the broader praxeological category of actions that lie outside the monetary exchange nexus. Nevertheless, they are part of the subject matter of praxeology—and should be subjected to analysis. There is far less excuse for economists to neglect the binary category of intervention. Yet many economists who profess to be champions of the “free market” and opponents of interference with it have a peculiarly narrow view of freedom and intervention. Acts of binary intervention, such as conscription and the imposition of income taxes, are not considered intervention at all nor as interferences with the free market. Only instances of triangular intervention, such as price control, are conceded to be intervention. Curious schemata are developed in which the market is considered absolutely “free” and unhampered despite a regular system of imposed taxation. Yet taxes (and conscripts) are paid in money and thus enter the catallactic, as well as the wider praxeological, nexus.[4]

[. . . .]

2. Direct Effects of Intervention on Utility

A. INTERVENTION AND CONFLICT

[. . . .]

Coercive intervention [. . .] signifies per se that the individual or individuals coerced would not have done what they are now doing were it not for the intervention. The individual who is coerced into saying or not saying something or into making or not making an exchange with the intervener or with someone else is having his actions changed by a threat of violence. The coerced individual loses in utility as a result of the intervention, for his action has been changed by its impact. Any intervention, whether it be autistic, binary, or triangular, causes the subjects to lose in utility. In autistic and binary intervention, each individual loses in utility; in triangular intervention, at least one, and sometimes both, of the pair of would-be exchangers lose in utility.

Who, in contrast, gains in utility ex ante? Clearly, the intervener; otherwise he would not have intervened. Either he gains in exchangeable goods at the expense of his subject, as in binary intervention, or, as in autistic and triangular intervention, he gains in a sense of well-being from enforcing regulations upon others.

All instances of intervention, then, [. . .] are cases in which one set of men gains at the expense of other men. In binary intervention, the gains and losses are “tangible” in the form of exchangeable goods and services; in other types of intervention, the gains are nonexchangeable satisfactions, and the loss consists in being coerced into less satisfying types of activity (if not positively painful ones).

[. . . T]he intervener gains only at the expense of subjects who lose in utility. [. . . A]s soon as intervention appears and is established, conflict is created, for each may participate in a scramble to be a net gainer rather than a net loser—to be part of the invading team, instead of one of the victims.

It has become fashionable to assert that “Conservatives” like John C. Calhoun “anticipated” the Marxian doctrine of class exploitation. But [. . .] Calhoun’s insight was almost the reverse. Calhoun saw that it was the intervention of the State that in itself created the “classes” and the conflict.[5] He particularly perceived this in the case of the binary intervention of taxes. For he saw that the proceeds of taxes are used and spent, and that some people in the community must be net payers of tax funds, while the others are net recipients. Calhoun defined the latter as the “ruling class” of the exploiters, and the former as the “ruled” or exploited, and the distinction is quite a cogent one. Calhoun set forth his analysis brilliantly:

Few, comparatively, as they are, the agents and employees of the government constitute that portion of the community who are the exclusive recipients of the proceeds of the taxes. Whatever amount is taken from the community in the form of taxes, if not lost, goes to them in the shape of expenditures or disbursements. The two—disbursement and taxation—constitute the fiscal action of the government. They are correlatives. What the one takes from the community under the name of taxes is transferred to the portion of the community who are the recipients under that of disbursements. But as the recipients constitute only a portion of the community, it follows, taking the two parts of the fiscal process together, that its action must be unequal between the payers of the taxes and the recipients of their proceeds. Nor can it be otherwise; unless what is collected from each individual in the shape of taxes shall be returned to him in that of disbursements, which would make the process nugatory and absurd. . . .

Such being the case, it must necessarily follow that some one portion of the community must pay in taxes more than it receives back in disbursements, while another receives in disbursements more than it pays in taxes. It is, then, manifest, taking the whole process together, that taxes must be, in effect, bounties to that portion of the community which receives more in disbursements than it pays in taxes, while to the other which pays in taxes more than it receives in disbursements they are taxes in reality—burdens instead of bounties. This consequence is unavoidable. It results from the nature of the process, be the taxes ever so equally laid. . . .

The necessary result, then, of the unequal fiscal action of the government is to divide the community into two great classes: one consisting of those who, in reality, pay the taxes and, of course, bear exclusively the burden of supporting the government; and the other, of those who are the recipients of their proceeds through disbursements, and who are, in fact, supported by the government; or, in fewer words, to divide it into tax-payers and tax-consumers.

But the effect of this is to place them in antagonistic relations in reference to the fiscal action of the government and the entire course of policy therewith connected. For the greater the taxes and disbursements, the greater the gain of the one and the loss of the other, and vice versa. . . .
[6]

“Ruling” and “ruled” apply also to the forms of government intervention, but Calhoun was quite right in focusing on taxes and fiscal policy as the keystone, for it is taxes that supply the resources and payment for the State in performing its myriad other acts of intervention.

All State intervention rests on the binary intervention of taxes at its base; even if the State intervened nowhere else, its taxation would remain. Since the term “social” can be applied only to every single individual concerned, it is clear that [. . .] no act of the State can ever increase social utility. Indeed, [. . .] the picture of State intervention is one of caste conflict, coercion, and exploitation.

B. DEMOCRACY AND THE VOLUNTARY

It might be objected that all these forms of intervention are really not coercive but “voluntary,” for in a democracy they are supported by the majority of the people. But this support is usually passive, resigned, and apathetic, rather than eager—whether the State is a democracy or not.[7]

In a democracy, the nonvoters can hardly be said to support the rulers, and neither can the voters for the losing side. But even those who voted for the winners may well have voted merely for the “lesser of the two evils.” The interesting question is: Why do they have to vote for any evil at all? [. . . .] The point is that the public never has the opportunity of voting on the State system itself; they are caught up in a system in which coercion over them is inevitable.[8]

Be that as it may, as we have said, all States are supported by a majority—whether a voting democracy or not; otherwise, they could not long continue to wield force against the determined resistance of the majority. However, the support may simply reflect apathy—perhaps from the resigned belief that the State is a permanent if unwelcome fixture of nature. Witness the motto: “Nothing is as permanent as death and taxes.”

Setting all these matters aside, however, and even granting that a State might be enthusiastically supported by a majority, we still do not establish its voluntary nature. For the majority is not society, is not everyone. Majority coercion over the minority is still coercion.

Since States exist, and they are accepted for generations and centuries, we must conclude that a majority are at least passive supporters of all States—for no minority can for long rule an actively hostile majority. In a certain sense, therefore, all tyranny is majority tyranny, regardless of the formalities of the government structure.[9][10] But this does not change our analytic conclusion of conflict and coercion as a corollary of the State. The conflict and coercion exist no matter how many people coerce how many others.[11]



[1] A person may receive gifts, but this is a unitary act of the giver, not involving an act of the receiver himself.

[2] See Franz Oppenheimer, The State (New York: Vanguard Press, 1914):

There are two fundamentally opposed means whereby man, requiring sustenance, is impelled to obtain the necessary means for satisfying his desires. These are work and robbery, one’s own labor and the forcible appropriation of the labor of others. . . . I propose . . . to call one’s own labor and the equivalent exchange of one’s own labor for the labor of others “the economic means” for the satisfaction of needs, while the unrequited appropriation of the labor of others will be called the “political means. . . . The state is an organization of the political means. (pp. 24–27)

See also Albert Jay Nock, Our Enemy, the State (Caldwell, Idaho: Caxton Printers, 1946), pp. 59–62; Frank Chodorov, The Economics of Society, Government, and the State (mimeographed MS., New York, 1946), pp. 64ff. On the State as engaging in permanent conquest, see ibid., pp. 13–16, 111–17, 136–40.

[3] This is to be inferred from, rather than discovered in explicit form in, their writings. As far as we know, no one has systematically categorized or analyzed types of intervention.

[4] A narrow view of “freedom” is characteristic in the present day. In the political lexicon of modern America, “left-wingers” often advocate freedom in the sense of opposition to autistic intervention, but look benignly on triangular intervention. “Right-wingers,” on the other hand, severely oppose triangular intervention, but tend to favor, or remain indifferent to, autistic intervention. Both groups are ambivalent toward binary intervention.

[5] “Castes” would be a better term than “classes” here. Classes are any collection of units with a certain property in common. There is no reason for them to conflict. Does the class of men named Jones necessarily conflict with the class of men named Smith? On the other hand, castes are State-made groups, each with its own set of violence-established privileges and tasks. Castes necessarily conflict because some are instituted to rule over the others.

[6] John C. Calhoun, A Disquisition on Government (New York: Liberal Arts Press, 1953), pp. 16–18. [. . . .]

[7] As Professor Lindsay Rogers has trenchantly written on the subject of public opinion:

Before Great Britain adopted conscription in 1939, only thirty-nine percent of the voters were for it; a week after the conscription bill became law, a poll showed that fifty-eight percent approved. Many polls in the United States have shown a similar inflation of support for a policy as soon as it is translated to the statute books or into a Presidential order. (Lindsay Rogers, “‘The Mind of America’ to the Fourth Decimal Place,” The Reporter, June 30, 1955, p. 44)

[8] This coercion would exist even in the most direct democracies. It is doubly compounded in representative republics, where the people never have a chance of voting on issues, but only on the men who rule them. They can only reject men—and this at very long intervals—and if the candidates have the same views on issues, the public cannot effect any sort of fundamental change.

[9] It is often stated that under “modern” conditions of destructive weapons, etc., a minority can tyrannize permanently over a majority. But this ignores the fact that these weapons can be held by the majority, or that agents of the minority can mutiny. The sheer absurdity, for example, of the current belief that a few million could really tyrannize over a few hundred million active resistants is not often realized. As David Hume profoundly stated:

Nothing appears more surprising . . . than the easiness with which the many are governed by the few and the implicit submission with which men resign their own sentiments and passions to those of their rulers. When we enquire by what means this wonder is effected, we shall find that because Force is always on the side of the governed, the governors have nothing to support them but opinion. It is, therefore, on opinion that government is founded; and this maxim extends to the most despotic and most military governments. (David Hume, Essays, Literary, Moral and Political [London, n.d.], p. 23)

See also Etienne de La Boétie, Anti-Dictator (New York: Columbia University Press, 1942), pp. 8–9. For an analysis of the types of opinion fostered by the State in order to obtain public support, see Bertrand de Jouvenel, On Power (New York: Viking Press, 1949).

[10] This analysis of majority support applies to any intervention of rather long standing, carried on frankly and openly, whether or not the groups are labeled “States.”

[11] See Calhoun, Disquisition on Government, pp. 14, 18–19, 23–33.

Manitoba Lawyer Paul Walsh



Date: 2006 01 27
Docket: CI 05-01-42765
Indexed as: Bellan v. Curtis, et al
Cited as: 2006 MBQB 18
(Winnipeg Centre)

COURT OF QUEEN’S BENCH OF MANITOBA

B E T W E E N:

BERNARD W. BELLAN,
Plaintiff,

Gavin Wood,
for the Plaintiff.

- and -

CHARLES E. CURTIS, PETER OLFERT, WALDRON (WALLY) FOX-DECENT, LEA BATURIN, ALBERT R. BEAL, RON WAUGH, DIANE BERESFORD, SYLVIA FARLEY, ROBERT HILLIARD, ROBERT ZIEGLER, JOHN CLARKSON, DAVID G. FRIESEN, HUGH ELIASSON, SHERMAN KREINER, JAMES UMLAH, JANE HAWKINS, JANICE LEDERMAN, PRICEWATERHOUSECOOPERS LLP, NESBITT BURNS INC., WELLINGTON WEST CAPITAL INC., CROCUS CAPITAL INC., THE MANITOBA SECURITIES COMMISSION, and THE CROCUS INVESTMENT FUND,

Defendants.

Robert L. Tapper, Q.C. and Jason D. Kendall, for the
Defendant, James Umlah.


JUDGMENT DELIVERED:
January 27, 2006.

GREENBERG J.

[1] This is a motion by the defendant James Umlah for an order removing Paul Walsh, Q.C., and his firm, as counsel of record for the plaintiff because of a conflict of interest. Mr. Umlah also seeks to remove the plaintiff’s Toronto counsel, Harvin Pitch and Colin Stevenson and their firm, who became involved in the action through Mr. Walsh.

FACTS

[2] The underlying action in this case is a claim by the plaintiff for damages which he, as a shareholder in the Crocus Investment Fund, alleges he suffered because Crocus was mismanaged and the value of the shares was overstated. The plaintiff alleges that he and other shareholders (whom he is seeking certification to represent in a class action) purchased the shares at inflated prices. Crocus ultimately ceased trading and the value of the shares plummeted. Mr. Umlah is named as a defendant because he was the chief investment officer of Crocus from 1993 until the summer of 2004. The general basis for the claim is the failure of the defendants to apply reasonable skill in overseeing the affairs of Crocus and their misrepresentation about the value of the shares in various prospectuses which they issued.

[3] Crocus ceased trading on December 10, 2004. At or around that time, Mr. Walsh was retained by the plaintiff to act with respect to a potential lawsuit against Crocus. On December 13, 2004, Mr. Walsh called Mr. Umlah, for whom he had acted in the past, to discuss the Crocus situation. According to Mr. Umlah, he told Mr. Walsh that he had signed a confidentiality agreement that prevented him from talking about Crocus affairs except to his lawyer and that Mr. Walsh represented to him that he was Mr. Umlah’s lawyer so that their conversation was not in breach of that agreement. Mr. Umlah claims that he had detailed conversations with Mr. Walsh about Crocus on December 13th and in subsequent phone calls.

[4] Mr. Umlah also claims that Mr. Walsh told him that he would not and could not act against him if litigation did arise. Mr. Umlah says that he was shocked when this claim was filed by Mr. Walsh in July 2005 and he was named as a defendant.

[5] Mr. Walsh gives a different version of events. He admits that he called Mr. Umlah in December 2004 to discuss Crocus. In cross-examination on his affidavit, he described the conversation as follows:

I would have – I’m reconstructing so I can give you the gist without the exact words. I said, “I’ve been retained to act on this Crocus business because they’re going to freeze.” I’m sure he’d heard of that. And, “Is there anything you can tell me?” I said,”You’re not there any more. Is there anything you can tell me about it?”

[6] Mr. Walsh says that when Mr. Umlah told him that he had signed a confidentiality agreement, he made no further inquiries other than to ask questions about matters that were already in the public domain. Mr. Walsh says that lawyer/client confidentiality was never discussed and that he never told Mr. Umlah that he could not sue him, although he remembers Mr. Umlah expressing the hope that he would not be sued. Mr. Walsh acknowledges that he had further phone conversations with Mr. Umlah but says that the purpose of those calls was to discuss the estate of Mr. Umlah’s stepfather and, if Crocus was discussed, it would have been only “casually”.

[7] Mr. Umlah’s evidence that, during these phone calls, he spoke to Mr. Walsh as his lawyer must be understood in the context of their previous relationship. Mr. Walsh had acted for Mr. Umlah on two previous occasions. He had represented him in family proceedings from 1995 until 1998. More recently, until the spring of 2004, he represented Mr. Umlah in a matter with Canada Customs and Revenue Agency (“CCRA”). Mr. Walsh had also acted for Mr. Umluh’s stepfather for a period of 15 to 20 years ending in 2001. As well, Mr. Umlah retained Mr. Walsh to represent his son with respect to a charge under The Highway Traffic Act which went to trial in May 2004.

[8] Mr. Umlah says that Mr. Walsh obtained confidential information about him through the previous retainers. He says that, during the course of the family proceedings which involved custody and support issues, he obtained extensive information about Mr. Umlah’s financial circumstances, personality and background.

[9] With respect to the CCRA matter, Mr. Umlah had retained Mr. Walsh to negotiate the removal of liens which CCRA had registered against his property for tax arrears. Mr. Umlah says that, in order to accomplish this, he provided authorization to CCRA to provide information to Mr. Walsh. It is Mr. Umlah’s position that, as a result of the CCRA retainer, Mr. Walsh had confidential financial information about him. Mr. Walsh denies this. He claims to have received no information about Mr. Umlah’s financial circumstances at the time either from Mr. Umlah or from CCRA as a result of the authorization. With Mr. Umlah’s permission, Mr. Walsh produced his file for the court to confirm that the retainer involved nothing more than obtaining the discharge of the liens. However, while there is no documentation on the file relating to Mr. Umlah’s financial circumstances, after reading the file, it is apparent that not all discussions between Mr. Walsh and CCRA were documented. Moreover, I cannot conclude from reviewing the file that Mr. Umlah’s finances were not discussed between him and Mr. Walsh. One might have expected that, since the matter involved tax arrears, Mr. Umlah would have told his lawyer something about his financial situation. At the very least, one might have expected Mr. Umlah would have told his lawyer why it was necessary for him to have the liens removed at that time.

ISSUES

[10] The facts of this case raise two issues. First, do Mr. Walsh’s previous retainers with Mr. Umlah prevent him from acting against Mr. Umlah in this action? Second, do the conversations that Mr. Walsh had with Mr. Umlah after he was retained to act for the plaintiff give rise to a conflict?

THE LAW

[11] There is no absolute prohibition preventing a lawyer from acting against a former client. However, a lawyer cannot act against a former client where he has obtained confidential information from his relationship with the client that can be used in the new proceedings against him. In MacDonald Estate v. Martin, 1990 CanLII 32 (S.C.C.), [1990] 3 S.C.R. 1235, the Supreme Court held that once it is established that a lawyer received confidential information from the former client that is relevant to the proceedings against the former client, the lawyer’s disqualification is automatic. Sopinka J. stated (at par. 47):

A lawyer who has relevant confidential information cannot act against his client or former client. In such a case the disqualification is automatic. No assurances or undertakings not to use the information will avail. The lawyer cannot compartmentalize his or her mind so as to screen out what has been gleaned from the client and what was acquired elsewhere. Furthermore, there would be a danger that the lawyer would avoid use of information acquired legitimately because it might be perceived to have come from the client. This would prevent the lawyer from adequately representing the new client. Moreover, the former client would feel at a disadvantage. Questions put in cross-examination about personal matters, for example, would create the uneasy feeling that they had their genesis in the previous relationship.

[emphasis added]

[12] The difficult issue to resolve where a lawyer acts against a former client is usually whether the lawyer did acquire confidential information that is relevant to the new proceedings. This is difficult because the lawyer usually cannot defend the assertion that he did without breaching lawyer/client privilege. In MacDonald Estate, Sopinka J. explained (at par. 46):

In my opinion, once it is shown by the client that there existed a previous relationship which is sufficiently related to the retainer from which it is sought to remove the solicitor, the court should infer that confidential information was imparted unless the solicitor satisfies the court that no information was imparted which could be relevant. This will be a difficult burden to discharge. Not only must the court's degree of satisfaction be such that it would withstand the scrutiny of the reasonably informed member of the public that no such information passed, but the burden must be discharged without revealing the specifics of the privileged communication. Nonetheless, I am of the opinion that the door should not be shut completely on a solicitor who wishes to discharge this heavy burden.

[13] Even in a situation, as in the case of the CCRA file here, where the client consents to the release of the lawyer’s file, it is difficult to establish that no confidential information was imparted since it would be rare that all conversations between the lawyer and the client were recorded. As Sopinka J. explained in MacDonald Estate, the court should not be in the position of deciding whether to rely on the lawyer’s assertions that his former client told him nothing of relevance. He said (at par. 50):

A fortiori undertakings and conclusory statements in affidavits without more are not acceptable. These can be expected in every case of this kind that comes before the court. It is no more than the lawyer saying "trust me". This puts the court in the invidious position of deciding which lawyers are to be trusted and which are not. Furthermore, even if the courts found this acceptable, the public is not likely to be satisfied without some additional guarantees that confidential information will under no circumstances be used. In this regard I am in agreement with the statement of Posner J. in Analytica, supra, to which I have referred above, that affidavits of lawyers difficult to verify objectively will fail to assure the public.

[14] Sopinka J. refers to the following quote from Analytica, Inc. v. NPD Research, Inc., 708 F. 2d 1263 (7th Cir. 1983), at 1269:

For a law firm to represent one client today, and the client's adversary tomorrow in a closely related matter, creates an unsavory appearance of conflict of interest that is difficult to dispel in the eyes of the lay public -- or for that matter the bench and bar -- by the filing of affidavits, difficult to verify objectively, denying that improper communication has taken place or will take place between the lawyers in the firm handling the two sides.

[15] In discussing the test to be applied in determining whether a lawyer can continue to act against a former client, Sopinka J. spoke not only of the interest of the client in ensuring that no conflict exists but of the interest of the public in maintaining the integrity of the justice system. The question in each case must be whether “the public represented by the reasonably informed person would be satisfied that no use of confidential information would occur” (at par. 44). Sopinka J. found there was a need to prevent not only the actual misuse of confidential information but also the appearance of impropriety (at par. 18).

[16] While the previous retainers between Mr. Walsh and Mr. Umlah raise the possibility of the misuse of confidential information, the conversations between Mr. Walsh and Mr. Umlah in December 2004, and after, raise questions relating to broader obligations. If there was an ongoing lawyer/client relationship, Mr. Walsh’s obligations towards Mr. Umlah go beyond concerns about the use of confidential information. In R. v. Neil, 2002 SCC 70 (CanLII), [2002] 3 S.C.R. 631, the Supreme Court described the “much broader” obligations of a lawyer to a current client as including a duty to avoid conflicting interests, a duty of commitment to the client’s cause and a duty of candour with the client.

[17] How then does one assess the nature of the relationship at that time and the implications of the conversations for Mr. Walsh’s ability to continue to act in this action? In my view, as with the assessment of the duty to former clients, it is necessary to determine how a reasonable person would view the relationship and whether a reasonable person would conclude that there was a danger that Mr. Walsh obtained confidential information that could be used against Mr. Umlah.

[18] Some guidance can be found in the law societies’ Codes of Professional Conduct. While courts are not bound by these codes in assessing conflicts, they do provide “important statements of public policy” (MacDonald Estate, par. 18).

[19] In R. v. Neil, the Court referred to the definition of “client” in the Code of Professional Conduct of the Law Society of Alberta which is as follows:

“client” generally means a person on whose behalf the lawyer renders professional services and with whom the lawyer has a current or ongoing lawyer/client relationship, but may also include a person who reasonably believes that a lawyer/client relationship exists although one or more of the customary indicia of such a relationship are absent.

[emphasis added]

[20] The definition of “client” in the Code of Professional Conduct of the Law Society of Manitoba is simply “a person on whose behalf a lawyer renders or undertakes to render professional services”. However, the commentary to the Code indicates that the relationship must be viewed objectively. The commentary to Chapter 6 (“Conflict of Interest Between Lawyer and Client”) states:

When Person to be Considered a Client

6. The question of whether a person is to be considered a client of the lawyer when such person is lending money to the lawyer, or buying, selling, making a loan to or investment in, or assuming an obligation in respect of a business, security or property in which the lawyer or an associate of the lawyer has an interest, or in respect of any other transaction, is to be determined having regard to all the circumstances.
A person who is not otherwise a client may be deemed to be a client for purposes of this Rule if such person might reasonably feel entitled to look to the lawyer for guidance and advice in respect of the transaction. In those circumstances the lawyer must consider such person to be a client and will be bound by the same fiduciary obligations that attach to a lawyer in dealings with a client. The onus shall be on the lawyer to establish that such a person was not in fact looking to the lawyer for guidance and advice.

[emphasis added]

[21] The commentary to the definition of “client” in the Rules of Professional Conduct of the Law Society of Upper Canada is also instructive:

A solicitor and client relationship is often established without formality. For example, an express retainer or remuneration is not required for a solicitor and client relationship to arise. Also, in some circumstances, a lawyer may have legal and ethical responsibilities similar to those arising from a solicitor and client relationship. For example, a lawyer may meet with a prospective client in circumstances that impart confidentiality, and, although no solicitor and client relationship is ever actually established, the lawyer may have a disqualifying conflict of interest if he or she were later to act against the prospective client. It is, therefore, in a lawyer's own interest to carefully manage the establishment of a solicitor and client relationship.

[22] To protect the public interest in the integrity of the justice system and to ensure no appearance of impropriety, the nature of the relationship and the obligations that flow from it must be viewed from the perspective of the reasonable member of the public and not from a sterile determination of whether the lawyer has opened a file.

APPLICATION OF LAW TO THIS CASE

[23] Mr. Umlah argues that Mr. Walsh obtained confidential information through his previous retainers that could be used to his prejudice in the current action. Specifically, he says that Mr. Walsh has acquired financial information about him that could assist in the enforcement of a judgment against him. In addition, Mr. Walsh acquired intimate knowledge about many aspects of Mr. Umlah’s life that would put Mr. Umlah at a distinct disadvantage if cross-examined by Mr. Walsh.

[24] In looking at the previous retainers, Mr. Walsh argues that his most recent retainer with Mr. Umlah ended several months before he began to act for the plaintiff in this action and that he acquired no confidential information through his previous retainers that is of any relevance to the current action. Therefore, he argues, there is no danger of such information being used against Mr. Umlah in this action.

[25] Mr. Walsh argues that his relationship with Mr. Umlah’s stepfather and son are of no relevance since Mr. Umlah was not privy to either relationship. With respect to Mr. Umlah’s family proceedings, while Mr. Walsh did acquire detailed financial information about Mr. Umlah at that time, it is six years out of date. As for the CCRA file, Mr. Walsh contends that the retainer was limited to removing the CCRA liens on Mr. Umlah’s property and that he acquired no information through that retainer that has any bearing on the current action.

[26] I agree with Mr. Walsh that, insofar as there is a concern about misuse of confidential information, his relationship with Mr. Umlah’s stepfather and son are not relevant. However, I find that a reasonable person would believe that Mr. Walsh acquired information during the family proceedings and the CCRA matter that could be used against Mr. Umlah in the current action. The plaintiff in this action is claiming damages of $200,000,000. The ability to collect those damages will be a matter of significant concern to the plaintiff. As a result, information about Mr. Umlah’s financial circumstances would be very helpful to the plaintiff. While financial information obtained six years ago might be dated, information obtained six months ago would be relevant.

[27] Mr. Walsh produced his file to show that he acquired no such information through the CCRA retainer. However, I do not think that the information on that file would satisfy the reasonable person that Mr. Umlah’s financial circumstances were not discussed. In considering the potential for misuse of confidential information from the CCRA retainer, two facts are significant. First, Mr. Walsh became involved in the current action very soon after he completed the CCRA file. This is not a situation where, because of the lapse of time, he is not likely to remember matters that were not recorded in his file.

[28] Second, this is not a case involving imputed knowledge. Much of the case law in this area concerns situations where lawyer A acts against the former client of lawyer B, another member of lawyer A’s firm. In such cases, while lawyer A will be imputed with the confidential information acquired by lawyer B, a reasonable person might be satisfied that lawyer A did not acquire, or at least would not remember, information that was not documented on the file. Here, of course, Mr. Walsh directly acquired confidential information.

[29] There is no question that not all the information that flows between a lawyer and a client is recorded on a file. While some lawyers are better at recording than others, a reasonable person would assume that a client who had retained a lawyer to deal with a matter related to tax arrears would have imparted confidences to his lawyer relating to his financial circumstances. I do not think that a reasonable member of the public would be satisfied, considering the nature of the file and its recent vintage, that Mr. Walsh did not acquire information that could be used to Mr. Umlah’s prejudice. It is not sufficient for Mr. Walsh to say that he acquired no information that could be used to the prejudice of his former client. The question is what would a reasonable person think.

[30] Perhaps of more significance in assessing whether there is a conflict in this case is the personal and intimate information that Mr. Walsh would have acquired in representing Mr. Umlah in the family proceedings. The reasonable person would think that this information would give Mr. Walsh an advantage in his ability to cross-examine Mr. Umlah. As Mr. Umlah’s counsel states in his Motion Brief: “The point is that Walsh would have an insight into Umlah that would not be fair: his personality, his demeanour, his attitudes, all provide Walsh with a roadmap to examine Umlah.”

[31] In any event, even if I accepted Mr. Walsh’s argument that the previous retainers had not provided him with confidential information of any relevance to the current action, the phone calls in December 2004, and following, provide a more glaring reason why he should not continue to represent the plaintiff. As counsel for Mr. Umlah argued, the issue of conflict in this case really starts and ends with the December phone call. Certainly, if I accept Mr. Umlah’s version of what transpired, the conflict is obvious. According to Mr. Umlah, he told Mr. Walsh confidential information about Crocus on the understanding that the information was subject to lawyer/client privilege.

[32] Mr. Walsh says that lawyer/client privilege was not discussed and that the discussions about Crocus did not involve the disclosure of confidential information. However, even if there was no specific discussion of lawyer/client privilege, it would have been reasonable for Mr. Umlah to believe that when Mr. Walsh called him, he was doing so as his lawyer. Mr. Walsh had acted for Mr. Umlah, and members of his family, several times over a period of many years. Mr. Walsh had acted for Mr. Umlah as recently as several months before the phone call. While Mr. Walsh’s retainers with Mr. Umlah’s stepfather and son may not be relevant in determining whether he had acquired confidential information that could be used against Mr. Umlah, they do portray the appearance that Mr. Walsh was “the family lawyer”. And they are relevant to how Mr. Umlah would have perceived his relationship with Mr. Walsh in December 2004. Moreover, the Crocus matter was one of high profile in the community and, even according to Mr. Walsh’s version of the phone call, Mr. Umlah expressed concern about being sued. Considering that context, a reasonable person in Mr. Umlah’s place would assume that he was speaking to Mr. Walsh as his lawyer.

[33] In cross-examination on his affidavit, Mr. Walsh made it clear that he had no relationship with Mr. Umlah outside of his professional relationship. He was not Mr. Umlah’s friend. He was able to place the call to Mr. Umlah in December 2004 because he was Mr. Umlah’s lawyer. It was clear from Mr. Walsh’s evidence that his intent in calling Mr. Umlah was to get information about Crocus for the purpose of a potential lawsuit. While he claims that, in the end, he never did receive any confidential information, it would make no sense for him to have made the call to his former client for the purpose of acquiring information that was already in the public domain.

[34] As stated in MacDonald Estate, it is not enough for a lawyer to simply respond to an allegation of conflict by saying “trust me, I have no confidential information.” The question is how would the reasonable person perceive the situation. In my view, it would be difficult to convince the reasonable person that Mr. Walsh did not acquire confidential information in the December phone call which could be used to Mr. Umlah’s prejudice.

[35] It was reasonable for Mr. Umlah to assume that the lawyer/client relationship continued to exist in December 2004 and that Mr. Walsh’s duty of good faith and candour arising from that relationship would prevent him from attempting to obtain information from him that could then be used against him. Even accepting that Mr. Walsh was not Mr. Umlah’s lawyer at the time, as stated above, the objective in these situations is not just to prevent the actual misuse of confidential information, but to prevent the appearance of impropriety. To put it simply, a lawyer cannot call a former client to discuss a potential lawsuit and then turn around and sue him without creating an appearance of impropriety.

THE TORONTO COUNSEL

[36] I have concluded that Mr. Walsh cannot continue to represent the plaintiff in this action. Nor can any member of his firm represent the plaintiff. There is a presumption that all members of a firm are imputed with the confidential information acquired by other members of the firm, even when they have not worked together on a file. As stated in MacDonald Estate (at par. 49):

There is, however, a strong inference that lawyers who work together share confidences. In answering this question, the court should therefore draw the inference, unless satisfied on the basis of clear and convincing evidence, that all reasonable measures have been taken to ensure that no disclosure will occur by the "tainted" lawyer to the member or members of the firm who are engaged against the former client. Such reasonable measures would include institutional mechanisms such as Chinese walls and cones of silence.

[37] This comment applies with even greater force to those lawyers who are working together on a file, even if they are members of different firms. There was no attempt in this case to produce evidence that Mr. Pitch and Mr. Stevenson did not acquire confidential information from Mr. Walsh. While Mr. Umlah seeks to have them both removed as counsel of record, neither filed an affidavit to explain their involvement or to suggest they are not tainted by any knowledge that may have been acquired by Mr. Walsh.

[38] Therefore, I am granting an order removing Mr. Walsh, and the members of his firm, and Mr. Pitch, Mr. Stevenson and the members of their firm, as counsel of record in this action.

[39] Costs may be spoken to if they cannot be agreed upon.


__________________________________J.

07 July 2009

Suspended New York Lawyer Steven Lever



Matter of Lever
2008 NY Slip Op 10230 [60 AD3d 37]
December 30, 2008
Per Curiam, J.
Appellate Division, First Department
Published by New York State Law Reporting Bureau pursuant to Judiciary Law § 431.
As corrected through Wednesday, April 22, 2009



In the Matter of Steven J. Lever (Admitted as Steven Jon Lever), an Attorney, Respondent. Departmental Disciplinary Committee for the First Judicial Department, Petitioner.



First Department, December 30, 2008

APPEARANCES OF COUNSEL

Alan W. Friedberg, Chief Counsel, Departmental Disciplinary Committee, New York City (Raymond Vallejo of counsel), for petitioner.

Hinshaw & Culbertson LLP (Hal Lieberman of counsel), for respondent.

OPINION OF THE COURT

Per Curiam.

Respondent Steven J. Lever was admitted to the practice of law in the State of New York by the Second Judicial Department on September 20, 2000. At all times relevant to these proceedings, respondent maintained an office for the practice of law within the First Judicial Department.

In November 2006, respondent was served with a notice and statement of charges alleging that he engaged in illegal conduct that adversely reflected on his honesty, trustworthiness or fitness as a lawyer (see Code of Professional Conduct DR 1-102 [a] [3] [22 NYCRR 1200.3]), and further engaged in conduct that adversely reflected on his fitness as a lawyer (see DR 1-102 [a] [7]). Both charges arose from respondent's September 27, 2005 guilty plea in Supreme Court, Suffolk County, to the crime of attempted criminal sex act in the third degree (Penal Law §§ 110.00, 130.40 [2]), a class A misdemeanor. Underlying the guilty plea was respondent's admission that he engaged in sexually explicit conversations over an Internet chat room with an undercover police officer posing as a 13-year-old girl, followed by his attempted meeting with the presumed minor for purposes of sexual contact. Respondent filed an answer in this proceeding, admitting the charges and requesting a hearing on mitigation.

In February 2007, a hearing was held before a Referee. For the most part, the dissent has accurately stated the evidence adduced at the hearing, which will not be repeated herein. The only omission was the testimony of two character witnesses. The first character witness, the chair of the intellectual property practice at a law firm, testified that he first met respondent in 1998, when he was respondent's supervising attorney at a New York City law firm. After his arrest, respondent called this attorney and told him what he had done. The witness testified that respondent had a reputation for honesty and integrity, notwithstanding the events leading to his conviction, and that respondent has a pending job offer with his current firm once these disciplinary proceedings are concluded.[FN1] A second character witness testified that she grew up with respondent, and was close friends with his sister. She further testified that she had kept in touch with respondent, who had a reputation for being a smart and honest person, even after his conviction.

At the conclusion of the hearing, the Referee recommended a six-month suspension in light of the considerable evidence in mitigation. Although recognizing the seriousness of respondent's offense, the Referee was persuaded by the fact that there was no actual sexual contact with a minor, and that respondent "seems to have taken major steps to avoid any repetition of this abhorrent conduct."

A Hearing Panel of six Committee members heard oral argument and issued a report. The Panel distinguished, as inapposite, the case law relied upon by the Referee, on the ground that such cases did not involve minors at all, nor did they include sexually explicit conversations, followed by an attempted meeting with a minor for the purpose of engaging in sexual conduct. Instead, the Panel took the view that "preying upon . . . minors for sexual gratification by means of the internet should be dealt with more harshly" than the six-month suspension proposed by the Referee. Accordingly, a majority of the Panel recommended that respondent be suspended for three years, or until the end of his criminal term of probation, whichever was longer, and that any reinstatement be conditioned upon a psychiatric evaluation. A sole dissenter on the Panel believed that a one-year suspension was appropriate.

The Committee now seeks an order confirming the Hearing Panel's findings of fact and conclusions of law, and imposing the Panel majority's recommended sanction of a suspension of three years, or until the conclusion of respondent's probationary period, whichever is longer. The Committee notes the lack of New York precedent involving attorney discipline matters involving convictions for sexually explicit conversations with a minor over the Internet, followed by an attempted in-person meeting. Committee staff further notes that despite its initial recommendation of a six-month suspension, "upon reflection" it is persuaded that the three-year (or longer) suspension proposed by the Hearing Panel would send a strong message to both the bar and public that sexual misconduct involving minors will be met with a significant sanction.

Respondent has submitted a memorandum recommending an adoption of the Referee's report, including the recommended six-month suspension. He argues that the Hearing Panel ignored the substantial evidence of mitigation in his case. Further, he points to two disciplinary cases from sister states involving attorneys convicted of crimes involving sexually explicit conversations with minors over the Internet that resulted in less severe sanctions than a three-year suspension (see In re Disciplinary Proceedings Against Engl, 283 Wis 2d 140, 698 NW2d 821 [2005] [public reprimand]; Attorney Grievance Commn. of Md. v Childress, 364 Md 48, 770 A2d 685 [2001] [indefinite suspension, with no right to apply for reinstatement for at least one year]). Finally, respondent cites New York disciplinary cases where lawyers serving probation in criminal cases have been allowed to continue practicing law (see e.g. Matter of Cutler, 227 AD2d 8 [1996]; Matter of Minkel, 221 AD2d 28 [1996]), although none of these cases involved sexual conduct involving minors.

In determining an appropriate sanction for respondent's misconduct, we consider both the nature and severity of respondent's criminal conduct, as well as any aggravating or mitigating circumstances. We are further guided by the principle that the purpose of a disciplinary proceeding is not to punish the respondent attorney, but rather to determine the fitness of an officer of the court and to protect the courts and public from attorneys that are unfit for practice (Matter of Wong, 275 AD2d 1, 6 [2000]).

At the outset, we share three points of agreement with the dissent. First, respondent's use of the Internet to prey on minors for purposes of sexual gratification is despicable and dangerous misconduct, that has brought shame to himself and to this state's bar. Second, serious misconduct of this type necessarily requires a significant sanction that will convey to members of the bar and public that this Court will not permit attorneys who engage in such immoral and criminal behavior to continue practicing law. Finally, we agree that there are no New York disciplinary cases directly on point, which requires us to review the most analogous precedents from this and other jurisdictions.

The most factually analogous case cited by either party is In re Disciplinary Proceedings Against Engl (283 Wis 2d 140, 698 NW2d 821 [2005]). The facts in Engl are nearly identical to the instant matter, where a young lawyer had sexually explicit conversations over the Internet with a police detective posing as a 14-year-old girl, and then arranged a meeting with the alleged minor, leading to his arrest. The attorney pleaded guilty to a class D felony and was sentenced to four years' probation, with conditions. Subsequently, the attorney stipulated with the Wisconsin disciplinary authorities that he had violated the disciplinary rules and that a public reprimand was the appropriate sanction. The stipulation specifically recited that a more severe sanction was not imposed due to the substantial evidence of mitigation, including a lack of prior disciplinary history, the attorney's extreme stress caused by long work hours and the recent death of his mother, his cooperation with the criminal and disciplinary authorities, his actual remorse and a report from his therapist that he was unlikely to reoffend (283 Wis 2d at 142-143, 698 NW2d at 822-823).

Although we are convinced that the public reprimand in Engl, the equivalent of a public censure in New York (Matter of Maiorino, 301 AD2d 53, 56 [2002]), would be too lenient a sanction for the misconduct in this case, we agree with the Engl court's implicit finding that disbarment is not the exclusive sanction for a single sexual offense involving solicitation of a minor, especially where significant mitigation exists (see also Disciplinary Counsel v Goldblatt, 118 Ohio St 3d 310, 888 NE2d 1091 [2008] [indefinite suspension imposed on attorney who solicited sexual encounter with underage girl, and downloaded images of nude children after conviction, where substantial mitigation exists]; Matter of Christie, 574 A2d 845 [Del 1990] [three-year suspension for providing alcohol, showing x-rated videotapes and masturbating in presence of teenage boys, where substantial mitigation shown]; see also Matter of Herman, 108 NJ 66, 527 A2d 868 [1987] [retroactive three-year suspension appropriate sanction for attorney who committed second-degree sexual assault, but who cooperated with authorities and voluntarily suspended his practice]).

Another case with many similarities is Attorney Grievance Commn. of Md. v Childress (364 Md 48, 770 A2d 685 [2001]), which involved a lawyer who engaged in sexual conversations with several young girls whom he believed were between 13 and 16 years of age via Internet chat rooms. The attorney in Childress convinced five underage girls to meet with him, but no sexual contact or conversations occurred during these meetings. The attorney was eventually arrested in a sting operation, and in a 4-2 decision, the Maryland Court of Appeals imposed an indefinite suspension, with no opportunity for reinstatement until after one year (364 Md at 64-67, 770 A2d at 694-697). The dissenters argued, as does the dissent here, that the nature of the sexual crime against minors demanded the ultimate sanction of disbarment (364 Md at 67-75, 770 A2d 697-701).

In our view, the sanction in Childress was again too lenient, especially given the multiple victims and pattern of misconduct involved in that case. However, we agree with the Maryland court's willingness to at least examine the facts underlying the crimes, as well as the aggravating and mitigating circumstances, before deciding on an appropriate sanction. As was the case in Engl and in this case, the court in Childress found substantial mitigation, which included actual remorse and an expert psychiatric opinion that Childress posed an "insignificant risk" of similar behavior (364 Md at 66, 770 A2d at 696).

In urging disbarment as the only appropriate sanction in this case, the dissent relies on factually distinguishable cases which involved an attorney's actual sexual contact with a minor. The distinction is significant. In Matter of Harlow (280 AD2d 870 [2001]), the Third Department disbarred an attorney who had engaged in sexual conversations with a minor over the Internet, and then, after arranging a meeting with the minor, had actual sexual contact with her. The attorney was convicted in Connecticut of a felony, and given a 10-year suspended sentence. The Connecticut disciplinary authorities suspended respondent for the same 10-year period, but in the New York serious crime proceeding, the court determined, without comment, that disbarment was required (id.).

While the dissent argues that "[t]he only substantive difference between Harlow and the instant case is that here, respondent was caught in a police sting," in fact, the actual legal distinction between the two incidents is that the attorney in Harlow committed a crime involving actual sexual contact with a minor, while this respondent did not. Given that most states' penal statutes treat sexual contact with a minor as a higher-grade crime than an attempt to commit such a crime (as would be the case in a sting operation), there is no basis for us to ignore that distinction in attorney disciplinary proceedings. Respondent's sanction should be premised on what he was convicted of doing, not what he might have done if circumstances were different. Another stark difference in Harlow is that there was not a shred of discussion concerning any mitigation in that case, which suggests that the attorney in Harlow made no demonstration that he was deserving of any leniency. Here, in contrast, the evidence offered in mitigation was detailed and compelling.

The dissent further argues that Matter of Singer (290 AD2d 197 [2002]) mandates disbarment in this case. We respectfully disagree. In Singer, an attorney was convicted in Virginia state court of aggravated sexual battery, and was sentenced to a term of 20 years, with 16 years and eight months suspended, and lifetime probation. Although this Court rejected the Hearing Panel's recommendation of a five-year suspension and disbarred respondent due to the "disturbing nature of the crime and the aggravating factors" (id. at 200), the dissent fails to mention the significant factual distinctions in that proceeding.

First, unlike this case, the respondent in Singer had actual sexual contact with a minor. Second, the misconduct in Singer was not isolated, as the respondent admitted similar conduct with five other minors over a 10-year period. Third, the penalty imposed in Singer was much longer than this respondent's sentence in the Suffolk County criminal case, indicating that a more severe disciplinary sanction was appropriate. Fourth, unlike here, there was a "glaring absence" of character letters on that respondent's behalf, and his own therapist had described him as having "lifelong pattern of maladaptive behavior" (id.). These significant differences, especially the admission of a pattern of criminal conduct involving minors over a long period, clearly indicates that the respondent in Singer posed a continuing risk to children that warranted the most severe sanction of disbarment. Thus, while disbarment may have been "mandate[d]" in Singer, the decision is not controlling here.[FN2]

The dissent also mistakenly disregards this Court's decision in Matter of Maiorino (301 AD2d 53 [2002]) because it was a reciprocal discipline proceeding. In Maiorino, the respondent attorney was convicted in Connecticut of fourth-degree sexual assault for the improper touching of a minor, and was sentenced to a one-year suspended term and two years' probation. As a result of the conviction, the New Jersey disciplinary authorities recommended that respondent be publicly reprimanded, noting the substantial mitigation present, including his youth and lack of maturity, his actual remorse, numerous letters attesting to his good character and an absence of any relationship between his misconduct and the practice of law.

While the dissent suggests that we simply adopted the New Jersey sanction in Maiorino without further scrutiny, in fact, we quoted the recommendation of the New Jersey Disciplinary Review Board's discussion of mitigating circumstances at length in our decision, a clear sign that we independently assessed the severity of the sanction and found it appropriate under the circumstances (id. at 55-56). Although, it is true, that this Court in a reciprocal disciplinary proceeding will often defer to the sanction initially imposed by a foreign jurisdiction, our precedents are equally clear that we are not bound by that sanction, and may impose a more severe penalty if the circumstances warrant (Matter of Dranov, 26 AD3d 26, 30-31 [2006] [imposing more severe sanction in reciprocal disciplinary proceeding than that imposed by another state, which was "significantly too lenient"]). Thus, while the sanction in Maiorino was too light (even with the considerable mitigation), the decision nevertheless supports a sanction short of disbarment here.

Upon our review of these precedents, and our consideration of the nature and severity of respondent's offense, the aggravating and mitigating circumstances, and the impact of such offense on the bar and public, we conclude that the Hearing Panel's recommendation of a suspension of three years, or until the conclusion of respondent's probationary period, whichever is longer, is appropriate. As noted, misdemeanor convictions involving sexual solicitation of minors that do not involve sexual contact generally result in a suspension, not disbarment (see Engl; Childress). Further, even if we agreed with the dissent that the offense, by itself, would ordinarily require disbarment, the substantial and credible mitigation evidence offered by respondent in this case requires us to consider a lesser sanction. From the beginning, respondent has admitted responsibility for his actions and has taken "uncommon" efforts to rehabilitate himself. After his arrest, he voluntarily entered sex offender treatment and all evidence in the record supports the therapist's opinions that such therapy appears to be working and that the likelihood of respondent repeating the misconduct was "low." Further, respondent cooperated with the criminal investigation and with Committee staff in their investigations, and he has no prior disciplinary record.

Finally, while respondent's grave misconduct unquestionably impugns the integrity of attorneys in general, and in this state in particular, our review of the record indicates that the Hearing Panel carefully considered this impact, and nevertheless concluded that a three-year or longer suspension carrying through the end of respondent's probationary term was adequate to protect the public and deter future misconduct. We do not agree with the dissenter's view that every registered sex offender merits disbarment. Attorney disciplinary proceedings must be determined on the specific facts and circumstances before us, and not on stigmatizing labels or speculative predictions about an attorney's potential for rehabilitation or fitness to practice.

Nevertheless, in light of the inherent difficulty in predicting whether respondent's rehabilitative efforts will ultimately render him fit to resume practicing law at the conclusion of his term of suspension, we take the additional precaution of conditioning any reinstatement of respondent on his submission to an independent psychiatric evaluation by a qualified expert in psychological sexual disorders, at respondent's sole cost and expense (see Rules of App Div, 1st Dept [22 NYCRR] § 603.14 [e] [v]). Prior to filing any motion for reinstatement, respondent may communicate with the Committee regarding the selection of such an expert, but the designation of such qualified expert shall be made by the Court, in accordance with this Court's analogous procedure for determining whether an attorney may be reinstated upon the termination of a disability (see Rules of App Div, 1st Dept [22 NYCRR] § 603.16 [e] [1] [court may take necessary action to determine whether attorney's disability has been removed, "including a direction of an examination of the attorney by such qualified experts as this court shall designate"]).

Accordingly, the Committee's motion to confirm the Hearing Panel's findings of fact and conclusions of law, and the recommended sanction, should be granted, and respondent suspended, effective immediately, for a period of three years, or until the expiration of his criminal term of probation, whichever is longer, with reinstatement being conditioned on an independent psychiatric evaluation by a qualified expert.

Catterson, J. (dissenting). Because I believe that a convicted and registered sex offender has forfeited the privilege of admission to the bar and the elevated status of an officer of the court, I must respectfully take the unusual step in a disciplinary proceeding and dissent.[FN1]

It is uncontested that in July 2004, while using his law office computer, respondent, then 30-years old and a patent lawyer, logged onto an Internet instant-messaging service and entered a chat room specifically targeting "older men and younger women." He commenced an online conversation with a female who claimed she was 13 and who purportedly lived with her mother on Long Island but who was, in fact, a police officer. The chat room was "sexually oriented" and there was "significant sexual content" in the six separate conversations that followed over a period of three months. On October 16, 2004, after three months of these sexually explicit conversations, respondent, in further online conversations, arranged to meet the girl the next day at the Ronkonkoma train station in Suffolk County. They exchanged photos over the Internet to ensure that they could identify each other so as to consummate their prearranged sexual liaison.

On October 17, 2004, respondent traveled on the Long Island Railroad from Manhattan to Ronkonkoma, admittedly "to engage in an oral sexual act" with a female whom he believed to be a 13-year-old girl. Upon his arrival he was arrested. At that point, he learned for the first time that the 13-year-old girl with whom he had anticipated having sex was actually a Suffolk County police detective. Respondent was charged with six counts of disseminating indecent material to minors in the first degree (Penal Law § 235.22), a felony, and one count of attempted criminal sexual act in the third degree (Penal Law §§ 110.00, 130.40 [2]), a misdemeanor.

On September 27 2005, respondent pleaded guilty in Supreme Court, Suffolk County to attempted criminal sexual act in the third degree, a class A misdemeanor (Penal Law §§ 110.00, 130.40 [2]). On November 22, 2005, he was sentenced to a period of probation of six years and was certified as a level one sex offender. He was ordered to participate in and successfully complete a sex offender treatment program, and ordered to pay a $1,000 fee and a mandatory surcharge of $260.

As respondent admitted to the conduct, he testified on his own behalf in mitigation. He took responsibility for his criminal conduct, admitting that he knew at the time that attempting to engage in sex with someone less than 17 years of age was a crime. Astoundingly, he testified that it was "probably inappropriate" for him to have engaged in such conversations with someone he believed was 13 years old. Respondent stated that the incident in question was the only instance where he attempted to meet with an underage person online for the purpose of having sex. He admitted that he had previously met women online for the purpose of having sex but they allegedly were of legal age.

The Referee found that respondent appeared "truly remorseful and shamed by his conduct," and that he had cooperated with the Committee and had no disciplinary record. Respondent seemingly accepted full responsibility for his actions and testified that he had suffered personally in that he now had a criminal record and was a registered sex offender, and that he had suffered financially (loss of high paying job, costs of ongoing therapy), and suffered humiliation among his family and colleagues. He explained that at the time of the incident he was under great stress from work, and social and family relationships (80-hour work weeks, recent breakup with girlfriend of one year, father diagnosed with cancer, and grandfather's suicide the previous year). Regarding treatment, respondent began counseling before he was ordered to do so (albeit only after he was arrested) and has continued with both individual and group therapy ever since. The mandated sexual offender treatment program had no date certain for completion of the program and respondent testified that he was in compliance with the terms of his probation.

Respondent's psychologist testified that he began individual therapy sessions with respondent in December 2005 and believed respondent would not engage in the type of conduct again because he did not need to, and because respondent was terrified of what the consequences would be if he repeated the behavior. Notably, respondent seems to have been far more concerned with being caught a second time rather than remorseful over the possible effect of his acts upon any juvenile victim. The psychologist also stated that the recidivism rate of sex offenders was "sky high" but that he did not diagnose respondent as a sex offender. Notably, the Referee rejected his overall testimony, finding it inconsistent and often at odds with itself.

The Referee, however, did credit the testimony of a psychotherapist and clinical social worker who specialized in treating sex offenders and who had worked as a probation officer supervising individuals who committed sex crimes or domestic crimes. Respondent enrolled in the therapist's treatment program about six weeks after his arrest, in December 2004, and thereafter has regularly attended the program. The therapist testified that based on the assessment given under the Sex Offender Registration Act, there is a minimal chance that respondent would repeat his actions. In addition, because respondent did something that was "uncommon" in that, even prior to his conviction he voluntarily entered the group therapy treatment program, took responsibility for his actions, and showed shame, guilt and remorse, the likelihood respondent would reoffend was low. Using the Diagnostic and Statistical Manual of Mental Disorders (4th ed 1994) (DSM 4), the therapist diagnosed respondent with "sexual disorder not otherwise specified," explaining that the DSM 4 still hadn't come up with a specificity for people who commit sex crimes through the Internet.

The Referee recommended a six-month suspension on the grounds that, inter alia, this was a case where a police detective posed as the 13-year-old girl and thus there was "no actual contact with a minor." The Hearing Panel recommended a three-year suspension with one dissenter arguing for a one-year suspension.

For the reasons that follow, I believe that any penalty short of disbarment would not comport with the standards to which a member of the bar should adhere. I do not believe that we can reconcile the status of registered sex offender with that of a member of the bar in good standing.

At the outset, I note that there is no New York decisional authority directly on point. However, there are some cases that are germane to the analysis. Matter of Harlow (280 AD2d 870 [3d Dept 2001]) presented a strikingly similar set of facts. In that case, the respondent attorney also corresponded with a 13-year-old girl over the Internet and arranged to meet with her to have sex. Unfortunately for both the respondent and the victim of his predations, the victim was not an adult police detective posing as an underage girl in a sting operation. As respondent actually had sexual contact with the victim, he was convicted in Connecticut and given a suspended sentence of 10 years. Ultimately, Connecticut chose to suspend respondent for 10 years as well. The Third Department declined to follow Connecticut's sanguine view of the matter and, instead, disbarred him. The only substantive difference between Harlow and the instant case is that here, respondent was caught in a police sting. But for that fortuitous intervention, it is beyond cavil that respondent fully intended to have sex with a 13-year-old girl in Suffolk County. Indeed, respondent admitted that this was his intention.

The subsequent case of Matter of Maiorino (301 AD2d 53 [1st Dept 2002]) involved a New Jersey attorney convicted in Connecticut of the improper touching of a minor. He received a one-year suspended sentence in Connecticut and a reprimand in New Jersey based on that Connecticut conviction. This Court's censure of respondent was premised on nothing more than the doctrine of reciprocal discipline under 22 NYCRR 603.3. Leaving aside the wisdom of relying on reciprocal discipline in a sex-based conviction of a member of the bar, the case has no further applicability to the instant proceeding, where the respondent New York attorney was convicted in New York for a crime committed in New York.

Similarly, Matter of Wong (275 AD2d 1 [1st Dept 2000]) involved reciprocal discipline of another New Jersey attorney. Respondent was disciplined in New York based on respondent's sexual contact with a 10-year-old girl at a gymnastics event two years prior to his admission to the New Jersey bar. The sole question presented by Wong was whether preadmission conduct unrelated to the admission process could constitute misconduct under 22 NYCRR 603.3 (c) (3). The Court held that such preadmission conduct could be considered as part of its responsibility to protect "the public and to maintain the integrity of the courts." (275 AD2d at 6.) Again, Wong was a reciprocal discipline case with a limited holding; there is no discussion of the propriety of the penalty imposed in New Jersey.

This Court's decision in Matter of Singer (290 AD2d 197 [1st Dept 2002]), like the Third Department's holding in Harlow (supra), also mandates disbarment in the instant case. In Singer, the respondent was convicted in Virginia of aggravated sexual battery; a felony in that jurisdiction, but a class A misdemeanor in New York. The Hearing Panel recommended a five-year suspension with certain conditions including "[a] long-term regimen of treatment by a recognized specialist." (290 AD2d at 199.) This Court disagreed and disbarred the petitioner. We held that, "the purpose of a disciplinary proceeding is not to punish the respondent but rather, to determine the fitness of an officer of the court and to protect the courts and the public from attorneys unfit to practice." (290 AD2d at 199-200, citing Matter of Wong, 275 AD2d at 6.) This Court also cited Matter of Harlow (supra) with approval as one of the factors in its decision to disbar rather than suspend respondent.

Finally, in Matter of Cunningham (46 AD3d 43 [1st Dept 2007]), we accepted the resignation of the respondent who had pleaded guilty (again in New Jersey) to attempted endangering the welfare of a child in the third degree. The respondent had engaged in three conversations with a minor which included "inappropriate sexual content." (46 AD3d at 44.)[FN2]

In this case, respondent's counsel asserts that "this court will now have the opportunity to address the disturbing social problem of adults who prey on minors via the internet in the context of attorney discipline" (emphasis supplied). The majority apparently agrees with this assessment and that a suspension is the appropriate remedy. In my opinion, this view misses the mark on many levels.

Respondent's conduct in a three-month campaign of seducing a girl that he believed to be 13 years old is more than just a "disturbing social problem" as the Departmental Disciplinary Committee's counsel describes it. Any such characterization that minimizes the acute danger of sexual predators should be summarily rejected. I recognize that New York attorneys convicted of various crimes are routinely suspended and ultimately return to practice law after a suitable period of time. Of course, there is a very broad spectrum of crime from the venal to the mortal and the discipline imposed upon attorneys must necessarily reflect that diversity.

However, consistent with the twin mandates of Wong and Singer, we are charged with the duty of protecting both the courts and the public from unfit attorneys, and even attorney discipline must have some absolutes; some event horizon that dictates disbarment. Generally, conversion of client funds has epitomized that litmus test. I believe that a convicted and registered sex offender merits disbarment, even when the crime, as in the instant case, is inchoate.

Gonzalez, Nardelli and McGuire, JJ., concur; Saxe, J.P., and Catterson, J., dissent in an opinion by Catterson, J.

Respondent suspended from the practice of law in the State of New York, effective the date hereof, for the longer period of three years or until conclusion of his term of criminal probation, and until the further order of this Court, as indicated.



Footnotes

Footnote 1: After his arrest in 2004, respondent's employment was terminated by his law firm. He remained unemployed until January 2006, when he began temporary employment on a contract basis doing document review, corporate law firm litigation support and other projects.

Footnote 2: Nor do we find dispositive recent cases from other jurisdictions which have imposed disbarment for sexual crimes involving minors. In each of these cases, the conduct involved was distinctly more egregious, or involved multiple crimes or victims (see e.g. In re Disciplinary Proceeding Against Day, 162 Wash 2d 527, 173 P3d 915 [2007] [attorney convicted of first-degree child molestation of 11 year old and sentenced to 60 months to life in prison disbarred]; In re Domm, 965 So 2d 380 [La 2007] [attorney with extensive disciplinary history who failed to answer charges disbarred for molestation of nine-year-old girl, despite nonprosecution of offense]; Iowa Sup. Ct. Attorney Disciplinary Bd. v Blazek, 739 NW2d 67 [Iowa 2007] [disbarment ordered based on convictions for multiple sex crimes, plus prior sex crime conviction]; In re Aguillard, 958 So 2d 671 [La 2007] [disbarment ordered where attorney convicted of two felony sex crimes involving minors, including one involving sexual contact]; but see In re Wright, 949 A2d 583 [DC 2008] [disbarment where attorney sent sexually graphic pictures to person believed to be 15 years old, but no apparent sexual contact]).

Footnote 1: The great common-law scholar Karl Llewellyn posited that judges "seeking right and justice both perceive the facts and turn for standards to the body of met and organized experience with which they are equipped. These 'experience-spectacles' must of necessity yield differing results both of intake and applicable standard, must yield results which differ increasingly as our modern variegated world dilutes community of experience among the individual members of the bench and multiplies and differentiates the situations out of which conflicts emerge to be adjudicated."(Karl N. Llewellyn, Common Law Tradition: Deciding Appeals, at 463 [William S. Hein & Co. 1996].) This dissent is born of a recognition that my distinguished colleagues' "experience-spectacle[ ]" is necessarily different from mine with regard to issues presented here.

Footnote 2: It is important to note that had respondent been convicted of felony charges relating to sex abuse, disbarment would necessarily follow. (See Matter of Ashdjian, 287 AD2d 217 [1st Dept 2001]; Matter of Abrams, 214 AD2d 293 [1st Dept 1995].) Misdemeanor convictions have yielded a myriad of disciplinary results. (See Matter of St. Clair, 32 AD3d 170 [4th Dept 2006] [three-year suspension for attempting to possess sexual performance by a child]; Matter of Boxley, 8 AD3d 949 [3d Dept 2004] [legislative aide given one-year suspension for sexual misconduct]; Matter of Weitz, 308 AD2d 634 [3d Dept 2003] [three-year suspension for second degree sexual abuse and unlawful imprisonment in the second degree]; Matter of Vickers, 227 AD2d 76 [2d Dept 1996] [two-year suspension for third degree sexual abuse].) This seemingly random assignment of sanction recalls Justice Scalia's dissent in Dickerson v United States (530 US 428, 455 [2000]):

"The issue, however, is not whether court rules are 'mutable'; they assuredly are. It is not whether, in the light of 'various circumstances,' they can be 'modifi[ed]'; they assuredly can. The issue is whether, as mutated and modified, they must make sense. The requirement that they do so is the only thing that prevents this Court from being some sort of nine-headed Caesar, giving thumbs-up or thumbs-down to whatever outcome, case by case, suits or offends its collective fancy."

The instant case demonstrates the danger of this Court becoming, to paraphrase Justice Scalia, a five-headed Caesar.

Duboff Edwards Haight & Schachter Law Corporation (f/k/a Duboff, Edwards, Haight & Schachter)



Citation: Selta International Trade Inc. v. Duboff, Edwards, Haight & Schachter, 2005 MBCA 137

Date: 20051124
Docket: AI04-30-05919


IN THE COURT OF APPEAL OF MANITOBA

Coram:

Chief Justice Richard J. Scott
Madam Justice Freda M. Steel
Mr. Justice Martin H. Freedman


BETWEEN:

SELTA INTERNATIONAL TRADE INC.

(Plaintiff) Appellant

- and -

DUBOFF, EDWARDS, HAIGHT & SCHACHTER

(Defendant) Respondent

- and -

PATRICK MURPHY

(Third Party)


T. H. Fultz
for the Appellant


R. W. Schwartz and J. D. Kendall
for the Respondent


Appeal heard:
November 10, 2005



Judgment delivered:
November 24, 2005



FREEDMAN J.A.

1 The plaintiff was a client of the defendant law firm. It sued the defendant, seeking damages of over $300,000 (US) and $30,000 (CAN), as well as interest and general and special damages in relation to expenses, lost opportunity and loss of business standing and reputation.

2 The major part of the claim was based on an allegation that the defendant had disbursed the plaintiff’s funds of $300,000 (US) without the knowledge or authorization of the plaintiff, and contrary to its fiduciary obligation to the plaintiff as its solicitor. The other part of the plaintiff’s claim involved an investment of $30,000 in shares of a company (Mr. Tube Steak) which had been arranged by one of the defendant’s partners, Neil Duboff. The investment proved to be worthless and the plaintiff asserted that Mr. Duboff had acted contrary to his fiduciary obligations to the plaintiff.

3 The defendant in turn alleged that the third party, Patrick Murphy, had held himself out to the legal firm as the plaintiff’s agent, and argued that when it acted upon instructions from Mr. Murphy regarding the disbursement of funds, it was entitled to treat Mr. Murphy as the agent of the plaintiff.

4 The plaintiff’s main claim in relation to the $300,000 (US) was dismissed after a long trial, but its claim for the investment of $30,000 was allowed. The third party claim was dismissed. The plaintiff appealed and the defendant cross-appealed.

5 The plaintiff’s appeal is based almost entirely on challenging the trial judge’s findings of fact and, to a lesser extent, the inferences which the judge drew based on those findings.

6 The judge presided over an extraordinarily long trial. For many days he had the opportunity to hear and observe the witnesses and to form opinions about their evidence. He made explicit findings on credibility, and made findings on, and drew inferences related to, the many facts before him. On each significant issue he explained, in very thorough reasons, why he reached his conclusions. There was ample evidence to warrant his findings of fact and the inferences he drew based on those findings. In these circumstances, there is no basis upon which the court could, or should, reverse his decision. I see no error in his conclusions, let alone the required palpable or overriding error.

7 On the plaintiff’s appeal, the evidence warrants the judge’s conclusion that the plaintiff, by its conduct in the 15 months after the release of funds, ratified the release by the defendant of the funds which it had deposited with the defendant. The standard of professional practice employed by the defendant in this case was less than exemplary. Nevertheless, the evidence of post-release conduct by the plaintiff was sufficient to entitle the judge to reach his conclusion (with which I agree) that those actions constituted a ratification by the plaintiff of the release of funds.

8 The judge found that there was insufficient evidence to warrant a conclusion that there was any representation or conduct by the plaintiff which would have allowed the defendant reasonably to conclude that the third party had been authorized by the plaintiff to instruct the defendant to release funds. I see evidence that could well have warranted a different conclusion; evidence, as argued by the defendant, that the plaintiff clothed Mr. Murphy with the necessary authority to instruct Mr. Duboff as and when he did. There was evidence that could have warranted the conclusion that Mr. Murphy’s dealings with the defendant, including in respect of the release of funds, had the plaintiff’s imprimatur. But, in the circumstances of the trial judge’s justified finding of ratification, I need go no further.

9 The plaintiff’s appeal is dismissed.

10 As to the cross-appeal relating to the plaintiff’s $30,000 investment in Mr. Tube Steak, the judge’s findings were very carefully expressed. He found that the defendant was counsel to one or more of the Mr. Tube Steak companies. On this point, Mr. Duboff’s evidence warrants such a finding. The assertion by the defendant in its factum that it was only counsel “to a related corporation” is neither supported by the evidence nor, if it was supported by the evidence, a satisfactory explanation. Exactly which company or companies the defendant acted for was never fully and clearly explained by the defendant. This ambiguity in the evidence entitled the judge to find, as he did, that the defendant acted for the company in which the plaintiff (and Mr. Duboff and one of his law partners) was investing money.

11 The judge recognized the burden on a solicitor in a situation like this. The combination of circumstances justified the judge’s two-part conclusion that, first, the defendant had a lawyer-client relationship with the entity in which the plaintiff’s money was to be invested and that, second, this, together with the fact that Mr. Duboff and one of his partners planned also to invest money in that company, created a situation which obliged Mr. Duboff to recommend to the plaintiff that it obtain independent legal advice. He did not do this.

12 The defendant argued that the evidence shows that the plaintiff would not have sought such advice, had it been suggested. I disagree. The judge wrote that the evidence was not conclusive that the plaintiff would not have obtained independent legal advice. In my view, at the least, the evidence on that matter was ambiguous. I would, therefore, not interfere with the judge’s finding of a breach of duty, nor his award of restitutionary damages and interest.

13 The appeal and cross-appeal are therefore both dismissed. I do not find it necessary to deal with the appeal by the defendant of the dismissal of the third party claim.

14 Costs in the lower court are as ordered by the trial judge. Costs in this court are to the defendant in respect of the plaintiff’s appeal and to the plaintiff in respect of the defendant’s cross-appeal. I think the best way to sort out the costs in this court would be to adopt the same mechanism which the trial judge used and, therefore, the ultimate award of costs in this court is to the defendant, but limited to 75 per cent, for the same reasons as given by the trial judge.




_________________________J.A.



I agree: _________________C.J.M.



I agree: ___________________J.A.

06 July 2009

United States Federal Appeals Court Judge Alex Kozinski


Judge Alex Kozinski rebuked for explicit postings

by Bob Egelko

As originally published: San Francisco Chronicle
July 3, 2009


The chief judge of the federal appeals court in San Francisco was rebuked but not formally disciplined by a judicial panel Thursday for posting sexually explicit material on his private Web site and failing to remove it when he learned it was publicly accessible.

Alex Kozinski was careless and showed "poor judgment" in possessing offensive material and failing to keep it private, said the 11-judge panel of the U.S. Court of Appeals in Philadelphia.

In a decision that it labeled an admonishment, the panel told Kozinski that his conduct "created a public controversy that can reasonably be seen as having resulted in embarrassment to the institution of the federal judiciary."

But the panel said it saw no need to punish Kozinski because he has now removed the postings from his Web site and promised to install safeguards. The panel also noted that Kozinski requested the investigation himself, cooperated fully and apologized profusely.

"My unfortunate carelessness ... has embarrassed the federal courts. And for this, I am deeply sorry," Kozinski said in testimony to the panel.

Had it found misconduct, the panel could have censured Kozinski, temporarily halted his case assignments, or taken the first steps leading to possible congressional impeachment and removal from office. But the panel made no such findings, said Arthur Hellman, a University of Pittsburgh law professor and authority on judicial ethics.

Attorney Cyrus Sanai, who found the computer images in 2007 and accused Kozinski of unethical conduct, called the decision a "complete whitewash."

Kozinski could not be reached for comment.

Kozinski, 58, was appointed to the Ninth U.S. Circuit Court of Appeals by President Ronald Reagan in 1985 and began a seven-year term as chief judge in December 2007 by virtue of seniority. The court is the nation's largest appellate circuit and hears appeals from federal courts in California and eight other Western states.

The Los Angeles Times disclosed some of the contents of his now-disabled Web site in June 2008. They included images of masturbation, a slide-show striptease and two naked women on all fours painted as cows.

Kozinski immediately removed himself from an obscenity trial in Los Angeles over which he was then presiding. He told The Chronicle at the time that the site was used by family members to store various photos and documents. He said he wasn't sure whether he had intentionally stored any sexually explicit images and hadn't known that anyone else had access.

But the court panel said Kozinski learned in fall 2007 that Internet users could find the site in a Web search. He moved three sexually explicit files to a secure folder but took no further steps to review and remove problematic files until the Times article appeared, the panel said.

The Associated Press contributed to this report. E-mail Bob Egelko at begelko@sfchronicle.com.

Manitoba Lawyer Neil Duboff and "an Unscrupulous Client or Those who Are Associated with That Client"



Date: 20040507
Docket: CI 98-01-06977
Indexed as: Selta International Trade Inc. v. Duboff, Edwards, Haight & Schachter
Cited as: 2004 MBQB 116 (Winnipeg Centre)

COURT OF QUEEN’S BENCH OF MANITOBA

B E T W E E N:

SELTA INTERNATIONAL TRADE INC.,

plaintiff,

- and -

DUBOFF, EDWARDS, HAIGHT & SCHACHTER,

defendant,

- and -

PATRICK MURPHY

third party.


Renald Guay and
Remi Smith

for the plaintiff

Richard Schwartz,
Marlaine Lindsay
and Cynthia Lau

for the defendant

Patrick Murphy
in person


JUDGMENT DELIVERED:
MAY 7, 2004

MONNIN, C.J.

I. INTRODUCTION

[1] The plaintiff, Selta International Trade Inc. (Selta), claims against its solicitors, the defendant Duboff, Edwards, Haight & Schachter (the firm), for damages it alleges arose from the unauthorized disbursement of funds it had deposited with the firm. It also claims for damages resulting from the purchase by Selta’s principal, Mr. Alexander Lysenko (Lysenko), of shares in a company which Mr. Neil Duboff (Duboff), a partner with the firm, had arranged. The defendant firm denies that the payment of any funds from its trust account were unauthorized. In the alternative, it third parties Mr. Patrick Murphy (Murphy) claiming that Murphy represented himself as the plaintiff’s agent and that it acted upon instructions from him. Murphy denies that he held himself out as the plaintiff’s agent and says that at all times the firm was aware that he did not have the authority, either express or implied, from Selta to authorize the payment of the funds.

[2] As to the purchase of the shares, the firm says that any investments made by Lysenko were not as a result of any improper conduct on the part of Duboff.

[3] This trial was unusually lengthy, arising from the fact that insufficient time was allocated for the hearing of the evidence. I do not say this as a criticism of counsel, only that the evidence of Lysenko was so lengthy that estimates of time agreed to between counsel were completely inaccurate. After the completion of the first three weeks of trial and Lysenko’s evidence, then counsel for Lysenko moved to withdraw as solicitors of record.

[4] I heard that motion and allowed them to do so (see Selta International Trade Inc. v. Duboff, Edwards, Haight & Schachter, 2001 MBQB 287 (CanLII), [2001] MBQB 287). There was then some delay required for the plaintiff to obtain alternate counsel. Again, when the matter resumed we were unable to complete all of the evidence within the time allowed, for a number of reasons unrelated to the parties themselves. The evidence was then completed on the third resumption of the trial.

II. THE PARTIES

(i) SELTA, CRISDAR AND LYSENKO

[5] Selta is a Manitoba corporation. Lysenko is the president and his wife is the sole shareholder. There are no other directors or officers other than Lysenko and the evidence satisfies me that he is and always was the directing mind of the corporation.

[6] Lysenko was born in Russia, lived most of his life there and in the Ukraine until 1977, when he emigrated to Europe. After a few years in Europe he left for Winnipeg in March 1979. After a short period of time working in a number of odd jobs, he built his own house and found that he could resell it at a profit. He launched himself into the construction of houses for resale, building and reselling approximately eight to nine houses over the next few years.

[7] In 1989, after a trip to Russia, he decided to become involved in the buying and selling of goods to and from countries in the former Soviet Bloc. During the course of those transactions, he learned the use of letters of credit and was introduced to Murphy, with whom he developed a friendship. In one transaction involving the sale of Chinese telephones to Russia, Murphy was the one who located the telephones to be sold and was offered a small percentage of the profit.

[8] In 1993, in the course of his international transactions, Lysenko’s bank account received substantial funds from diverse foreign locations. Those large sums were often quickly transferred out to pay for the transactions in which Lysenko was involved. Selta’s bank at the time, the Toronto Dominion Bank, was raising questions as to the source and purpose of these large amounts and indicating to Lysenko that they may prefer not to have him conduct his business through their institution. Duboff attempted to calm the bank’s fears as to the genuineness of the transactions in which Lysenko through his corporation Selta was involved, but was unable to do so. As a result he arranged with the Royal Bank to make its services available for Selta.

[9] In that time frame, Duboff arranged for the creation of Miralex Barbados Trade Corporation (“Miralex”). The corporation was incorporated in Barbados as an offshore trade corporation in order to obtain tax advantages. As Selta’s business was not connected to Canada but involved the trading of commodities from one foreign location to another, it wished to avoid having to have the profits from the transactions taxed in Canada. On Duboff’s advice, a Barbados trade corporation was created. Lysenko’s understanding was that it was important that Selta, as sole shareholder of Miralex, not be connected to the transaction for fear that the Canadian government would view it as carrying on business in Canada and subject Selta to Canadian taxation. The name of the company was subsequently changed to Crisdar Barbados Corporation (Crisdar). It is also beyond dispute that Lysenko was the directing mind of Crisdar.

(ii) DUBOFF

[10] Duboff, whose practice was in corporate and commercial law, first became Lysenko’s solicitor when he was asked to help in transferring Lysenko’s business from one bank to another.

[11] From 1993 onward, Duboff acted for Lysenko on a number of transactions. The nature of his retainer varied, but in general terms his services were drafting, reviewing and advising on documentation, arranging for letters of credit and, in some instances, receiving the funds in his trust account for payment out to Selta. Duboff claimed that he was not involved in any of the business decisions, nor did he review the transactions as to their business efficacy.

[12] Duboff advised Lysenko to utilize the firm’s trust account for purposes of payments to and from points overseas if it would facilitate the transactions, ensuring Lysenko that the trust account was safe from overview by tax authorities.

[13] From 1993 Duboff allowed Lysenko to use the firm’s trust account to process funds for his international transactions. According to Lysenko, which was not disputed by Duboff, the funds were forwarded to the firm’s trust account and Lysenko would provide instructions to Duboff as to where the funds were to go. In that fashion, according to Lysenko, there would be no questions raised by banks involved as to the source of the funds.

[14] That is not to say that all of the transactions with which Lysenko was involved were funneled through the firm’s trust account. After speaking to his bank manager in 1994, he realized that he was paying the law firm for the costs of directing the funds when it could be done by his bank at a lesser charge. From that point on, Lysenko would sometimes provide instructions to his bank manager, Ms Rubigny, and confirm them in writing.

[15] The use of the firm’s trust account was not limited to situations where Duboff was being consulted or was involved in the transaction. In some cases it was done as a convenience for Selta in order to avoid any potential scrutiny by the banks with respect to the funds being channeled.

[16] Whether this is an appropriate use of a trust account is not an issue before me, although it does indicate the extent to which Duboff went to accommodate the client.

(iii) MURPHY

[17] Murphy was a local businessman. Through his corporation, Caribou Ventures Limited, he was involved in a number of ventures, some of them in which he attempted to interest Lysenko.

III. REVIEW OF EVIDENCE

(A) PRIOR DEALINGS

(i) MR. TUBE STEAK


[18] In early April 1994, Lysenko and Duboff had a discussion with respect to a company known as Mr. Tube Steak. At the time Duboff was corporate counsel for a group of companies using the name Mr. Tube Steak. The companies were involved in the retail sale of hot dogs from vendors on the street. They were also involved in the manufacture of the carts from which the hot dogs were sold and franchising the business. Duboff did not recall precisely which companies in the group he acted for, but did act for one or more of them.

[19] All of the companies were privately held, but one of them, Mr. Tube Steak Canada Inc., was in the process of issuing shares and was contemplating being listed on a stock exchange. Duboff did not act for that corporation, but he and Mr. Schachter (Schachter), a partner in his firm, were planning to invest in the company. The expectation of Duboff, as represented to Lysenko, was that the company would be listed on a public stock exchange shortly and the value of the shares would increase at the time of the public offering.

[20] The circumstances surrounding Lysenko’s involvement are somewhat contradictory. Duboff either invited Lysenko to invest in the company or as a result of mentioning his potential investment was asked by Lysenko if he could invest as well.

[21] On April 4, 1994, Lysenko provided Duboff with a personal cheque in the amount of $30,000.00 to purchase shares in Mr. Tube Steak. The cheque was made out in blank as to the payee, but it was filled out by Duboff in his name a few days later when he deposited it into his personal bank account. He then wrote his own cheque for $30,000 and provided it to the company to subscribe for shares in Mr. Tube Steak Canada Inc., in addition to the $30,000 invested jointly between himself and Schachter.

[22] Duboff later became a director of Mr. Tube Steak Canada Inc. While a related company went public in 1996, Mr. Tube Steak Canada Inc. never did. In July 1997, as a result of receiving a letter from Lysenko complaining that he had received no accounting for the $30,000 cheque, Duboff forwarded to him a declaration of trust indicating that he held shares in Mr. Tube Steak Canada Inc. in trust for Lysenko. Lysenko’s evidence was that there was no distinction drawn between the various companies when he was asked to invest and he was of the impression that he was investing in a venture by the name of Mr. Tube Steak. It was only at a later time in 1996 that he became aware from comments made by Duboff that different companies were involved using the name Mr. Tube Steak, and that the company that had gone public was not the one in which the shares had been purchased.

[23] At the end of the day, the company in which Lysenko held shares has never gone public.

(ii) THE NIGERIAN CENTRAL BANK

[24] Some time in 1994 Murphy was approached by a local acquaintance, Barry Phillips (Phillips), who was aware of an Alberta corporation, McSorley Holdings Ltd., that had entered into a contract in Nigeria to supply a prototype concrete block machine. The principal of the company was one McSorley (McSorley).

[25] When the corporation agreed to the contract, it was asked to send a representative to Nigeria to conclude it. McSorley went. Upon arrival, he was presented with a contract which was substantially larger in dollar terms. He concluded that the Nigerian group wished to piggyback their commercial contract upon his, with the payments to be made out of the country. He agreed to the arrangement on the understanding that he would receive extra remuneration. Upon his return to Canada, he was sent documentation whereby he became aware that there was a request for a value added tax payable up front. The original amount for the value added tax was $1 million USD, which was reduced to approximately $408,000 USD.

[26] Attempts to have the value added tax deducted from the payments to be made by the Nigerian Central Bank were not successful, at which time McSorley concluded that what was truly being asked was for his company to pay to arrange for the payment out of the country. McSorley then proceeded to locate sources of funds to pay the proposed value added tax by letter of credit. Through Phillips he obtained the assistance of Murphy and, eventually, Lysenko.

[27] Duboff became involved in the latter part of 1994. He prepared documentation to act as an escrow agent and attempted through correspondence with the Nigerian representative to arrange for the payment of the contract price, namely $50 million USD, to his firm in escrow for disbursement to Mr. McSorley. Duboff was unclear as to how the transaction was structured. Documentation on his file shows a direction providing for payment to various individuals from the funds that the firm would eventually receive in escrow from the Nigerian Central Bank. From these funds, McSorley would receive the bulk with the rest distributed to various payees, including $2.2 million USD to Lysenko’s then Barbados based company.

[28] The transaction was never completed, primarily because the Nigerian individuals were always requesting funds be paid in cash or by way of transfer in advance of any monies being transferred to Duboff in escrow. At one point an individual claiming to be an officer of a London bank with Nigerian connections offered to assist in the transaction for the payment of $1 million USD to himself, in other words a bribe.

[29] It is clear from reading the documentation that the entire scheme was a sham, with a view of arranging for payment of funds in advance for a non-existent government contract. Duboff had some investigations done by members of his firm in the early part of 1995 after receiving some indication from another local lawyer that these transactions were of dubious origin. It should have been clear to anyone involved that the transaction was not a legitimate one. However, the possibility of substantial monies being paid for no apparent reason appeared to be too enticing for Murphy and Lysenko to give up.

[30] Lysenko’s evidence that he was not involved in these transactions is inconsistent with the documentation confirming that the original contact was with Murphy who would have gotten Lysenko involved, and with the authorization in Duboff’s file suggesting a payment to Lysenko’s Barbados corporation, which could only have been prepared in consultation with him.

(iii) THE SCRAP METAL DEAL

[31] In November 1995, Murphy had discussions with an acquaintance of his in Nairobi with respect to the potential sale of scrap metal from Kenya. Originally 250,000 metric tonnes of scrap metal was to be purchased. While Lysenko did not have experience in dealing with the sale of scrap metal, one of his business contacts, Daniel Schmid of Phonetex in Switzerland, did have the necessary contacts. Lysenko arranged for Murphy and Schmid to communicate and discussions were pursued. Murphy was to use his contacts in Nairobi to pursue discussions with the owner of the scrap metal.

[32] As a result of investigations conducted by inspectors on the part of Phonetex and Crisdar, it became apparent that the amounts of scrap metal promised were not located on the vendor’s premises or were not suitable for what was intended. Eventually, an amount much smaller than originally contemplated, some 12,000 metric tonnes, was considered to be suitable from the vendor’s premises. Phonetex used its contacts in Thailand to arrange for the potential sale to a large manufacturing concern in that country.

[33] Murphy, with Lysenko’s approval, drafted documents for the sale and asked Duboff to review the proposed contract between Phonetex and Crisdar Barbados, which contracts had Crisdar purchasing the scrap and reselling to Phonetex.

[34] The transaction required that the scrap metal be cut into specific sizes. On February 15, 1996, Murphy faxed to Duboff a request that he prepare a letter of credit, the proceeds of which were to be used for the cutting for a certain portion of the scrap. Duboff arranged for the letter of credit through the Toronto Dominion Bank for the sum of $30,000, which letter of credit was set to expire on March 15, 1996. Duboff used funds which were deposited into his trust account by Lysenko in January 1996.

[35] The transaction did not proceed smoothly. On March 14th the letter of credit was extended to March 31st, as the scrap had not yet been cut or prepared for inspection.

[36] By that time, Murphy had arranged for his son Michael to attend in Nairobi to supervise the cutting and also to meet with the ultimate purchaser’s representatives who wanted to view the merchandise.

[37] On March 22nd, Duboff faxed a letter to Lysenko requesting authorization from Crisdar to allow his firm to pay Murphy $2,000. Upon the signing of the authorization by Lysenko, Duboff gave Murphy the amount from trust which was wired to Murphy’s son in Kenya.

[38] Meanwhile, in Nairobi, the property on which the scrap metal was located was sold to a third party, Kiambi Ltd., who purported to have the sole right of sale of the scrap metal. Previous dealings with the Nairobi middleman were for naught and Murphy, acting for Crisdar, had to recommence negotiating with this new party. In the last few days of March, a number of offers were forwarded to this new entity, Kiambi Ltd., with an increasing price for the scrap metal.

[39] On the other side of the transaction, Schmid on behalf of Phonetex and his contacts from Thailand were becoming increasingly agitated by the fact that the transaction did not appear to be proceeding according to plan. No final document had been signed because Murphy had been unable to conclude the transaction with the actual owner of the scrap.

[40] On March 28, 1996 Murphy, under the letterhead of Crisdar Barbados Trade Corporation, sent a final offer to Kiambi Ltd. for the scrap metal with the offer expiring at 5:00 p.m. Nairobi time on Friday, March 29, 1996.

[41] Kiambi never responded to the final offer. Notwithstanding increasing attempts and entreaties from Mr. Schmid and his Thai contact, Murphy was not able to obtain Kiambi’s concurrence to sell for the price he wanted or to find replacement scrap. In any event, it would appear that a deal was not in place by March 29, 1996. This is of significance since Lysenko’s position throughout his evidence was that funds that were placed into the firm’s trust account on March 29, 1996 were placed there in order to pursue the scrap metal contract. The fact that the contract was not in place by that date does not preclude the possibility that the funds were placed there for that purpose, however, it is unlikely that Lysenko would commit such a large sum for an unspecified length of time.

(B) EVENTS RELATING TO MARCH 29TH TRANSFER

(i) GOLD BONDS


[42] Gold backed bonds play an important part in the dispute between the parties. To properly appreciate the evidence provided during the course of these proceedings, it is important to have an understanding of the nature of these bonds.

[43] There are two different types of bonds which are at issue in this case, the first being described as German bonds (German bonds) and the second category being gold backed railway bonds (Railway bonds).

[44] The German bonds were issued by the German government after the First World War or by one of its agencies through American banks, with the guarantee of the United States government, and were repayable in gold coins.

[45] Railway bonds were bonds issued by now defunct railway companies with the annual payments and interest all payable in gold coins. The bonds of two companies were at issue here, namely, the Chicago Saginaw and Canada Railway Company First Mortgage Gold Bond (the Chicago Saginaw bonds), and the Marietta and North Georgia Railway Company 6% First Mortgage Consolidated Gold Coin Bond (Mariettas). As their name implies, these were bonds whose principal and interest were payable in gold coins.

[46] The bonds would have some value as historical documents. However, they were touted by their vendors as having a far greater value based upon their face value and valuations performed by an alleged expert in the area, Mr. Gerald Dobbins of Fidelity Secured Mortgage and Deposit Co. (Dobbins). Dobbins would provide a valuation of the bonds, using the value of the gold due as payment under the bonds. Given today’s price of gold and the accrued interest the amounts were quite staggering, running in the millions of dollars for each bond.

[47] The vendors also tried to persuade potential purchasers to become involved in a “trading program” which involved using the bonds as collateral with an established bank to obtain a line of credit. The proceeds of the line of credit would be used for an aggressive investment program paying substantial amounts of interest.

[48] Suffice it to say that the premise upon which these bonds’ value was determined should have raised suspicions with anyone who had a modicum of understanding of investments and the operation of bonds.

(ii) EVENTS PRIOR TO MARCH 29, 1996

[49] Lysenko had an acquaintance, Eddie Garmel (Garmel), a friend of his from the Ukraine who had emigrated to the United States and lived in Los Angeles.

[50] In January 1996, Garmel called Lysenko to interest him in the purchase of gold bonds. Garmel had become aware of these bonds through his dealings with Mr. Jacob Laksman (Laksman), also of Los Angeles, with whom he was involved in purchasing cars for resale in Ukraine. Garmel explained to Lysenko that the bonds were a good investment and apt to be resold quickly for a profit. Lysenko, having no knowledge of these matters, involved Murphy and described Murphy as his partner to Garmel and Laksman. Lysenko’s evidence was that the initial approach was with respect to German bonds, while Laksman says that from the start the discussions were with respect to Railway bonds, namely, the Chicago Saginaws and the Mariettas which he had in his possession or to which he had access.

[51] The documentation does not support Laksman’s recollection, as the first document with respect to gold bonds is a draft letter dated March 19, 1996 sent by fax from Murphy to Duboff referring to the potential purchase of German bonds. The letter states that Lysenko had authorized payment of $10,000 USD to Laksman as a refundable deposit on the purchase of some 325 German bonds at a purchase price not to exceed $2,000 USD per bond. According to the letter Laksman was to provide information, including a list of bonds and a colour photocopy from each bond series with the coupons attached. Once the list of bonds and the photocopies were sent to Murphy, $10,000 USD was to be wired to a Los Angeles bank for credit to Laksman’s company.

[52] Upon receipt of the list and copies, Murphy was to have the bond numbers checked to verify their authenticity. Upon verification the bonds were to be placed in safekeeping with a U.S. bank. Once the bonds were placed in safekeeping, a letter of credit for the full purchase price less the deposit was to be provided by the purchasers.

[53] A notation on the bottom of the letter asks Duboff to call Murphy. Neither Murphy nor Duboff recall a conversation relating to this document, but the next document dated March 20, 1996 was sent to Laksman asking that if the terms met with his approval he sign the document and return it to Duboff, with the further notation that upon receipt of the signed copy Duboff would wire the $10,000 USD. In Duboff’s file there is a document suggesting that the March 20th document was returned on March 22nd by Laksman, with his signature showing acceptance on his behalf and on behalf of D.F. Hokland for D.D.J. Security Trust and an amendment to the price per bond from $2,000 to $3,000 USD.

[54] On March 25th, Murphy sent Duboff a fax requesting that he wire the $10,000 USD. This would suggest that an agreement was concluded between the parties. This is contrary to Lysenko’s evidence, which was to the effect that upon hearing from Murphy that the price for the German bonds had increased to $3,000, he advised Murphy to throw the document into the wastepaper basket as there would be no deal.

[55] On March 29th, Murphy faxed to Duboff a draft letter dated March 28th addressed to Dobbins, using a Crisdar Barbados Trade Corporation letterhead but signed by Murphy. The letter says it encloses copies of two bonds:

(a) Chicago Saginaw Canadian Railway Company First Mortgage Gold Bond No. 1108;
(b) Marietta and North Georgia Railway Company 6% First Mortgage Consolidated Gold Bond No. 2399.

[56] The letter states that Laksman holds forty other similar Mariettas, each with a gold value in the range of $10,000 to $12,000 USD per bond. Dobbins is asked to authenticate and value both bonds, the originals of which Laksman is to deliver immediately upon his request.

[57] Once authenticated, Laksman is to place the original Mariettas in safekeeping with his firm and a certificate is to issue in the name of Crisdar Barbados Trade Corporation. The bonds could then only be withdrawn on Murphy’s signature.

[58] Later on March 29th a similar draft letter is faxed to Duboff, with the number of bonds having been increased to two Chicago Saginaws and forty Mariettas to be delivered by Laksman to Dobbins on the same date. Once the Chicago Saginaws were authenticated, they were to be kept by Dobbins and a certificate issued in the name of Grange Trust Limited, Laksman and Crisdar. The receipt was to be provided to Laksman. Once Laksman had placed the 40 Mariettas in safekeeping with Dobbins in exchange for a certificate to be issued jointly in the names of Crisdar and Laksman or the latter’s nominee, the bonds were to be withdrawn only with two signatures, namely, those of Murphy and Lysenko together with Laksman or his nominee.

[59] Early in the afternoon of March 29th, Murphy sent to Duboff a copy of written instructions from Selta to the Royal Bank of Canada to transfer $300,000 USD from Selta’s account to the U.S. dollar business trust account of the firm, signed by Lysenko on behalf of Selta under his seal.

[60] During the afternoon of March 29th, further correspondence was sent from Murphy to Duboff suggesting revisions to the terms of the letter being sent to Dobbins.

[61] In addition, Murphy faxed to Duboff a document entitled “Power of Attorney and Authorization” which purports to be an authorization by Crisdar to be signed by Lysenko in favour of Stanley A. Lewy and Company Inc., authorizing that company and/or one James S. Tudhope to make arrangements for the trading programs with respect to 40 Mariettas. Duboff was asked for his approval and to call Murphy on his cell phone.

[62] Shortly thereafter, Duboff received from Murphy details of how to wire funds to Laksman’s corporate bank and to DDJ Security Trust’s bank account. On each of those documents were handwritten notations, one of $100,000 with respect to Laksman and one of $200,000 with respect to DDJ Security.

[63] A further form of letter to be sent to Dobbins was forwarded to Duboff by Murphy later in the afternoon of March 29th. That letter asked Dobbins to receive bonds from Laksman and to place the Chicago Saginaws in safekeeping with a certificate to be provided in the name of Crisdar. Once Dobbins received the sum of $10 million USD the certificate was to be transferred to Grange Trust, and from the $10 million USD the sum of $4.8 million USD was to be paid to Crisdar in Barbados. The balance of $5.2 million USD was to be released to V&A Trading Inc. or its nominee (V&A Trading Inc. being identified at a later time as Laksman’s partner’s corporate vehicle).

[64] Later in the afternoon, Duboff faxed Murphy a copy of his letter to the Toronto Dominion Bank asking that it immediately commence to wire transfers to the banking coordinates provided to Duboff in the earlier fax. Shortly thereafter Murphy faxed Duboff a copy of another letter to Dobbins, this time signed by Murphy on Crisdar letterhead, including revised procedures for the transfer of the funds. The last letter going to Dobbins appears to have been sent at 17:46 and speaks only of keeping the documents in Dobbins’ hands until released by the parties. It would therefore appear that while discussions were being had between the parties with respect to a potential sale of the bonds, final instructions to Dobbins on March 29th were simply with respect to the safekeeping of the bonds.

[65] March 29th was Duboff’s daughter’s birthday and as he had to leave the office to be home in time for the celebration he asked his partner Schachter to remain at the office to receive confirmation from the bank that the transfer had taken place. In the late afternoon, Schachter faxed Murphy a document received from the Toronto Dominion Bank which confirmed that the amounts had been wired.

[66] Duboff has no notation on his file and he does not recall specifically what, if any, discussions he had with either Murphy or Lysenko prior to forwarding those funds. Based upon his recollection of the events at the time, he believes the purpose of the transfer of the funds was to conclude a transaction whereby Crisdar would be obtaining an interest or benefit in the bonds described in the letters of March 28th and 29th to Dobbins. He does not believe he spoke directly to Lysenko on this, but believes that he would have received instructions from Murphy to forward the funds. It was his belief that Murphy was acting in accordance with Lysenko’s instructions at the time. He has no documentation from Lysenko to confirm Murphy’s authority to request the release of the funds or any written instructions from Lysenko authorizing the transfer.

[67] Lysenko, on the other hand, denies categorically that he gave instructions to Duboff or that he instructed Murphy to authorize the transfer of the funds. His evidence, as stated earlier, was that the funds were being transferred to Duboff’s account in anticipation of the scrap metal deal proceeding.

[68] Murphy does not recall the events surrounding March 29th in any detail, although believes that he would have been expecting Duboff to confirm his advice to send the funds with Lysenko directly.

[69] Laksman, contrary to the other witnesses, recalls a conference call with Murphy, Lysenko and Duboff on March 29th. (At that time Lysenko was in the Ukraine attending to his business.) Laksman recalls Lysenko yelling at Duboff and instructing him in no uncertain terms to arrange for the funds to be transferred out on that day, March 29th.

[70] During the course of the trial reference was made often to the faxed notation of times shown at the head of documents, which is normally an indication of when the document was received by the recipient of the fax. Suggestions were made during the course of the evidence that, on Mr. Murphy’s fax, it may have an indication of what time he sent it, but that the fax machine was displaying an incorrect time which was off by one hour. In other words, any notation on the fax coming from Murphy to Duboff showing a time should be brought back an hour. While much court time was spent on the issue, at the end of the day I do not believe much turns on it. I am satisfied that documents were forwarded to Duboff from Murphy throughout the day on March 29th and that the funds were sent out upon instructions from Duboff to the Toronto Dominion Bank by the late afternoon of March 29th.

[71] Where it may become relevant is where Murphy claims that he did not receive any notation that the funds had been sent out until Monday when he returned to his office. He claims that he may have left the office before 6:00 or turned his fax machine over to his computer to receive faxes for the weekend, and would therefore not have been aware that the funds had been transferred out.

[72] Dobbins, through his corporation, Fidelity Secured Mortgage and Deposit, issued a “Certification of Deposit” stating that it had on deposit two Chicago Saginaw Railway bonds 4850 and 4180 on behalf of Laksman, Grange Trust and Crisdar, which document was dated March 29, 1996. The fax notation at the top suggested it was sent to Murphy on April 1, 1996, and then by Murphy to Duboff on April 2nd. Also provided to the court was a document which I was advised was the last page of a document prepared by Dobbins, which was dated April 1, 1996 and states as follows:

Marietta North Georgia Railway Company, Bonds, face value $1,000.00 dollars is backed by gold coin. Date of the bond issue November 1, 1887 at 6% due and payable in 50 years, January A.D. 1937. No interest was ever paid and our figures for the interest due go back to November 1, 1887; and as of April 1, 1996 the total dollar amount due and payable and value of the bond is $12,501,875.00 price of gold for each ounce as of this date was $398.00 and used to determine the above calculation.

This suggests that Dobbins was asked and did, apparently in accordance with the draft correspondence of March 29th, prepare a certificate of deposit with respect to the Chicago Saginaws and a valuation with respect to the Mariettas.

(iii) EVENTS IMMEDIATELY AFTER MARCH 29TH

[73] Lysenko’s evidence was that he did not become aware of the transfer of the $300,000 until he spoke to Murphy on the morning of Monday, April 1st. Murphy indicated to him at that time that he had just received the fax from the firm advising of the transfer of the funds.

[74] Lysenko stated that he thought it was an April Fool’s joke at first, but upon receiving confirmation from Murphy that it appeared authentic, he desperately tried to get a hold of Duboff. His evidence was that he was so desperate that he did not take the time to use his credit card to go through an operator but called directly, thereby not leaving a record of the calls on his Canadian phone bill which was part of the evidence. Lysenko testified that he tried for the next two days to reach Duboff by phone to express his anger, but was unable to do so until April 3rd. His attempts to reach him before that time were done using direct calling, but on April 3rd he reverted back to using his credit card. Telephone records show that he had a five-minute conversation with Duboff on April 3rd. His evidence was that Duboff, during that conversation, acknowledged his error, was apologetic, but did not wish to discuss the issue over the telephone and thought it better to have a meeting upon Lysenko’s return to Canada.

[75] Lysenko returned to Canada on April 11th saying that he did not wish to spend the extra $175.00 to change his airline ticket to return earlier. He met with Duboff the very next day on April 12th. At that meeting, Lysenko stated that Duboff expressed his desire to make up for his mistake and do whatever was necessary to ensure that Lysenko’s money would not be lost.

[76] Duboff denied that he had such a conversation, but rather said that the conversations were, to the best of his recollection, attempts to discuss steps to be taken to pursue the bond investment, namely, how to either sell or place them to start the trading programs which were to be the source of revenue.

[77] Duboff’s recollection of the meeting with Lysenko on April 12th is hampered by the fact that he has no notes of the discussions. However, he denies that Lysenko would have expressed concern about the forwarding of the funds. Duboff believes Lysenko would have expressed pleasure at the manner in which the potential transactions were taking shape, as they would lead to substantial revenues.

[78] Documentation from Duboff’s files suggests that efforts were being made as early as March 29th to have the bonds used for trading programs. Murphy was forwarding to Duboff agreements for that purpose. For example, a draft agreement with Grange Trust would see that entity purchase two Chicago Saginaw bonds referred to in the correspondence of March 29th for $10 million USD. According to the draft agreement, which meshes to some degree with the draft letter to Dobbins of March 29th, the proceeds from the sale would be used firstly to pay off the balance of the purchase price of the bonds ($200,000 to Laksman which Laksman testified was for the Mariettas which he was placing in the program), and the balance to be split 50% to Laksman and the other 50% between Garmel, Crisdar and Murphy. The agreement further provided for the Mariettas to be used as collateral for a trading program with Laksman, Crisdar, Garmel and Murphy receiving a percentage of the trading profits. A revision to that agreement replaced Murphy’s interest with a payment to Crisdar in trust.

[79] Murphy acknowledges that discussions were taking place with respect to a potential sale of the bonds to Grange Trust, but could not explain why his name appeared as a potential beneficiary of the sale.

(iv) DEALINGS FROM MARCH 29 TO JUNE 1997

[80] After March 29th, a great deal of time and effort was spent by Lysenko, Duboff and Murphy in attempting to arrange transactions to sell or place the Chicago Saginaw and Marietta bonds. The parties have quite different views as to the motivations for these transactions.

[81] According to Lysenko, these efforts were made by Duboff in collaboration with him and Murphy to attempt to recover the funds that had been transferred on March 29th. According to Duboff, he was merely acting as a solicitor with respect to transactions which were brought to him by either Lysenko or Murphy. While these transactions relate only indirectly to the key issue in this case, namely, whether the transfer of funds was authorized, the credibility of the witnesses is affected by these further dealings and I will discuss them in further detail. They are as follows:

(a) Dealings with Grange Trust;
(b) Dealings with Riviera Trust;
(c) Placing of bonds in San Francisco;
(d) Dealings with Gracorp;
(e) Return of the bonds.

(a) Grange Trust

[82] Within days of the transfer of the funds out of the firm’s trust account, there are documents exchanged between Murphy and Duboff appearing to be drafts of an agreement between Crisdar, Lysenko, Garmel, Murphy, and one other party who remains unidentified on one side, and Laksman on the other, providing for the sale of two Chicago Saginaw bonds to Grange Trust Ltd. for $10 million USD. The document provides for the payment to Laksman of a further $200,000 USD and a further $5 million USD of the purchase price to Laksman, the balance being in almost equal shares to Garmel, Crisdar, and Murphy.

[83] The proposed agreement also involved 40 Marietta bonds with a gross trading profit of 5% being divided, after commission to a broker, equally between Laksman on one part and the three other parties, namely Garmel, Crisdar and Murphy, equally on the other part. A later draft of the agreement provides that the share which originally was stipulated to be payable to Murphy is payable to Crisdar in trust.

[84] Attached to a draft of the document is an invoice from Fidelity Security (Gerald Dobbins) for $2,500 sent to Crisdar for an affidavit of authenticity and certification and evaluation for 41 Marietta North Georgia bonds. A further document sent by Murphy to Duboff on April 2nd encloses a contract and Power of Attorney in favour of a firm named Intellivest. The contract is between Crisdar, Laksman and Intellivest, using the investment programs of the latter company to generate revenue using the bonds to obtain a line of credit. The draft agreement values the bonds at $512,576,875 USD. The Power of Attorney in favour of Intellivest appears to have been signed by Lysenko on April 3, 1996 in the Ukraine. His evidence at trial was that while it appeared to be his signature on the document, it was not. He was unable to explain how it came to be on the document.

[85] Lysenko’s evidence was that these documents only represented drafts prepared by Murphy in which he had no direct involvement. His testimony was that Murphy had conversations with individuals in Los Angeles, and arrived at these attempts to recoup Lysenko’s investments in the bonds. He himself had little faith in deals whereby his $300,000 payment was transformed into $1 million revenue. Duboff had no specific recollection of the documents nor of the purported transactions and neither did Murphy. The documents suggest, however, that at or around the time of the transfer of the $300,000 Murphy, with Lysenko’s knowledge, was attempting to arrange for the use of the Railway bonds as collateral for a trading venture agreement.

[86] Laksman testified that these agreements were signed by Lysenko after discussion with him and Murphy, with knowledge that the bonds were to be used as collateral for a trading program, which trading program was being arranged by Lysenko and Murphy.

[87] Laksman’s evidence was that the March 29th transfer was to do with Grange Trust. Grange Trust approached him to purchase Chicago Saginaw bonds for $5 million USD each. Laksman located two Chicago Saginaw bonds from an acquaintance of his, one DeVerne Hokland (Hokland) in January of 1996. Hokland was ready to sell them at $300,000 USD per bond. While discussing this with his partner, Mr. Vrej Arakelyan in front of Garmel, the latter offered to assist by having a friend of his from Canada purchase it. His friend was Lysenko. According to Laksman, he and Garmel called Lysenko in the beginning or middle of January. (Phone records produced at trial indicate that Lysenko called Garmel in Los Angeles on a number of occasions in January, starting from January 7th onwards.) They spoke Russian. In order to obtain confirmation that there was an actual deal for the sale of the bonds to Grange Trust, Lysenko and Murphy called Grange Trust.

[88] According to Laksman, the bonds were authenticated by Dobbins of Fidelity Security for the amount of $110 million each based upon the value of the gold that had accumulated over the lifetime of the bonds. Laksman’s evidence was then that the bonds were placed with Dobbins at Fidelity Security in anticipation of the transaction occurring.

[89] Laksman had also purchased from Hokland some 40 Mariettas which were valued at $12 million USD apiece. He had purchased them at $2,500 to $5,000 apiece as Hokland was desperate for money.

[90] Laksman was well acquainted with Dobbins. He described Dobbins as a curator, authenticator and valuator for these types of bonds. Dobbins placed a value on them which was recognized, according to Laksman, by banks all over the world.

[91] According to Laksman, he had purchased the Chicago Saginaws from DDJ (Hokland’s company), for $600,000 USD and resold one of them to Lysenko or Crisdar for $300,000 USD. The purchase price was paid by Lysenko forwarding him $100,000 and $200,000 to DDJ.

[92] Laksman’s evidence was that the $10,000 he received on March 25, 1996 from Duboff on Crisdar’s behalf as a deposit was used to purchase Mariettas from a person by the name of Dino Nurosi. He purchased 10 to 20 Mariettas on behalf of Lysenko, Murphy and himself.

[93] Laksman sent Murphy copies of Chicago Saginaw and Marietta bonds. On March 29, 1996, Dobbins issued a “Certification of Deposit” styling himself as master curator for Fidelity Security Deposit Corporation (Fidelity), stating that it had on deposit in its vaults for safekeeping on behalf of Laksman/Grange Trust Limited/Crisdar Barbados Trade Corporation, two Chicago Saginaw bonds numbered 4850 and 4180. The next day Dobbins also signed a document which included a valuation of the Marietta bonds at $12,501,875 USD each based upon a price of gold of $398 per ounce.

[94] Grange Trust was to forward $10 million USD to Dobbins who was acting as escrow. The draft agreement provided for a $200,000 payment to Laksman as compensation for the 41 Mariettas that were to be including in the transaction.

[95] It is not exactly clear how the transaction with Grange Trust unravelled, but suffice to say that Dobbins never received the funds required under the alleged deal from Grange Trust.

[96] On April 29th, the funds not having advanced, Laksman faxed a letter to Grange Trust indicating that pursuant to the terms of the purchase contract, the agreement between Grange and the other parties was null and void. (A copy of this contract was not in evidence.) The document was acknowledged as understood and agreed by Grange Trust on May 3, 1996.

(b) Riviera Trust

[97] According to Laksman, Grange Trust had received a copy of Dobbins’ Certificate of Deposit and had forwarded it to Riviera Trust, whose representative was one Nancy Shockley (Shockley), a resident of Houston. Shockley was held out by Grange Trust as being involved with it and able to set up some investment opportunities.

[98] In early May 1996, Duboff flew to Houston at Lysenko’s request. Duboff had been at a conference in Denver when he received a phone call from Lysenko requesting that he travel immediately to Houston to meet with Laksman and Hokland to receive some bonds. Duboff attended in Houston where, according to Laksman, the latter, Duboff and Dobbins met with a representative from Intellivest. An account was opened for them in a Houston bank and 41 Mariettas were placed there in a safety deposit box, with both Laksman and Duboff obtaining a key for the box.

[99] While in Houston they went to visit Shockley, who advised that the Certificate of Deposit had been transferred to another entity by the name of Keystone Financial, who would come up with the $10 million within the next few weeks.

[100] On May 9th, Murphy e-mailed to Duboff advising him that “Crisdar and Laksman reached an agreement with Riviera Trust to keep the (Chicago Saginaw bonds 4850 and 4180) in the bank debenture program between Keystone and Riviera.” Murphy also stated that it was agreed that Crisdar and Laksman were to receive 5%, namely, $9,442,682.88 USD per week of the established credit line of $188,843,657.60 for 40 weeks per trading year. The weekly payment was to be divided equally between Crisdar and Laksman. Murphy then asked Duboff to prepare an agreement and other documentation to reflect these terms.

[101] On May 10, 1996, an agreement was signed between Riviera Trust, Crisdar and Laksman dealing with the Chicago Saginaws, whereby Riviera stated that it had a joint venture agreement with Keystone Financial and agreed to pay Crisdar and Laksman in accordance with the terms described above, using the two bonds as collateral.

[102] Laksman’s evidence was also that some time in May, because Intellivest had not proceeded in using the collateral of the 41 Mariettas, he flew to Houston and withdrew those bonds from the safety deposit box. His evidence was that he was able to obtain the bonds without anyone’s assistance. Duboff’s evidence was that he came back from Houston with a key to the safety deposit box, but does not remember what if anything happened to the bonds in the box.

[103] Needless to say, no funds were ever advanced from Riviera to Crisdar and Laksman pursuant to the agreement.

[104] On July 15, 1996, Shockley wrote to Lysenko and Laksman making reference to a July 12th correspondence from Keystone Financial advising that the latter had issued a “cease and desist” regarding the placement of the Chicago Saginaws. The July 12th letter was not put into evidence and no explanation was given as to what a cease and desist was, although I infer that it was an indication from Keystone that they were not proceeding with the transaction.

(c) San Francisco

[105] On May 13, 1996, Lysenko, having been advised by Murphy that there was a potential for the sale of historical bonds to a group from Thailand, instructed Duboff to accompany him to San Francisco the next day. Lysenko purchased the tickets and Murphy accompanied them. Mr. Stanley Lewy of Stanley A. Lewy & Company, with whom Murphy had had previous correspondence with respect to selling or placing bonds, was to meet them in San Francisco.

[106] In San Francisco the group proceeded to the Bank of America where they met with a vice-president of the bank named James Ovens. Laksman arrived accompanied by his partner, Mr. Arakelyan. This was the first time that Lysenko and Laksman met face to face. Hokland arrived with bonds, namely 237 Mariettas. Once the bonds had been inventoried, the bank was asked to provide a valuation which Mr. Ovens refused to do.

[107] According to Lysenko, the conversation then became a discussion between Hokland, Laksman and himself as to how the profits from the sale or use of the bonds for collateral was to be divided. A security lawyer with the bank came to inspect the documents and, according to Lysenko, was suspicious as to the stated value of the bonds. Eventually the bank agreed to issue a safekeeping receipt.

[108] Laksman’s evidence was that in addition to the bonds brought by Hokland he also contributed the 41 Mariettas which had been located in Houston and which he had obtained for purposes of bringing them back to Los Angeles. In addition, a Mr. Anil Gupta (Gupta), who had access to a number of Chicago Saginaw bonds, was brought into the meeting. Laksman testified that he and Lysenko jointly agreed to purchase a further Chicago bond from Gupta for the sum of $25,000 shared equally.

[109] On May 14, 1996, in San Francisco, Crisdar and Laksman signed an agreement with DDJ Security Trust (Hokland’s company) whereby the 237 Mariettas owned by DDJ would be used by Crisdar to arrange a line of credit and to enter into a trading program.

[110] On May 23, 1996, Mr. Ovens from the Bank of America wrote to Crisdar (care of Duboff), DDJ Security and Gupta, advising them that the bank was not willing to establish a custodial relationship to keep the bonds. Ovens advised that the bonds were to be picked up in person at the bank’s office in San Francisco with the Mariettas to be delivered to Hokland and the Chicago Saginaws to be delivered to Mr. Gupta.

[111] Murphy prepared a draft letter for Duboff’s review and for Lysenko’s signature indicating that they were at a loss to understand why the bank had taken that position. As well the letter indicated that Lysenko was not available to retrieve the bonds given that he was in Ukraine, nor was he willing to incur any expense in attending in San Francisco to obtain the bonds. They were therefore ready to issue Powers of Attorney to Laksman in order to have the bonds picked up by him. The bonds were returned to either Laksman or Hokland.

(d) Gracorp

[112] The attempted transactions with Grange, Riviera and DDJ not having proven fruitful, Laksman was getting somewhat anxious. Along came Gracorp and Dr. Albert.

[113] When and how Lysenko was approached by Dr. Albert or Gracorp is not clear from the evidence. Lysenko’s recollection was that Dr. Albert, an Italian financier, had a Canadian lawyer based in Vancouver who approached either him or Duboff and wished to invest in historical documents such as gold bonds.

[114] In July 1996, Crisdar and Laksman signed a joint venture agreement for the purposes of selling or placing Railway bonds in trade investment programs. The joint venture was for a period of one year and the parties were to use their best efforts to deliver these bonds to the Royal Bank of Canada (Caribbean Corporation) for deposit in a safekeeping account in the name of Crisdar. Apart from Mariettas a number of other types of bonds were also listed, including Chicago Saginaw bonds. The net profits of any sale or investment in the program were to be equally shared between Laksman and Crisdar.

[115] Pursuant to that joint venture, Laksman travelled to Toronto in early August 1996. He brought with him a number of bonds for the purposes of meeting with Lysenko and Duboff and placing those bonds with the Royal Bank of Canada (Caribbean) in Toronto. Unfortunately, Laksman and his documentation were viewed with some suspicion by Customs and he was placed under arrest. Fortunately for him, at the same time, Duboff and Lysenko arrived from Winnipeg and were paged to the Customs area in order to assist Laksman. After Duboff’s explanation that the items were merely historical documents with no security value save as collector’s items, they were designated by the Customs Branch as antique bonds with a value of $6,800, and a duty of $1,775 was exacted. Lysenko paid the duty.

[116] The three of them then attended at the Royal Bank of Canada where 375 Mariettas and nine Chicago Saginaws were placed on deposit with the Royal Bank of Canada (Caribbean Corporation) on behalf of Crisdar.

[117] On September 26, 1996, Crisdar and Gracorp entered into an agreement whereby those bonds, which had been valued by Dobbins at $5,588,869,120 USD, would be purchased by Gracorp for that amount. The closing procedures contemplated Crisdar providing to Duboff as trustee certain documentation, including valuation and authentication certificates, and Gracorp was to provide Crisdar’s bank and Duboff with an irrevocable bank guarantee for the purchase price within five banking days of the agreement. The funds were to be paid to Crisdar’s bank in Barbados within 15 days of the delivery of the bonds. Not surprisingly, Gracorp never forwarded the necessary bank guarantee.

[118] In late October Laksman, upset at the failure of Gracorp to honour the terms of its agreement with Crisdar, indicated that if funds had not been deposited by October 31st, he would issue a formal demand on the Royal Bank for the return of the bonds which were on deposit. I have no evidence as to whether he did.

[119] On November 14, 1996, the Royal Bank of Canada (Caribbean Corporation) wrote to Crisdar’s director in Barbados, Ms Roach, requesting that steps be taken to collect the securities from their custody, attaching an invoice for $3,000 CAD.

[120] On December 11, 1996 Lysenko, in a long-winded and somewhat wordy letter, wrote to Dr. Albert complaining of the fact that no funds have been received notwithstanding promises to that effect, and sending a copy of his letter of complaint to a list of banks and individuals worldwide complaining about Dr. Albert and Gracorp’s conduct. This was the end of the Gracorp transaction.

(e) Return of the Bonds

[121] After the failure of the Gracorp deal, Laksman testified that he sent a letter requesting the return of his bonds. In return he received from Lysenko a demand for $600,000 USD towards his expenses. Neither letter was filed in evidence.

[122] Laksman testified that the demand comprised a claim for expenses incurred by Lysenko, including telephone calls, travel and other such items in attempting to sell the bonds. Laksman denied that he owed the amount. Lysenko sent back a portion of the bonds, but kept nine Chicago Saginaws and 164 Mariettas, indicating that he would return other bonds to Laksman when he received $600,000 USD. After a number of telephone calls arguing about the amounts, Laksman’s partner, Arakelyan, negotiated an agreement that Crisdar would receive $500,000 USD, but only on condition that the remaining bonds were sent to Dobbins and that the funds would only be paid once the bonds were sold.

[123] A draft agreement to that effect was put in evidence with a date of January 1997. In January of 1997, Lysenko and Murphy attended in Toronto to pick up the bonds and Murphy then went on to Los Angeles, taking the bonds with him. Laksman’s evidence is that he and Murphy had agreed to leave the bonds with Dobbins in accordance with the draft agreement which was to be signed by Murphy on Lysenko’s behalf. After discussions on the first day of their meetings, they had reached an agreement and the matter was to be concluded in the morning. Laksman’s evidence is that the next morning Murphy attended at Dobbins’ premises, removed the bonds and fled for Canada. When he got a hold of Murphy in Toronto, Murphy told Laksman that Lysenko had warned Murphy of a death threat against him and instructed him to return to Canada with the bonds.

[124] Laksman indicated that he then wrote to Lysenko indicating that if he and the other bond owners did not receive all of the bonds, including the nine Chicago Saginaws, he would take legal action.

[125] In July 1997, he sent a further letter to Lysenko and Murphy indicating that the joint venture agreement had expired and that he wished to have return of the bonds placed in the program. Laksman testified that he received some of the Saginaws back through Garmel’s help, was still owed five Chicago Saginaws and a number of Mariettas, which he believed that Lysenko retained or had sold. He had made arrangements to sell the Mariettas for approximately $5,000 apiece and would have been willing to discuss an appropriate agreement with Lysenko, but was unable to do so.

[126] Lysenko’s evidence is that the only bonds which Murphy brought back with him from Los Angeles were two Chicago Saginaws, copies of which were placed in evidence at trial.

(C) COMPLAINT BY LYSENKO AGAINST DUBOFF

[127] On July 8, 1997, Lysenko on behalf of Selta sent three similar letters to Duboff. In the first letter he requested an accounting of the disbursements with respect to $50,000 USD which had been placed in the firm’s trust account on February 9, 1996. In the second letter, he requested the return of the sum of $300,000 that had been placed in the trust account on March 29, 1996, plus accrued interest. In the third letter, he required an accounting of the purchase of shares of Mr. Tube Steak on behalf of Selta and the $30,000 CAD provided to Duboff by Lysenko. Lysenko in his third letter refers to a conversation on June 29, 1997 where the issue of the Tube Steak shares had been discussed, and where Duboff had promised to send a letter explaining the situation. Duboff recalls such a conversation, but does not recall anything else being discussed at that time.

[128] After receiving the letters Duboff called Lysenko and in a memorandum dated July 16th, which he sent to Lysenko, confirms the conversation. He indicates that he was surprised to receive the letter in that Lysenko indicated to him that there were no serious issues in his mind about the firm’s services, or any transactions worked on by Duboff for him. According to the memorandum, Lysenko stated having sent the letters because he had tried to reach Duboff on a number of occasions, had been unsuccessful and Duboff had not returned the calls. According to Duboff, Lysenko had told him to put the three letters away and not to do anything with them, that they were just to get his attention. They had agreed to speak on August 11th when Duboff returned from summer vacation.

[129] On August 12th, 1997, Lysenko wrote to the firm, again asking that it return the amounts deposited in trust. On August 18, 1997, Lysenko wrote to the Law Society of Manitoba seeking its assistance in obtaining the return of the funds. Additional information was provided under cover of letter dated August 19th, August 21st and a Statutory Declaration dated September 4, 1997. After exchange of correspondence between the parties, the Law Society denied the reimbursement claim and the matter has proceeded before the courts.

IV. CREDIBILITY FINDINGS

A. LYSENKO

[130] Lysenko was the plaintiff’s main witness. His mother tongue is Russian. His evidence at trial was at times longer because he needed to explain himself in a manner which is not as direct as it could be. He also displayed a great deal of emotion and was excitable.

[131] Lysenko’s basic position at trial was that he did not authorize the payment of the $300,000 USD from Duboff’s trust account, either directly or indirectly through Murphy, and that he was shocked when he heard that it had occurred. His evidence was that Duboff acknowledged the error and vowed to take all necessary steps to correct it, thereby explaining the long list of measures taken after March 29th to attempt to recover, in Lysenko’s view, his money.

[132] Lysenko was a difficult witness in that he tended to be unresponsive to the questions, preferring to return to his basic position. He had no documents to support a number of his contentions, explaining that he did not write English very well, but also that he relied upon Murphy to do some of his drafting given his limited use of English.

[133] Lysenko’s version of events with respect to the March 29th transfer is inconsistent with documentation surrounding the transfer of the funds on March 29th and subsequent documentation with Grange Trust with respect to the sale to it of the Chicago Saginaws.

[134] His contention that he was unaware of the ongoing discussions with respect to Railway bonds, as he was of the belief that the gold bond transaction was not going to proceed any further from the point that Laksman had increased the price per bond, is inconsistent with Murphy’s continuing involvement with individuals involved in the Railway bond transaction, such as Laksman, Tudhope and Lewy. The phone records indicate that Lysenko was often communicating throughout the months of January, February and March with Garmel. There was no evidence adduced by Lysenko of other ongoing matters he had with Garmel other than the gold bonds. Furthermore, Laksman and Murphy continued to communicate frequently during that same time period, again suggesting that gold bonds were being discussed.

[135] On March 28th and 29th, there was a large number of telephone communications between Laksman and Murphy and between Murphy and Lysenko. While a number may have been exchanges of faxes, it is inconceivable to me that some of those conversations did not deal with the bonds, given the nature of the documentation which was being exchanged at the time between Murphy and Duboff, and between Murphy and other parties. In addition, there were a large number of telephone communications between Murphy and Lewy or Tudhope, individuals who could only have been involved in discussions with respect to placing the bonds in an investment program. If as suggested by Lysenko the gold bond deal was dead, then these conversations would not have taken place.

[136] Lysenko’s version of events is also inconsistent with the activities with respect to the bonds after March 29th. Lysenko was extremely active in attempting to sell or place the bonds as security in order to earn substantial profits. While his evidence was that he had doubts, at least with respect to the Grange Trust sale and the Gracorp sale, given the incredible profit generated, there is no doubt that he was actively involved. His letter to Gracorp in December shows an extremely frustrated and angry man consistent with a belief that this transaction was going to proceed. Contrary to Lysenko’s alleged healthy skepticism as to the genuineness of these deals, the evidence suggests that he had a tendency to become involved in get rich quick schemes of doubtful legitimacy, such as the Nigerian Central Bank and the Gracorp scheme itself. If, as Lysenko suggested, the loss of the $300,000 was a substantial loss to him, which he blamed Duboff for, it is not credible to me that he would have waited over a year to take active steps against him to have the funds recovered.

[137] My view of Lysenko’s evidence is also tempered by three incidents upon which the court received evidence. The first one was evidence from Schachter, a partner of Duboff’s, who testified that when representing Lysenko on a trial dealing with a claim against a local travel agent, Lysenko offered to shape his testimony in the manner which best ensured success. While this may be an interpretation placed on Lysenko’s words by Schachter and that all Lysenko was attempting to do was ask for advice on how to speak to the court, Schachter’s testimony must be taken into consideration.

[138] Secondly, Duboff testified that at a break in the examinations for discovery, Lysenko came to speak to him and made a statement to the effect that if Duboff would only change his testimony and acknowledge the mistake, then Lysenko would be able to collect from the Law Society’s insurance company and would take care of Duboff’s deductible, suggesting that collection from the insurance company was the true motivation behind the lawsuit in the first place. Duboff reported this conversation to his counsel.

[139] Finally, the events surrounding Laksman attending in Winnipeg to testify bears some comment. Laksman testified that after having been subpoenaed, he received a call from Lysenko urging him not to attend as a witness at trial and made comments which Laksman interpreted as threats in the event he did attend. This led to Laksman’s testimony being given with security in the courtroom and with a complaint to the Winnipeg Police by Laksman against Lysenko. This was followed apparently by a cross-complaint by Murphy and Lysenko against Laksman, alleging that they had received threats.

[140] While none of these incidents were definitive in their nature as to the truthfulness of Lysenko during the trial, they reinforce my view that Lysenko’s testimony should not be given a great deal of weight.

[141] I have therefore placed limited weight upon Lysenko’s evidence where it is not confirmed either by other evidence or documents.

B. DUBOFF

[142] Duboff is an experienced commercial lawyer with a background in banking, which assisted him in providing help to Lysenko in dealing with Canadian banks on foreign transactions. However, it should have been obvious to him that Lysenko and Murphy were involved in a scheme which had doubtful if not suspicious business legitimacy. Most of the documentation in this case comes from Duboff’s files (save for the scrap metal deal documentation which surfaced shortly before the beginning of the trial from Murphy). Yet, there are no memos to file and very few confirming letters outlining what steps were being taken at the client’s request. It is not surprising, therefore, that Duboff has very little recollection of the events which occurred around March 29th and what if any advice he was called upon to give or did offer Lysenko.

[143] His letter of explanation to the Law Society with respect to the reasons why he allowed the funds to be transferred out based upon the lengthy relationship between Murphy and Lysenko and frequent payment out of funds without written authorization, proved to be inaccurate. While a great deal of funds were channeled through the firm’s trust account, save for the March 29th payments relating to the gold bonds, payments to Dobbins or to Murphy which were supported by promissory notes and written authorizations, no other funds went to third parties. All the payments were to the client.

[144] In fairness to Duboff, he did not try to present evidence based upon what he could not remember. His evidence was couched in terms of what he would have likely done in the circumstances or his beliefs. His recollection of the events of March 29th do not allow him to state categorically that he had received instructions either from Murphy or Lysenko, but he did state that he believed he would have received an indication from Murphy that the funds could be sent out, failing which he would not have sent out the funds. Duboff’s recollection, therefore, suffers not from a lack of credibility but from a lack of reliability, as it is not based upon actual recollection but a belief as to what likely occurred.

[145] Again, unless supported by documentation and other evidence, I am unable to place much weight upon Duboff’s evidence.

C. MURPHY

[146] Murphy’s evidence suffers from the two candid admissions he made at trial, namely, that as a result of a medical condition his memory of events was erased and that he fashioned his evidence based upon hearing the testimony of Lysenko.

[147] Murphy, as the third party, was entitled to attend throughout the trial and did so. He therefore sat through all of Lysenko’s evidence, including cross-examination. He also heard all of Duboff’s evidence.

[148] When he took the stand, he admitted that he had suffered a serious reaction to a drug, leaving him near death. After this event his memory of past dealings was gone. He was therefore unable to provide direct recollection of what occurred, but responded based upon the documentation presented to him and based upon Lysenko’s evidence which he indicated he accepted.

[149] One portion of Murphy’s evidence which I find difficult to accept in any event is that his interest in assisting Lysenko in some of these attempted transactions was only out of friendship and not out of any specific expectation of profit. He believed that Lysenko would be fair with him at the end of the day, to paraphrase his words. However, the documentation belies that fact. Correspondence with Duboff refers to Laksman as ‘our partner’. Murphy developed and used Crisdar letterhead, copies of which were sent to Lysenko. Draft documents prepared for transactions with Grange Trust show him receiving a portion of the proceeds. Similarly with the Nigerian Central Bank deal, he was instrumental in bringing the matter to Lysenko’s attention, and then was seen to be potentially participating in the benefits.

[150] For these reasons I am unable to place much if any weight upon Murphy’s version of the events, again, unless it is confirmed by other evidence or documentation consistent therewith.

D. LAKSMAN

[151] Laksman’s evidence must be assessed in light of certain facts. Laksman was actively involved in what can only be described as a scheme to obtain money from purchasers or from banking institutions premised upon the very doubtful suggestion that antique railway bonds, payable at one time in gold coins, maintain an inherent value based upon their imputed gold value. He was assisted in that scheme by Dobbins.

[152] I received evidence at trial that Dobbins was the source of a number of cease and desist orders from the Securities and Exchange Commission of the United Sates. Documentation in that litigation filed at trial supports the contention that, at least in relation to the Chicago Saginaw bonds, the bankruptcy of the company in 1873 rendered the bonds valueless and that any company who had taken over the company’s assets denied having any obligation in respect of them. This factual background raises a concern to me as to whether Laksman is a con artist or merely someone who genuinely believed in the valuation of his bonds and thought that he had hit the mother lode.

[153] I also note that Laksman contends that Lysenko and Murphy wrongfully took a number of Marietta and Chicago bonds, for which they still owe Laksman certain funds and for which Laksman has made demand.

[154] However, I accept his evidence as it relates to the manner in which the involvement with Lysenko came about, as it not only conforms to some extent to Lysenko’s own explanation arising from his friendship with Garmel, but is also consistent with the documentation prepared shortly before March 29th, shortly after that date and the telephone records. In particular, his explanation of what the parties had intended to do in the sale of the bonds to Grange Trust and how those funds would be distributed explains in a manner which no other version provided by either Lysenko or Murphy does, why $300,000 USD was forwarded on March 29th and what interest Lysenko obtained in the bonds and in the transaction. Furthermore, his explanation of what transpired after March 29th is consistent with the documentation provided through Duboff’s file.

[155] I do not accept Laksman’s evidence with respect to the events on March 29th themselves, namely, that he was involved in a conference call with Lysenko, Murphy and Duboff, where Lysenko screamed at Duboff and instructed in no uncertain terms to forward the funds from his trust account. If such a conversation took place I believe Duboff would have remembered it and would have certainly recounted it as part of his evidence at trial. The fact that he did not do so leads me to the conclusion that it did not occur, although some variation of the conversation between Laksman and Murphy and, perhaps, Duboff may well have occurred.

[156] I therefore maintain a healthy skepticism towards a great deal of Laksman’s evidence.

E. OTHER WITNESSES

[157] I will not comment specifically on the other witnesses as I found their evidence to be fairly non-controversial and, for the most part, uncontested.

[158] Schachter’s evidence I accept, that he received a request from Duboff to assist him in arranging for funds to be paid out and that he did so late in the afternoon on March 29th. I have already commented on his evidence with respect to Lysenko’s involvement in another matter.

V. FINDINGS

[159] Relying upon the factual background set out above and the credibility assessments made of the main protagonists, I have concluded as follows with respect to the factual issues of this case:

A. SCRAP METAL DEAL

(i) From late 1995 to the end of March 1996, Lysenko and Murphy were actively seeking to put together a scrap metal deal involving shipments of scrap metal from Kenya to Thailand, using the services of Mr. Daniel Schmid of Phonetex;

(ii) By March 29, 1996, the likelihood of a successful transaction not occurring with respect to scrap metal was recognized by both Lysenko and Murphy, given the lack of response from the newly discovered owner of the property to the various offers sent through Murphy’s offices. I also find as a fact that the transaction, if capable of being revived, was not at a stage where payments were going to be required;

(iii) I conclude that the $300,000 USD placed in the trust account of the firm on March 29th by Selta was not for the purposes of advancing the scrap metal deal. I reach this conclusion on the basis that the negotiations had failed and no contract was in sight. There was no need for the funds to be placed into that account at that time if it was for the purposes of that transaction. I do not accept Lysenko’s attempts at trial to explain the manner in which the amount of $300,000 corresponded to the funds that would be required in the event the transaction could go ahead. I note that neither Schmid or Michael Murphy, who were involved in the scrap metal deal, were called as witnesses to testify as to the state of the transaction on March 29th.

B. GOLD BONDS

Pre-March 29th

(i) I find that the introduction of Laksman to Lysenko was through Eddie Garmel, a friend of Lysenko’s, and that it occurred in early January 1996. I also find as a fact that while initial discussions may have been related primarily to German gold bonds, they eventually extended to the Railway bonds.

(ii) Lysenko, using the services of Murphy, continued to be involved in negotiations with respect to obtaining the bonds, and seeking a purchaser or individuals who may be involved using the bonds as collateral.

(iii) In late March 1996, correspondence exchanged between the parties was related to German bonds, but at the same time the parties were also discussing the transaction related to the Railway bonds, and in particular with respect to Grange Trust.

(iv) I accept Laksman’s evidence that the transaction with respect to the two Chicago Saginaw bonds 4180 and 4850 originally contemplated their resale to Grange Trust for the sum of $10 million, and that in order to obtain the bonds from individuals which he knew, using Garmel’s connections, he convinced Murphy and Lysenko to participate in the scheme through the payment of $300,000 USD. The original transaction contemplated Laksman receiving, after another payment of $200,000 for the use of 41 Marietta bonds in a trading program, payment of one-half of the sale price received from Grange Trust, the balance being distributed in approximately equal shares to Crisdar, Garmel and Murphy.

(v) The transaction as between Laksman and Crisdar and Murphy was predicated upon Laksman delivering to Dobbins of Fidelity on March 29th two Chicago Saginaws and 41 Mariettas, all of which were to be kept by Dobbins. He was to issue safekeeping certificates showing in the case of the Chicago Saginaws that the parties interested were Grange Trust, Jacob Laksman and Crisdar, while in the case of the Mariettas it was to be issued in the name of Crisdar and Laksman.

(vi) The telephone records show continuing communications between Laksman and Murphy on dates preceding March 29, including a number of phone calls between Lysenko and Murphy as well. Furthermore, the phone records reveal lengthy conversations between Murphy and Lewy, including a 30-minute conversation on March 27th. Lewy’s only involvement, according to the documentation, was as an individual who could find trading programs using the bonds as collateral. Similarly on March 28th Murphy has a number of lengthy conversations with Laksman, including two which are over 20 minutes in length. On March 29th, the fax line between Murphy and Dobbins at Fidelity was busy on over six occasions. As well Murphy had a further conversation with Mr. Lewy of Stan Lewy & Associates of over twenty minutes long. All these telephone conversations or fax exchanges lead me to the inescapable conclusion that discussions were continuing at great length with respect to gold bonds.

(vii) I find that in the days leading up to March 29th Murphy, with Lysenko’s knowledge, was actively discussing obtaining the bonds for resale to Grange and for placement in an investment program. I find that the placing of the $300,000 in the trust account on March 29th by Lysenko was in furtherance of a plan to forward the funds to Laksman and DDJ Security in exchange for ownership of one bond and participation with Laksman in the resale to Grange and in an investment program.

March 29th and authorization

(viii) I am unable to find from the documentation, nor am I able to infer that Lysenko directly authorized the Duboff firm to transfer the funds. However, I infer from the events that occurred prior to March 29th, on the day in question and in the few days following it that the funds were placed there for the purposes of forwarding to Laksman and DDJ Security in accordance with the routing information provided by Murphy. I also find that Murphy was in contact with Lysenko on a regular basis during that period of time and on March 29th itself, as indicated from the phone records. Contrary to Lysenko’s assertions that conversation was limited to the scrap metal deal or other matters, there was most likely discussion with respect to the state of the gold bond transaction. I also note that there was a lengthy conversation on March 28th between Lysenko and the Duboff office. While there may have been faxes or discussions with respect to the issue of obtaining visas, given the flurry of activity between Murphy and Laksman with respect to the gold bond deals, it is most likely that the matter was discussed at the time. However, I am unable to find on the basis of the evidence that Lysenko would have authorized Duboff in those conversations to release the funds.

(ix) I find that the funds were forwarded from the Duboff office to the Toronto-Dominion Bank and through their channels to the two designated recipients in the late afternoon of March 29th, namely $200,000 to DDJ Security and $100,000 to V&A for the benefit of Laksman. While I am unable to conclude definitively from the evidence that Murphy was aware that the funds had been sent, I would surmise that that was the case given the level of activity between Laksman and Murphy, and between Murphy and Lysenko on the 29th, 30th and 31st of March.

After March 29th

(x) I find that Lysenko did not attempt to call Duboff to complain about the transfer of the funds on April 1st as he contends, nor do I find that in his phone conversation of April 3rd with Duboff he expressed his anger as to Duboff’s conduct. I find that the first time Lysenko complained to Duboff that the funds had been sent out without authorization was in July 1997. I reach that conclusion based upon the continuing discussions between Lysenko, Murphy, Laksman and others, as well as Mr. Lewy, all suggesting attempts to implement what I have described as the Grange Trust sale. While it is conceivable that Lysenko would have been displeased at the payment out of the trust, but would have relented in expectation of receiving the benefit of the sale to Grange, I would have expected that if he had been genuinely upset there would have been some form of documented reaction to Duboff’s alleged error. I also find it difficult to believe that Duboff would have knowingly and expressly advised Lysenko that he would obtain his funds back. If in error in disbursing the funds, Duboff would have recognized his obligations to the Law Society, and in particular to its insurers. Had he failed to report such an error on a timely basis, he and his firm would have lost the protection of the insurance covering negligent acts. I do not accept that he consciously did so on April 3rd.

(xi) I find that Lysenko has in his possession the two Chicago Saginaws and that they have no intrinsic value, save as perhaps a collector’s item.

Mr. Tube Steak

(xii) I find that Duboff invited Lysenko to invest in Mr. Tube Steak. At the time he did so he was a solicitor acting for at least one of the related companies.

(xiii) I conclude from the evidence that he did disclose that he was the solicitor for Mr. Tube Steak. He did not suggest to Lysenko that he obtain independent legal advice.

(xiv) I also find that he did not make Lysenko aware of the distinctions between the various companies at the time of the investment. I also find that Lysenko invested in the company upon Duboff’s representations that the company would be going public. Lysenko did eventually receive shares for his investment and there is no evidence the company has in fact issued its shares publicly. There was no direct evidence presented to the court as to the value of the shares at this time.

VI. ISSUES

[160] The above findings of fact raise the following issues:

(a) Did Duboff or his firm receive authorization from Lysenko or from Murphy as his agent, to disburse the trust funds at issue in this case? If so, what damages flow?

(b) Was Duboff or his firm negligent in the manner in which the funds were disbursed, or did he fail in his duty towards his client? If so, what damages flow?

(c) Was Duboff in breach of his duty to his client with respect to Lysenko’s investment in Mr. Tube Steak? If so, what damages flow?

VII. ANALYSIS

1. PAYMENT OF FUNDS WITHOUT AUTHORIZATION

A. THE PAYMENT OF $300,000 USD ON MARCH 29, 1996

[161] The payment of $300,000 USD on March 29, 1996 represents the major portion of the plaintiff’s claim against Duboff. The plaintiff’s position is simply that Duboff did not have authorization from Selta to make such transfers, that he failed in his duty as a lawyer to preserve and safekeep the client’s property entrusted to him.

[162] A major argument for the plaintiff was that the funds received by Duboff were for the credit of Selta and at no time was there authorization given to Duboff allowing him to transfer to Crisdar’s account or use the funds for the benefit of Crisdar. Law Society rules referred to by counsel suggest that no transfer from the trust account of one client shall be done to another’s without written authorization. No such written authorization was provided.

[163] On the facts of this case I am satisfied that Lysenko was the directing mind of both Selta and Crisdar. There is no serious dispute to that fact. I also find that Lysenko used both corporate vehicles on a regular basis in a manner which he found most advantageous. In accordance with the tax advice he had received from Duboff, the transactions in Canada were generally those of Selta and international transactions were through the Crisdar vehicle. His evidence was that he followed these rules religiously.

[164] While that may have been the case, a suggestion that payment out of the funds by the firm was unauthorized because there had been no written authorization allowing the funds to flow from Selta to Crisdar or to be sent out to Crisdar’s benefit is, in my view, a technicality which does not affect the true legal principles which should apply to this case. That is not to say that it is normal practice to change one corporation for another. On the facts of this case I am satisfied that Lysenko was the directing mind behind the transaction and wished to have Crisdar involved. I also find that he directed the funds to the trust account for use by Crisdar.

[165] It is trite to say that the lawyer owes a fiduciary duty to his client. Where funds are entrusted to the lawyer, such duty includes dealing with those funds in a prudent manner and not to disburse them, save in accordance with the instructions of the client or as authorized by contract or by law.

[166] The evidence is that payments were made from the trust account to Laksman and Hokland on March 29th. The firm had no written authorization from the client or from Murphy to do so. Duboff’s evidence was that he would have relied upon instructions from Murphy which he believed to be authorized by Lysenko to allow the transfer of the funds. He is unable to say what exactly Murphy would have represented to him or instructed him to do, but, using his professional judgment, he concluded that what he had been asked to do by Murphy represented what Lysenko wanted him to do.

[167] Murphy admitted in his evidence that Laksman wanted the funds paid out that day. It is reasonable that that was made known to Duboff. But Murphy denies that he would have given instructions to Duboff to disburse the funds and says that, in any event, it would have been in his mind that Duboff would seek specific instructions from Lysenko, whether verbally or in writing, to release the funds and not do so merely on Murphy’s request.

[168] Contrary to Lysenko’s evidence that the payments were unrelated to any matter for which Duboff’s advice had been sought, I am satisfied from the evidence that there was at the time of the payment a contemplated transaction for which Duboff had been consulted. The payment was consistent with that transaction. There is no direct evidence from which I could conclude that Lysenko had directly authorized payments, nor is there any direct evidence that Murphy had authorized the payment. However, the documentation prior and after March 29th, the flurry of phone calls and Laksman’s evidence, confirm that Murphy was actively involved in requesting that the funds be paid to Laksman and Hokland on March 29th as part of a transaction to gain an interest for Lysenko and himself in that transaction. This begs the question whether Murphy was acting as Lysenko’s agent and whether he had the actual, implied or apparent authority to authorize the transfers.

(i) Actual Authority

[169] While Duboff was entitled, based upon the correspondence such as the March 19th letter which referred to Laksman as “our partner in this business”, to conclude that Murphy was involved with Lysenko in the gold bond transactions, this did not lead to the conclusion that he was necessarily given the authority to authorize the transfer of funds. Murphy drafted documentation using Crisdar letterhead, some of which directly involved Lysenko in the transaction. Presumably, in his discussions with Duboff, Murphy would have made reference to his discussions with Lysenko on the matter. While Duboff was aware of Murphy’s previous involvement with Lysenko, none of the previous dealings were of the same nature nor placed Murphy in such a critical role. Even in the scrap metal deal, Murphy, when requesting funds for his son, had to provide Duboff with documents confirming the transfer.

[170] In this case Duboff forwarded $10,000 USD to Laksman with respect to the German bonds, and then the further sum of $300,000 on March 29th to Laksman and Hokland without any written authorization from Lysenko or verbal authorization from Lysenko to the effect that Murphy could authorize the transfer.

[171] I am not satisfied that Duboff, who has the onus of satisfying the court that there was actual authority given by Lysenko to Murphy to authorize the payment of the sums has done so, nor am I satisfied from the nature of the relationship that such authority could be implied as it cannot be argued that the nature of the relationship between Lysenko and Murphy was such that it would be reasonable to assume that the authorization to transfer funds from Duboff’s accounts came within that authority.

(ii) Agency by Estoppel

[172] The defendant argues that the plaintiff is prevented by the concept of agency by estoppel from denying that Murphy had the necessary authority to instruct Duboff to send the funds. By allowing Murphy to deal with Duboff in respect to the transaction, including the forwarding of documents using Crisdar letterhead, telephone conversations directly between Duboff, and having Murphy provide instructions to Duboff to forward funds to Laksman with respect to the $10,000 deposit on the German bonds, Lysenko created a state of affairs such that Duboff could reasonably conclude that Murphy was speaking with Lysenko’s authority.

[173] In order for the defendant to succeed on this ground, it must be able to show representations or conduct of Lysenko which amounted to a representation to Duboff that Murphy could instruct him in the manner in which he did, and that Duboff relied upon that representation to his detriment. (See Fridman’s The Law of Agency (7th ed.) at pp. 111 – 119.)

[174] The difficulty that the defendant faces is that there is no statement or conduct on the part of Lysenko which the defendant can indicate as being a representation to Duboff by Lysenko that Murphy had the authority to act on Lysenko’s behalf in the way he did.

[175] The use of Crisdar letterhead on letters signed by Murphy may have amounted to some form of representation had it been done on a consistent basis and with the avowed knowledge of Lysenko and Duboff. However, the only other situation where Murphy used Crisdar letterhead and signed letters prior to March 29th, apparently on behalf of the company, was in the scrap metal deal. There was no evidence that those specific letters where he did so were ever brought to Duboff’s attention prior to March 29th. With respect to the letters that were forwarded by Murphy to Duboff on Crisdar letterhead for his revision in the Railway bond transactions, there is no evidence that Lysenko was aware that he was doing so or acquiesced to the use of the letterhead prior to March 29th.

[176] Allowing Murphy to play a major role in the negotiations with Laksman does not, even in combination with other factors, lead to a representation that he was also entitled to deal with trust funds. The fact that he gave directions with respect to a payment of $10,000 as a deposit can only be used as a representation if that was authorized by Lysenko. Again, I have no evidence other than Murphy’s statement in his letter that that was the case. Murphy’s position is that he was still expecting Duboff to receive either verbal or written authorization from Lysenko before proceeding with that transfer.

[177] Therefore, I am unable to conclude from the evidence that there was a representation or conduct by Lysenko which would have allowed Duboff to reasonably conclude that Murphy was authorized by Lysenko to instruct payment in these circumstances.

(iii) Ratification

[178] There remains, however, the issue of agency by ratification. Ratification involves the concept of the principal acquiescing after the fact to the act done by the agent, although the agent did not have the required authority to do so at the time he did it. (See Fridman’s The Law of Agency (7th ed.) at pp. 84 – 110. See also Abbott v. McDougall and Cowans, [1927] 37 Man.R. 135 (C.A.), and Good v. Bescoby, [1913] 23 Man.R. 603 (C.A.).)

[179] Ratification requires:

(a) The existence of a principal at the time the act was done;
(c) That the principal could be ascertained at that time;
(d) That the principal be aware of all the material facts when the ratification occurs; and
(e) That the principal be able to have done the act that the agent did on his behalf.

[180] In this case, in the issue of ratification we are concerned with respect to the agency relationship with Duboff and Lysenko. I am satisfied that there existed a relationship between Lysenko and Duboff created by the solicitor/client relationship and that Lysenko was ascertainable as the client and able to have disbursed the funds if so inclined. I am also satisfied that his conduct after March 29th displays acquiescence of what steps had been taken by Duboff on March 29th.

[181] I am satisfied on the evidence that Lysenko did not complain to Duboff as alleged. In fact, I have found that no complaint was raised by Lysenko with respect to the release of the funds until July 8, 1997. Lysenko also actively participated in attempting to put together transactions dealing with the sale of the bonds or placing them in investment programs, all acts inconsistent, in my view, with opposition to the transfer to Laksman. Furthermore, at no time did he request from Laksman return of the $300,000 USD forwarded by Duboff.

[182] In my view, by his conduct, he ratified the steps that Duboff had taken on March 29th.

B. $10,000 USD ADVANCED ON MARCH 25TH

[183] On March 25, 1996, Duboff received instructions from Murphy in writing to transfer the $10,000 USD to Laksman, which Duboff did. The $10,000 was a deposit on German bonds. Again, the purchase of the German bonds was for the purposes of an investment program from which Crisdar was expected to receive a substantial amount of profit. Agreements were signed with Grange Trust in April with respect to these bonds, although nothing came of the suggested investment program.

[184] There is no evidence of a direct authorization by Lysenko or actual authority in Murphy to authorize Duboff to forward the funds, however, for the same reasons explained above, I am of the view that Lysenko ratified Duboff’s actions. This is evidenced by his conduct whereby he signed agreements with Grange Trust attempting to put these documents into an investment program and never complained to Duboff of the transfer until July 1997.

C. $4,025 USD PAID ON APRIL 3, 1996

[185] On April 3, 1996, Duboff transferred funds from his account of approximately $4,025 USD to Dobbins, in payment of invoices for certificates of deposit issued by Dobbins. While again there is no evidence that Duboff had specific authorization from Lysenko, the conduct of Lysenko serves, in my view, as ratification of Duboff’s actions.

D. RELEASE OF $2,000 USD

[186] The plaintiff originally claimed for return of the $2,000 advanced from Duboff’s trust account to Murphy on March 22nd. That particular claim was withdrawn at the outset of the trial as the documentation showed that Lysenko signed an authorization to Duboff to pay that sum to Murphy.

E. RELEASE OF $8,586.98 U.S. AUGUST 2, 1996

[187] On August 2, 1996, the firm’s bookkeeper signed a letter addressed to Crisdar Barbados at its Barbados address, although Lysenko’s evidence was that it was forwarded to him in Winnipeg. The letter stated as follows (Tabs 125 and 213):

This is to confirm that we have transferred $8,586.98 U.S. which converted to $11,637.93 CAD from the trust account and applied it on outstanding statements, as per attached.

Lysenko testified that he had never authorized this transfer and expressed his displeasure to Duboff shortly after receiving the letter. He indicated that he had never paid for Duboff’s accounts by transfer from trust, but always by cheque. He also testified that this letter was contrary to the understanding that he had with Duboff with respect to recovering his funds. He said Duboff attempted to explain the need for the sending of the cheques due to a request by his partners to bill outstanding time and the fact that Lysenko had the bonds which he had intended to purchase.

[188] Lysenko’s position was that until Duboff had arranged to get his money back there were not to be any further accounts. Duboff’s evidence was that there had been a conversation with Lysenko whereby the latter had consented to the funds being transferred. He also pointed out in his evidence that there was no complaint made with respect to these accounts until one year later in July 1997.

[189] I am satisfied that the transfer took place after statements of account had been submitted in accordance with Law Society rules set out in Practice Direction 89-03. Whether or not Lysenko consented to the transfer, the fact remains that the law firm was entitled upon presentation of its account to transfer funds in trust, unless they had been specifically set aside for other purposes by agreement between the parties and were not the subject of any claim or dispute between the firm and the client.

I discount Lysenko’s evidence on this point given that it is again predicated on the assumption that Duboff was to take steps to obtain his funds, which for reasons set out above I do not accept.

2. DID THE DEFENDANT FAIL IN HIS DUTY OF CARE TO THE PLAINTIFF?

[190] This aspect of the plaintiff’s claim is predicated on the position that the defendant Duboff owed a duty of care to the plaintiff which required him to:

(a) Make reasonable investigations with respect to individuals involved in the transaction relating to the bonds prior to the disbursement of the funds;
(b) To warn the plaintiff of the risk associated with forwarding the funds in the circumstances;
(c) To advise the plaintiff as to the risk involved in the transaction itself.

[191] The defendant’s position on this issue is that Duboff was not retained to perform investigations, to make inquiries, or to advise the plaintiff with respect to the transaction itself. His retainer was limited to reviewing documents, receiving and forwarding the funds. The defendant argues that the plaintiff, who is a sophisticated businessman, conducted his business in his own fashion without assistance from Duboff, or for that matter anyone else, as to the manner in which he did things.

[192] Duboff’s evidence was that his relationship with Lysenko was that he provided help with respect to banking matters and to ensure that the latter’s legal affairs were conducted within the law and convention. He was not involved in the business side of the transaction and was not asked for advice on the business efficacy of deals and never volunteered that advice. He was not always provided with the entire details of a transaction, but was only asked to perform limited tasks such as the preparation of contracts on deals that have already been agreed to, and asked for revisions to documents prepared by others such as Murphy.

[193] The plaintiff relies on the case of Watson v. Johnson, (1990), 66 Man.R. (2d) 10, where the court found an obligation on a lawyer to advise a client of the risks involved in proceeding in the transaction where the lawyer had particular knowledge of those risks as a result of his being involved in prior transactions involving the property. The land was being used in “flips” whereby the values were being inflated upon each transfer, a highly questionable procedure. The lawyer had sought advice from the Law Society and an independent law firm as to the propriety of his dealing and had been advised to withdraw from acting on the file. In finding liability, Mr. Justice Scollin stated as follows at p. 18:

[12] Much of the legal system is predicated on a rather cynical view of the well-springs of human behaviour and by its very nature law brings the lawyer, in many cases, into contact with unpleasant people and also with generally pleasant people who sometimes do unpleasant things. The realization of this is the foundation of the rule in the Code of Professional Conduct that the lawyer must be both candid and honest when advising his client. Paragraph 6 of the commentary on that rule (already quoted from Mr. Taylor's letter) is particularly apposite in this case:

"When advising his client the lawyer must never knowingly assist or encourage any dishonesty, fraud, crime or illegal conduct or instruct his client as to how to violate the law and avoid punishment. He should be on his guard against becoming the tool or dupe of an unscrupulous client or those who are associated with that client."

[13] It follows that, as a general rule, if proper and timely advice might have prevented loss or damage, the responsibility of the lawyer should not be diluted by the moral inadequacies of the client. Law and morals are a highly combustible mixture. Any client, even the most unpleasant and dishonest one, has as much right to receive advice as he has to reject it. Where the client's conduct, if continued, would be dishonest or contrary to law and he rejects the advice, then obviously the lawyer cannot continue to act. In this case, such advice should have been given to Barber and the buyers and sellers as soon as Deans was asked to participate in the civil fraud by deliberately swearing unsupportable affidavits of value and as soon as he began to face the serious conflicts which this manipulative scheme involved.

[194] The case may be distinguished, however, on the basis that there is no evidence that Duboff was made aware at any time prior to the disbursement of the funds that there would be an attempt to sell the bonds for a vastly inflated price to Grange Trust. Murphy was unable to testify that he gave that information to Duboff and Duboff had no recollection that he was aware of the details of the transaction before March 29th. In fact, to the best of his recollection he was not aware of the details of the sale to Grange Trust. Presumably, he would only have become aware when the documentation was forwarded to him some time in early April for his comments. The suspicious and possibly fragile nature of the transaction was only, by the evidence before me, available to him after the disbursement of the funds.

[195] The defendant relies upon Cordery's Law Relating to Solicitors, (8th ed.) F.T. Horne, ed, (London: Butterworths, 1988), at pp. 138 and 147, as support for the position that in the absence of special instructions, there is no duty on the part of the solicitor to advise his clients on matters of business, nor to advise the client on an entire transaction unless specifically retained to do so.

[196] In Silver v. Morris, [1995] N.S.J. No. 111 (C.A.), it was held that the client, a successful businesswoman, was not entitled to rely upon her lawyer to provide her with tax advice when not specifically requested. It was held that there was no duty on the lawyer to provide advice or even to advise the client to seek the expertise elsewhere.

[197] I agree with the defendant’s submission that, for the most part, Lysenko’s requests from Duboff were limited to assistance in obtaining letters of credit, payment of funds out of the trust account, and drafting of particular agreements reflecting the transactions which had been arrived at between Lysenko and his business partners. There is no evidence that Duboff was retained to advise Lysenko with respect to this transaction. In fact, Lysenko’s position at trial was that he was unaware that the transaction was to take place at all, being surprised on April 1st when told that the funds had been disbursed for the purchase of bonds.

[198] Duboff’s position is not helped by lack of any documentation setting out the terms of his retainer or expressing any concern to the client with respect to the payment of funds to a third party without any assurances that the alleged certificate of safekeeping served the purpose for which it was intended. A prudent solicitor may well have:

(a) sought information as to the entire transaction so as to properly advise the client on the nature of the documentation required to safeguard his interests and refused to be further involved if such information was not available;
(b) placed in writing the limited nature of his retainer and the risks involved.

Duboff did neither of these.

[199] While I have characterized that as perhaps imprudence in the circumstances, given the nature of the evidence before me, I find that the plaintiff has been unable to satisfy me on a balance of probabilities that Duboff failed in respect to the duties created by the services which he had undertaken to provide. I am further satisfied from the evidence of Lysenko that he did not seek nor rely upon Duboff’s advice on whether to advance the funds, nor did he instruct Murphy to do so.

3. BREACH OF DUTY WITH RESPECT TO INVESTMENT IN MR. TUBE STEAK

[200] On April 4, 1994, Lysenko provided Duboff with a personal cheque in the amount of $30,000 to purchase shares in an entity known as Mr. Tube Steak. The circumstances surrounding the exchange of the cheque is not the same from both parties. Only Lysenko and Duboff were parties to the conversation. Lysenko’s position is that he was asked by Duboff to invest, while Duboff’s recollection is that he mentioned that he was investing in the venture, as a result of which Lysenko asked that he be allowed to participate. While I have found that Duboff likely invited Lysenko to invest, in my view, nothing much turns on who asked whom. The more pertinent matter is the manner in which the investment was explained and what advice, if any, Duboff provided Lysenko at the time.

[201] Duboff was counsel to one or more of the Mr. Tube Steak corporations carrying on business in Manitoba. His position is that he was not counsel for Mr. Tube Steak Canada Inc., which was the corporation which intended to issue its shares publicly in the future and the company in which he was going to invest. It is without contention that Duboff advised Lysenko that he was investing in the company at the time with the expectation or hope that it would go public in the near future and that a profit could be obtained when the company went public.

[202] Lysenko’s evidence is that he was not aware that Duboff was counsel to Mr. Tube Steak, only that Duboff was going to be investing in the corporation. Nor did Duboff, according to Lysenko, explain that the venture was organized into a number of different corporations and only one was going to be going public, one for which he did not act.

[203] I prefer Duboff’s evidence on this point, namely, that the subject of his acting for Mr. Tube Steak in Manitoba would have likely occurred as a means of explaining why Duboff was investing in the first place and how the opportunity arose. However, I accept Lysenko’s evidence that no explanation was given of the different companies involved and that when he agreed to invest in the company, he was doing so in the belief that he was investing in a company called Mr. Tube Steak, not one of many corporations with that name.

[204] This would be consistent with the conversation which took place in May 1996 on the trip to San Francisco where Duboff pointed out to Lysenko that a Mr. Tube Steak company had gone public, but that it was different from the company in which they had invested. Duboff remembered the conversation but did not recall the specifics. Lysenko recalls specifically that the issue of the difference between the company they had invested in and the company going public was discussed.

[205] As to Duboff being a director of the company, the only evidence on that matter is that he did not become a director until after the investment had taken place and would not have been at the time that he spoke to Lysenko.

[206] Duboff, in the summer of 1997, after an inquiry from Lysenko, did prepare a declaration of trust confirming ownership of 100,000 shares in his name on behalf of Lysenko. The declaration of trust only referred to being a trustee of shares valued at $30,000 without specifying any amount. The amount was later set out in a letter and certificate sent to Lysenko by Mr. Tube Steak Services Ltd., whereby they advised him that he held 130,000 common shares in the name of Selta International.

[207] The plaintiff’s position is that Duboff owed a duty of care to advise Lysenko of his involvement with Tube Steak. Given the potential conflict of interest, he should have advised Lysenko to seek independent legal advice. The defendant’s position is that it was not necessary to send Lysenko to seek independent legal advice as Duboff was not an officer of the corporation, but merely its lawyer and shareholder. The defendant submits that Duboff did not stand to benefit financially from Lysenko’s investment and as such had no personal interest in the company, and that Lysenko had suffered no damages from the investment as he has received shares. Finally, the defendant contends that Lysenko would not have attended upon another lawyer to obtain independent legal advice even had it been suggested to him.

[208] The relationship between Duboff and Lysenko in April 1994 was that of a solicitor and his client, and while Duboff had not accepted a retainer from Lysenko with respect to advising him on the investment in Mr. Tube Steak, the fact that he was representing him in other matters created a fiduciary relationship which required that he be careful in his dealings with Lysenko in this matter. The fact that he represented Mr. Tube Steak and was a potential investor created, in my mind, a sufficient interest on his part which would be viewed as a conflict with Lysenko’s interests. The suggestion that Duboff had no interest in whether or not Lysenko invested in the company was not the subject of evidence before me. There was no evidence as to the financial status of the corporation and whether it was actively seeking investment for reasons of financial stability. Schachter’s evidence was that this was a highly speculative investment, which has been borne out.

[209] In my view, Duboff created a situation where he was obligated to advise Lysenko specifically of what the nature of his investment was, namely, in what corporation he was investing as opposed to simply suggesting it was a venture. He could not rely upon Lysenko’s alleged sophistication as Lysenko’s experience in business was not related to the sale and purchase of shares on the stock market. Any sophistication he did have was with respect to international trade transactions. Apart from advising Lysenko of the exact nature of the transaction, which I am not satisfied from the evidence that he did, it was also incumbent upon Duboff to suggest to Lysenko that he obtain independent legal advice.

[210] The defendant’s position is that Lysenko would have refused to consult another counsel. The defendant relies upon the following excerpt from the evidence of Lysenko where he is asked as follows:

Q. Okay. At the time that you made the investment did Duboff make any suggestions to you?

A. No. He was my partner. What he, would he want to suggest to me? I don’t understand.

Q. Okay, did he suggest that you go see another lawyer?

A. No.

Q. Did he suggest that you go see a financial adviser?

A. No. He know I never do this. He tell me I never will do this. I trust him. He invite me be a partner. I go.

[211] The manner in which the need for independent legal advice would have been explained to Lysenko may well have affected his view, especially if the exact nature of the investment was explained to him.

[212] I cannot accept the evidence proposed as being conclusive that Lysenko would not have obtained independent legal advice if advised to do so by Duboff, nor that he would necessarily agree to the purchase of the shares had the differences between the companies been explained to him.

[213] The onus of proving that this would have occurred is upon the defendant and I am not satisfied that they have met that burden. In the circumstances, Duboff was in breach of his fiduciary duty to Lysenko.

VIII. DAMAGES

[214] The plaintiff’s claim for damages was set out in a brief filed as part of the exhibits at trial and supplemented. They are as follows:

(1) Expenses with respect to the claim for unauthorized release of trust funds:

(a) $10,025 USD with respect to the release of trust funds on or about May 25, 1996 to Laksman, together with interest thereon;
(b) $300,000 USD relating to the release of trust funds on March 29, 1996 to Laksman and DDJ Security, together with interest;
(c) $4,025 USD with respect to the release of trust monies on April 3, 1996 to Dobbins;
(d) $8,586.98 USD with respect to the transfer of trust monies on August 2, 1996 towards payment of outstanding accounts;
(e) $289 USD with respect to the release of trust funds on February 23, 1996, March 19, 1996 and April 1, 1996.

(2) Expenses claimed with respect to steps taken by Lysenko and his companies in order to recover the $300,000 USD, including:

(a) Telephone expenses of $4,346.50;
(b) Travel to San Francisco in May of 1996 - $3,899.55;
(c) Travel to Toronto - $1,197.33;
(d) Payment to Customs Canada in Toronto - $1,717.75;
(e) Amount paid to the Royal Bank (Caribbean Corporation) to act as a custodian - $4,130.00;
(f) Telephone expenses for January 1 to December 31, 1997 - $2,465.03.

(3) Lysenko’s investment in Mr. Tube Steak – the amount of $30,000 plus interest.

(4) A claim for loss of opportunity and profit was abandoned at trial.


DAMAGES WITH RESPECT TO MARCH 29TH TRANSFERS (Items 1(b) and 2(a–f)

[215] With respect to the damages for the payment of $300,000 from the trust funds and other related amounts (items 1(b) and 2), having found that Lysenko was aware of the impending transactions with Laksman and ratified Duboff’s transfer of the funds, then the plaintiff’s claim for this aspect of damages fails.

[216] If I am wrong on the ratification issue, I am of the view that Lysenko was actively involved in pursuing the bonds and wishing to participate in the sale to Grange Trust, and acquiesced to the payment of $300,000, certainly after March 29th. He received bonds, which he holds today, and therefore has suffered no damages which are related to Duboff’s actions. No loss arises from his own attempts to obtain valueless documents.

[217] If I am incorrect in my assessment of his evidence and that he in fact never contemplated purchase of these bonds, then the damages would be as claimed under this heading together with interest starting on July 8, 1997, when he first made demand for the return of funds.

OTHER TRANSFERS FROM TRUST (Items 1(a), (c), (d) and (e))

[218] For the reasons outlined previously, I do not believe that the plaintiff has a claim against Duboff for payments made out of trust, either because Lysenko ratified the payments at a later time or the payments were authorized at the time they were made.

OVERPAYMENT ON ACCOUNTS AND CASH PAYMENTS

[219] In its revised brief as to damages, plaintiff’s counsel set out a claim for $15,000 which it is argued was given in cash to Duboff and not credited against the accounts. While it was Duboff’s evidence that from time to time he received cash towards accounts, it was also his evidence that the amount was either deposited in his trust account or applied against outstanding accounts. The plaintiff has not proven that any of these amounts were not accounted for other than the possibility of an amount slightly over $300 taken out for a trip to Chicago by Duboff involving the Nigerian Central Bank transaction. Duboff could not recall whether that amount was returned to trust or what became of it. I am not ready in these circumstances to find that Duboff did not make a proper accounting of it either to his accounting department or in other fashion with the client.

DAMAGES IN RESPECT OF MR. TUBE STEAK (Item 3)

[220] On the issue of the investment in Mr. Tube Steak the considerations are different.

[221] I have found that Duboff was in a fiduciary relationship with Lysenko with respect to this investment and that it was incumbent upon him in those circumstances to inform him fully of his own involvement in the corporations, and to advise him to seek independent counsel.

[222] There is no direct evidence as to the current value of those shares, although an indication can be had of the fact that Duboff in his own testimony indicated that he had written off his investment as a loss. In the circumstances I think it would be appropriate to assume that the shares have no marketable value.

[223] There is some debate in the jurisprudence as to how one should assess damages in the case of a breach of duty by a fiduciary. (See Canson Enterprises Ltd. v. Boughton & Co., 1991 CanLII 52 (S.C.C.), [1991] 3 S.C.R. 534.) In discussing the developments of the law and in particular commenting upon Canson, Freedman J.A. in Blanco v. Canada Trust Co. [2003] M.J. No. 153, commented that there are different remedies depending on the nature of the conduct which is seen as inappropriate. At para. 59 he stated:

… On the state of the evidence the conduct of Canada Trust appears to lie closer to the low end than the upper end of a continuum of conduct calling for a remedy. At the low end one might find cases of simple negligence, where a remedy of a restitutionary nature would be limited by principles of causation and remoteness. At that point on the spectrum the plaintiffs' loss would be seen, from a common sense perspective, to have nothing to do with Canada Trust's alleged failure, or breach of duty. At the upper end, the remedy, also restitutionary in character, would likely be premised on a finding of improper, deceitful or fraudulent conduct, or the like, and might involve disgorgement of benefit. At worst, so it appears, Canada Trust committed an act of negligence, with no allegation of improper conduct even being made. This could call for the application of traditional principles of remoteness and causation. …

[224] The facts in this case are not one where there has been an egregious abuse of position by a solicitor towards his client, nor is this a situation where the client was particularly vulnerable to entreaties by his solicitor, or where the solicitor was seeking to obtain a benefit to which he was not entitled. At most it can be said that Duboff was attempting to offer an opportunity to a client whose business he wished to develop in an investment from which he may himself recoup a benefit if the project was successful.

[225] Nevertheless, I am of the view that there was a fiduciary duty which was breached and that in this case the cause of the loss to Lysenko can be related to the failure to abide by the duty. Accordingly, a restitutionary approach is the appropriate one in the circumstances and I find that Lysenko is entitled to recovery of the sum of $30,000.

[226] As to interest, the letter sent to Duboff on July 8, 1997 does not demand return of the sum, but rather an accounting with respect to the purchase of the shares which was provided by Duboff. Even in the statutory declaration of September 4, 1997, at paragraph 6 the plaintiff does not seek return of the funds, but rather seeks assignment and transfer of the shares in a declaration of trust to him, or if the shares have not been purchased, then return of the funds.

[227] The first indication before the court of a claim being advanced by or on behalf of Selta by Lysenko for the return of the $30,000 is in its brief to the Reimbursement Fund of the Law Society of Manitoba on May 5, 1998. Accordingly, it is from that date only that I would grant pre-judgment interest to Lysenko for the $30,000 invested in Mr. Tube Steak. These shares should be assigned to Duboff as it would only be fair that he be entitled to whatever value the shares may have at this time.

IX. COSTS

[228] The plaintiff seeks solicitor and client costs. Given the only breach that I have found, I do not believe that this is an appropriate case for solicitor and client costs. In light of the relative successes of the parties in this case, namely that the vast amount of the trial was spent with respect to claims advanced by the plaintiff which were unsuccessful, the defendant is entitled to costs less an adjustment for that portion of the trial for which the plaintiff was successful. I therefore award the defendant 75% of its costs. If the parties are unable to agree as to what that amount should be, they may speak to the issue.

X. THIRD PARTY CLAIM

[229] The defendant has third partied Murphy, alleging that Murphy held himself out as Lysenko’s agent and that Duboff relied upon those representations when disbursing the funds. If the court finds that Murphy was not so authorized, then it claims against Murphy for breach of warranty of authority.

[230] While I have concluded that Duboff was under the impression that Lysenko wanted to have the funds transferred out on March 29th, I am not satisfied from the evidence that Duboff has proven that Murphy gave him specific instructions to do so without confirming with Lysenko.

[231] It is unlikely that Duboff would have forwarded the funds without believing that he had the instructions to do so from Lysenko, or from Murphy on Lysenko’s instructions. It does not equate with a conclusion that Murphy made a direct representation that Lysenko had authorized him to instruct Duboff to transfer the funds.

[232] The concept of ratification would also apply to this portion of the claim since, if there was a representation by Murphy that he was authorized to instruct Duboff to forward the funds but was not in fact authorized, then Lysenko’s conduct after March 29th would have served as ratification for Murphy’s actions.

[233] For these reasons, I will dismiss the third party claim.

[234] Murphy was not represented by counsel at trial, however, he did have counsel represent him at the early part of the matter. If Murphy wishes to advance a claim as to costs, those costs will be assessed against the plaintiff. If there is no agreement, I will hear the parties.

XI. CONCLUSION

[235] In summary, the plaintiff will have judgment against the defendant for the sum of $30,000 plus pre-judgment interest from May 5, 1998. All other claims by the plaintiff are dismissed, as well as the third party claim.


________________________
Monnin, C.J.

05 July 2009

"The Present American Regime"



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To: Spineless Politicians

We, as citizens of the sovereign States of the South, proclaim before Almighty God and before all nations of the earth, that we are a separate and distinct people, with an honourable heritage and culture worthy of protection and preservation. Standing in the very place where our President Jefferson Davis stood in 1861, we declare that Southerners are entitled, like all peoples, to self-determination. Looking ahead to the time when political self-determination is a reality, we hereby pledge ourselves to the preservation of our culture in preparation for, and in the fervent hope of, the coming of that day.

To this end, we exhort all Southerners to abjure the realm of the American Empire that now threatens the liberties of our families and communities, and of the corrupt and sterile national culture that pervades this land. The national culture of the United States is violent and profane, coarse and rude, cynical and deviant, and repugnant to the Southern people and to every people with authentic Christian sensibilities. Purveyors of the national culture have everywhere lowered standards of morality and debased human dignity. They have appealed to mankind's worst impulses through profanity and obscenity in the arts and literature; they have depicted decadence and debauchery as normal and desirable; they have distorted Southern symbols and denied our right to interpret or display those symbols; they have assumed the authority of parents in the areas of religion and education; they thus have driven a wedge between the generations; they have prostituted all areas of thought and learning for market share; they have demonised Southern heroes and canonised tyrants and war criminals; they have distorted Southern history to advance their ideas of social justice; they thus have driven a wedge between the races and regions; they have destroyed hope; they have spread despair; they have called good evil and evil good; they have everywhere substituted the opinions of men for the decrees of God.

We, as Southerners, will, as far as possible, decline to participate in this alien, national culture. Rather, we shall seek to defend and perpetuate our noble heritage and be of service to our people. In doing so, we will emulate our great heroes - Washington, Jefferson, Henry, Calhoun, Davis, Lee, and Jackson, among others. In an attempt to preserve Southern language, speech, manners, music, literature, tradition, thought, custom, and faith, we pledge to cooperate economically to build and sustain our separate educational and cultural institutions. We intend regional and local action; pledging blood, treasure, and sacred honour, we shall starve the national malignance and nourish the goodness close at hand.

Our cultural inheritance is not based upon the abstract slogans, armed doctrines, and sanctified greed that characterizes the present American regime. Instead, it is based on the permanent things that order and sustain life: faith, family, tradition, community, and private property; loyalty, courage, and honour. Cut off from these permanent things, the South will become only a point on the compass, and our descendants will justifiably curse us for the destruction of their noble heritage.

To our Southern forebears the triune God gave the inspiration and wisdom to create a confederated, constitutional republic based on the principle of local self-government and sustained by a vibrant and vital cultural heritage. We consider our heritage a sublime and unmerited blessing and we cherish it. Today it is threatened as never before by the godless national culture of death, supported by an overbearing government that acknowledges no limits to its power.

We reaffirm the cultural inheritance of our honourable forefathers and declare to the world our intention to defend and preserve it. The preservation of historic cultures - especially those that establish liberty - has never been cheap or easy. We hereby proclaim to the world that the struggle to protect and advance our Southern cultural heritage begins in earnest today...Henceforth, we shall stand steadfast in defense of our inheritance as free men and women of the South, and we welcome all who share our principles to stand with us.

As witness to our intent, we affix our signatures to this Declaration of Southern Cultural Independence...invoking the blessings of our Lord, Jesus Christ, on a just cause.

Sincerely,

The Undersigned




The Declaration of Southern Cultural Independence Petition to Spineless Politicians was created by www.FreeMississippi.org and written by John Thomas Cripps.

The United States of America (USA)

"Those Robbers and Murderers, Who Call Themselves Governments" and "the Lenders of Blood-Money"


The Constitution of No Authority

by Lysander Spooner

The following is reprinted in its entirety from the text of Spooner's The Constitution of No Authority, vol. 6 [sic] of his No Treason series (Boston: Lysander Spooner, 1870). It has been edited in terms of both its original content and formatting.


I.

THE Constitution has no inherent authority or obligation. It has no authority or obligation at all, unless as a contract between man and man. And it does not so much as even purport to be a contract between persons now existing. [. . . .] And it can be supposed to have been a contract [. . .] only between persons who had already come to years of discretion, so as to be competent to make reasonable and obligatory contracts. Furthermore, we know, historically, that only a small portion even of the people then existing were consulted on the subject, or asked, or permitted to express either their consent or dissent in any formal manner. Those persons, if any, who did give their consent formally, are all dead now. [. . . .] And the Constitution, so far as it was their contract, died with them. They had no natural power or right to make it obligatory upon their children. It is not only plainly impossible, in the nature of things, that they could bind their posterity, but they did not even attempt to bind them. That is to say, the instrument does not purport to be an agreement between any body but “the people” then existing; nor does it, either expressly or impliedly, assert any right, power, or disposition, on their part, to bind any body but themselves. Let us see. Its language is:

“We, the people of the United States [that is, the people then existing in the United States], in order to form a more perfect union, insure domestic tranquillity, provide for the common defence, promote the general welfare, and secure the blessings of liberty to ourselves and our posterity, do ordain and establish this Constitution for the United States of America.”

It is plain, in the first place, that this language, as an agreement, purports to be only what it at most really was, viz: a contract between the people then existing; and, of necessity, binding, as a contract, only upon those then existing. In the second place, the language neither expresses nor implies that they had any intention or desire, nor that they imagined they had any right or power, to bind their “posterity” to live under it. It does not say that their “posterity” will, shall, or must live under it. It only says, in effect, that their hopes and motives in adopting it were that it might prove useful to their posterity, as well as to themselves, by promoting their union, safety, tranquillity, liberty, etc.

Suppose an agreement were entered into, in this form:

We, the people of Boston, agree to maintain a fort on Governor’s Island, to protect ourselves and our posterity against invasion.

This agreement, as an agreement, would clearly bind nobody but the people then existing. Secondly, it would assert no right, power, or disposition, on their part, to compel their “posterity” to maintain such a fort. It would only indicate that the supposed welfare of their posterity was one of the motives that induced the original parties to enter into the agreement.

When a man says he is building a house for himself and his posterity, he does not mean to be understood as saying that he has any thought of binding them, nor is it to be inferred that he is so foolish as to imagine that he has any right or power to bind them, to live in it. So far as they are concerned, he only means to be understood as saying that his hopes and motives, in building it, are that they, or at least some of them, may find it for their happiness to live in it.

So when a man says he is planting a tree for himself and his posterity, he does not mean to be understood as saying that he has any thought of compelling them, nor is it to be inferred that he is such a simpleton as to imagine that he has any right or power to compel them, to eat the fruit. So far as they are concerned, he only means to say that his hopes and motives, in planting the tree, are that its fruit may be agreeable to them.

So it was with those who originally adopted the Constitution. Whatever may have been their personal intentions, the legal meaning of their language, so far as their “posterity” was concerned, simply was, that their hopes and motives, in entering into the agreement, were that it might prove useful and acceptable to their posterity; that it might promote their union, safety, tranquillity, and welfare; and that it might tend “to secure to them the blessings of liberty.” The language does not assert nor at all imply, any right, power, or disposition, on the part of the original parties to the agreement, to compel their “posterity” to live under it. If they had intended to bind their posterity to live under it, they should have said that their object was, not “to secure to them the blessings of liberty,” but to make slaves of them; for if their “posterity” are bound to live under it, they are nothing less than the slaves of their foolish, tyrannical, and dead grandfathers.

It cannot be said that the Constitution formed “the people of the United States,” for all time, into a corporation. It does not speak of “the people” as a corporation, but as individuals. A corporation does not describe itself as “we,” nor as “people,” nor as “ourselves.” Nor does a corporation, in legal language, have any “posterity.” It supposes itself to have, and speaks of itself as having, perpetual existence, as a single individuality.

Moreover, no body of men, existing at any one time, have the power to create a perpetual corporation. A corporation can become practically perpetual only by the voluntary accession of new members, as the old ones die off. But for this voluntary accession of new members, the corporation necessarily dies with the death of those who originally composed it.

Legally speaking, therefore, there is, in the Constitution, nothing that professes or attempts to bind the “posterity” of those who establish it.

If, then, those who established the Constitution, had no power to bind, and did not attempt to bind, their posterity, the question arises, whether their posterity have bound themselves? If they have done so, they can have done so in only one or both of these two ways, viz. by voting, and paying taxes.


II.

Let us consider these two matters, voting and tax paying, separately. And first of voting.

All the voting that has ever taken place under the Constitution, has been of such a kind that it not only did not pledge the whole people to support the Constitution, but it did not even pledge any one of them to do so, as the following considerations show.

1. In the very nature of things, the act of voting could bind nobody but the actual voters. But owing to the property qualifications required, it is probable that, during the first twenty or thirty years under the Constitution, not more than one tenth, fifteenth, or perhaps twentieth of the whole population (black and white, men, women, and minors) were permitted to vote. Consequently, so far as voting was concerned, not more than one tenth, fifteenth, or twentieth of those then existing, could have incurred any obligation to support the Constitution.

[. . . .]

3. It cannot be said that, by voting, a man pledges himself to support the Constitution, unless the act of voting be a perfectly voluntary one on his part. Yet the act of voting cannot properly be called a voluntary one on the part of any very large number of those who do vote. It is rather a measure of necessity imposed upon them by others, than one of their own choice. On this point I repeat what was said in a former number,* viz:

“In truth, in the case of individuals, their actual voting is not to be taken as proof of consent, even for the time being. On the contrary, it is to be considered that, without his consent having even been asked a man finds himself environed by a government that he cannot resist; a government that forces him to pay money, render service, and forego the exercise of many of his natural rights, under peril of weighty punishments. He sees, too, that other men practise this tyranny over him by the use of the ballot. He sees further, that, if he will but use the ballot himself, he has some chance of relieving himself from this tyranny of others, by subjecting them to his own. In short, he finds himself, without his consent, so situated that, if he use the ballot, he may become a master; if he does not use it, he must become a slave. And he has no other alternative than these two. In self-defence, he attempts the former. His case is analogous to that of a man who has been forced into battle, where he must either kill others, or be killed himself. Because, to save his own life in battle, a man attempts to take the lives of his opponents, it is not to be inferred that the battle is one of his own choosing. Neither in contests with the ballot—which is a mere substitute for a bullet—because, as his only chance of self-preservation, a man uses a ballot, is it to be inferred that the contest is one into which he voluntarily entered; that he voluntarily set up all his own natural rights, as a stake against those of others, to be lost or won by the mere power of numbers. On the contrary, it is to be considered that, in an exigency into which he had been forced by others, and in which no other means of self-defence offered, he, as a matter of necessity, used the only one that was left to him.

“Doubtless the most miserable of men, under the most oppressive government in the world, if allowed the ballot, would use it, if they could see any chance of thereby meliorating their condition. But it would not, therefore, be a legitimate inference that the government itself, that crushes them, was one which they had voluntarily set up, or ever consented to.

“Therefore, a man’s voting under the Constitution of the United States, is not to be taken as evidence that he ever freely assented to the Constitution, even for the time being. Consequently we have no proof that any very large portion, even of the actual voters of the United States, ever really and voluntarily consented to the Constitution, even for the time being. Nor can we ever have such proof, until every man is left perfectly free to consent, or not, without thereby subjecting himself or his property to be disturbed or injured by others.”


As we can have no legal knowledge as to who votes from choice, and who from the necessity thus forced upon him, we can have no legal knowledge, as to any particular individual, that he voted from choice; or, consequently, that by voting, he consented, or pledged himself, to support the government. Legally speaking, therefore, the act of voting utterly fails to pledge any one to support the government. It utterly fails to prove that the government rests upon the voluntary support of any body. On general principles of law and reason, it cannot be said that the government has any voluntary supporters at all, until it can be distinctly shown who its voluntary supporters are.

4. As taxation is made compulsory on all, whether they vote or not, a large proportion of those who vote, no doubt do so to prevent their own money being used against themselves; when, in fact, they would have gladly abstained from voting, if they could thereby have saved themselves from taxation alone, to say nothing of being saved from all the other usurpations and tyrannies of the government. To take a man’s property without his consent, and then to infer his consent because he attempts, by voting, to prevent that property from being used to his injury, is a very insufficient proof of his consent to support the Constitution. It is, in fact, no proof at all. And as we can have no legal knowledge as to who the particular individuals are, if there are any, who are willing to be taxed for the sake of voting, or who would prefer freedom from taxation to the privilege of voting, we can have no legal knowledge that any particular individual consents to be taxed for the sake of voting; or, consequently, consents to support the Constitution.

5. At nearly all elections, votes are given for various candidates for the same office. Those who vote for the unsuccessful candidates cannot properly be said to have voted to sustain the Constitution. They may, with more reason, be supposed to have voted, not to support the Constitution, but specially to prevent the tyranny which they anticipate the successful candidate intends to practise upon them under color of the Constitution; and therefore may reasonably be supposed to have voted against the Constitution itself. This supposition is the more reasonable, inasmuch as such voting is the only mode allowed to them of expressing their dissent to the Constitution.

6. Many votes are usually given for candidates who have no prospect of success. Those who give such votes may reasonably be supposed to have voted as they did, with a special intention, not to support, but to obstruct the execution of, the Constitution; and, therefore, against the Constitution itself.

7. As all the different votes are given secretly (by secret ballot), there is no legal means of knowing, from the votes themselves, who votes for, and who against, the Constitution. Therefore voting affords no legal evidence that any particular individual supports the Constitution. And where there can be no legal evidence that any particular individual supports the Constitution, it cannot legally be said that anybody supports it. It is clearly impossible to have any legal proof of the intentions of large numbers of men, where there can be no legal proof of the intentions of any particular one of them.

8. There being no legal proof of any man’s intentions, in voting, we can only conjecture them. As a conjecture, it is probable that a very large proportion of those who vote, do so on this principle, viz., that if, by voting, they could but get the government into their own hands (or that of their friends), and use its powers against their opponents, they would then willingly support the Constitution; but if their opponents are to have the power, and use it against them, then they would not willingly support the Constitution.

In short, men’s voluntary support of the Constitution is doubtless, in most cases, wholly contingent upon the question whether, by means of the Constitution, they can make themselves masters, or are to be made slaves.

Such contingent consent as that is, in law and reason, no consent at all.

9. As every body who supports the Constitution by voting (if there are any such) does so secretly (by secret ballot), and in a way to avoid all personal responsibility for the acts of his agents or representatives, it cannot legally or reasonably be said that anybody at all supports the Constitution by voting. No man can reasonably or legally be said to do such a thing as to assent to, or support, the Constitution, unless he does it openly, and in a way to make himself personally responsible for the acts of his agents, so long as they act within the limits of the power he delegates to them.

10. As all voting is secret, (by secret ballot,) and as all secret governments are necessarily only secret bands of robbers, tyrants, and murderers, the general fact that our government is practically carried on by means of such voting, only proves that there is among us a secret band of robbers, tyrants and murderers, whose purpose is to rob, enslave, and, so far as necessary to accomplish their purposes, murder, the rest of the people. The simple fact of the existence of such a band does nothing towards proving that “the people of the United States,” or any one of them, voluntarily supports the Constitution.

For all the reasons that have now been given, voting furnishes no legal evidence as to who the particular individuals are (if there are any), who voluntarily support the Constitution. It therefore furnishes no legal evidence that any body supports it voluntarily.

So far, therefore, as voting is concerned, the Constitution, legally speaking, has no supporters at all.

And, as matter of fact, there is not the slightest probability that the Constitution has a single bona fide supporter in the country. That is to say, there is not the slightest probability that there is a single man in the country, who both understands what the Constitution really is, and sincerely supports it for what it really is.

The ostensible supporters of the Constitution, like the ostensible supporters of most other governments, are made up of three classes, viz.: 1. Knaves, a numerous and active class, who see in the government an instrument which they can use for their own aggrandizement or wealth. 2. Dupes—a large class, no doubt—each of whom, because he is allowed one voice out of millions in deciding what he may do with his own person and his own property, and because he is permitted to have the same voice in robbing, enslaving, and murdering others, that others have in robbing, enslaving, and murdering himself, is stupid enough to imagine that he is a “free man,” a “sovereign”; that this is “a free government”; “a government of equal rights,” “the best government on earth,”* and such like absurdities. 3. A class who have some appreciation of the evils of government, but either do not see how to get rid of them, or do not choose to so far sacrifice their private interests as to give themselves seriously and earnestly to the work of making a change.


III.

The payment of taxes, being compulsory, of course furnishes no evidence that any one voluntarily supports the Constitution.

It is true that the theory of our Constitution is, that all taxes are paid voluntarily; that our government is a mutual insurance company, voluntarily entered into by the people with each other; that each man makes a free and purely voluntary contract with all others who are parties to the Constitution, to pay so much money for so much protection, the same as he does with any other insurance company; and that he is just as free not to be protected, and not to pay any tax, as he is to pay a tax, and be protected.

But this theory of our government is wholly different from the practical fact. The fact is that the government, like a highwayman, says to a man: Your money, or your life. And many, if not most, taxes are paid under the compulsion of that threat.

The government does not, indeed, waylay a man in a lonely place, spring upon him from the road side, and, holding a pistol to his head, proceed to rifle his pockets. But the robbery is none the less a robbery on that account; and it is far more dastardly and shameful.

The highwayman takes solely upon himself the responsibility, danger, and crime of his own act. He does not pretend that he has any rightful claim to your money, or that he intends to use it for your own benefit. He does not pretend to be anything but a robber. He has not acquired impudence enough to profess to be merely a “protector,” and that he takes men’s money against their will, merely to enable him to “protect” those infatuated travellers, who feel perfectly able to protect themselves, or do not appreciate his peculiar system of protection. He is too sensible a man to make such professions as these. Furthermore, having taken your money, he leaves you, as you wish him to do. He does not persist in following you on the road, against your will; assuming to be your rightful “sovereign,” on account of the “protection” he affords you. He does not keep “protecting” you, by commanding you to bow down and serve him; by requiring you to do this, and forbidding you to do that; by robbing you of more money as often as he finds it for his interest or pleasure to do so; and by branding you as a rebel, a traitor, and an enemy to your country, and shooting you down without mercy, if you dispute his authority, or resist his demands. He is too much of a gentleman to be guilty of such impostures, and insults, and villanies as these. In short, he does not, in addition to robbing you, attempt to make you either his dupe or his slave.

The proceedings of those robbers and murderers, who call themselves “the government,” are directly the opposite of these of the single highwayman.

In the first place, they do not, like him, make themselves individually known; or, consequently, take upon themselves personally the responsibility of their acts. On the contrary, they secretly (by secret ballot) designate some one of their number to commit the robbery in their behalf, while they keep themselves practically concealed. They say to the person thus designated:

Go to A— B—, and say to him that “the government” has need of money to meet the expenses of protecting him and his property. If he presumes to say that he has never contracted with us to protect him, and that he wants none of our protection, say to him that that is our business, and not his; that we choose to protect him, whether he desires us to do so or not; and that we demand pay, too, for protecting him. If he dares to inquire who the individuals are, who have thus taken upon themselves the title of “the government,” and who assume to protect him, and demand payment of him, without his having ever made any contract with them, say to him that that, too, is our business, and not his; that we do not choose to make ourselves individually known to him; that we have secretly (by secret ballot) appointed you our agent to give him notice of our demands, and, if he complies with them, to give him, in our name, a receipt that will protect him against any similar demand for the present year. If he refuses to comply, seize and sell enough of his property to pay not only our demands, but all your own expenses and trouble beside. If he resists the seizure of his property, call upon the bystanders to help you (doubtless some of them will prove to be members of our band). If, in defending his property, he should kill any of our band who are assisting you, capture him at all hazards; charge him (in one of our courts) with murder, convict him, and hang him. If he should call upon his neighbors, or any others who, like him, may be disposed to resist our demands, and they should come in large numbers to his assistance, cry out that they are all rebels and traitors; that “our country” is in danger; call upon the commander of our hired murderers; tell him to quell the rebellion and “save the country,” cost what it may. Tell him to kill all who resist, though they should be hundreds of thousands; and thus strike terror into all others similarly disposed. See that the work of murder is thoroughly done, that we may have no further trouble of this kind hereafter. When these traitors shall have thus been taught our strength and our determination, they will be good loyal citizens for many years, and pay their taxes without a why or a wherefore.

It is under such compulsion as this that taxes, so called, are paid. And how much proof the payment of taxes affords, that the people consent to support “the government,” it needs no further argument to show.

2. Still another reason why the payment of taxes implies no consent, or pledge, to support the government, is that the tax payer does not know, and has no means of knowing, who the particular individuals are who compose “the government.” To him “the government” is a myth, an abstraction, an incorporeality, with which he can make no contract, and to which he can give no consent, and make no pledge. He knows it only through its pretended agents. “The government” itself he never sees. He knows indeed, by common report, that certain persons, of a certain age, are permitted to vote; and thus to make themselves parts of, or (if they choose) opponents of, the government, for the time being. But who of them do thus vote, and especially how each one votes (whether so as to aid or oppose the government), he does not know; the voting being all done secretly (by secret ballot). Who, therefore, practically compose “the government,” for the time being, he has no means of knowing. Of course he can make no contract with them, give them no consent, and make them no pledge. Of necessity, therefore, his paying taxes to them implies, on his part, no contract, consent, or pledge to support them—that is, to support “the government,” or the Constitution.

3. Not knowing who the particular individuals are, who call themselves “the government,” the tax payer does not know whom he pays his taxes to. All he knows is that a man comes to him, representing himself to be the agent of “the government”—that is, the agent of a secret band of robbers and murderers, who have taken to themselves the title of “the government,” and have determined to kill every body who refuses to give them whatever money they demand. To save his life, he gives up his money to this agent. But as this agent does not make his principals individually known to the tax payer, the latter, after he has given up his money, knows no more who are “the government”—that is, who were the robbers—than he did before. To say, therefore, that by giving up his money to their agent, he entered into a voluntary contract with them, that he pledges himself to obey them, to support them, and to give them whatever money they should demand of him in the future, is simply ridiculous.

4. All political power, as it is called, rests practically upon this matter of money. Any number of scoundrels, having money enough to start with, can establish themselves as a “government;” because, with money, they can hire soldiers, and with soldiers extort more money; and also compel general obedience to their will. It is with government, as Cæsar said it was in war, that money and soldiers mutually supported each other; that with money he could hire soldiers, and with soldiers extort money. So these villains, who call themselves governments, well understand that their power rests primarily upon money. With money they can hire soldiers, and with soldiers extort money. And, when their authority is denied, the first use they always make of money, is to hire soldiers to kill or subdue all who refuse them more money.

For this reason, whoever desires liberty, should understand these vital facts, viz.: 1. That every man who puts money into the hands of a “government” (so called), puts into its hands a sword which will be used against himself, to extort more money from him, and also to keep him in subjection to its arbitrary will. 2. That those who will take his money, without his consent, in the first place, will use it for his further robbery and enslavement, if he presumes to resist their demands in the future. 3. That it is a perfect absurdity to suppose that any body of men would ever take a man’s money without his consent, for any such object as they profess to take it for, viz., that of protecting him; for why should they wish to protect him, if he does not wish them to do so? To suppose that they would do so, is just as absurd as it would be to suppose that they would take his money without his consent, for the purpose of buying food or clothing for him, when he did not want it. 4. If a man wants “protection,” he is competent to make his own bargains for it; and nobody has any occasion to rob him, in order to “protect” him against his will. 5. That the only security men can have for their political liberty, consists in their keeping their money in their own pockets, until they have assurances, perfectly satisfactory to themselves, that it will be used as they wish it to be used, for their benefit, and not for their injury. 6. That no government, so called, can reasonably be trusted for a moment, or reasonably be supposed to have honest purposes in view, any longer than it depends wholly upon voluntary support.

These facts are all so vital and so self-evident, that it cannot reasonably be supposed that any one will voluntarily pay money to a “government,” for the purpose of securing its protection, unless he first makes an explicit and purely voluntary contract with it for that purpose.

It is perfectly evident, therefore, that neither such voting, nor such payment of taxes, as actually takes place, proves anybody’s consent, or obligation, to support the Constitution. Consequently we have no evidence at all that the Constitution is binding upon anybody, or that anybody is under any contract or obligation whatever to support it. And nobody is under any obligation to support it.


IV

The Constitution not only binas nobody now, but it never did bind anybody. It never bound anybody, because it was never agreed to by any body in such a manner as to make it, on general principles of law and reason, binding upon him.

It is a general principle of law and reason, that a written instrument binds no one until he has signed it. This principle is so inflexible a one, that even though a man is unable to write his name, he must still “make his mark,” before he is bound by a written contract. This custom was established ages ago, when few men could write their names; when a clerk—that is, a man who could write—was so rare and valuable a person, that even if he were guilty of high crimes, he was entitled to pardon, on the ground that the public could not afford to lose his services. Even at that time, a written contract must be signed; and men who could not write, either “made their mark,” or signed their contracts by stamping their seals upon wax affixed to the parchment on which their contracts were written. Hence the custom of affixing seals, that has continued to this time.

The law holds, and reason declares, that if a written instrument is not signed, the presumption must be that the party to be bound by it, did not choose to sign it, or to bind himself by it. And law and reason both give him until the last moment, in which to decide whether he will sign it, or not. Neither law nor reason requires or expects a man to agree to an instrument, until it is written; for until it is written, he cannot know its precise legal meaning. And when it is written, and he has had the opportunity to satisfy himself of its precise legal meaning, he is then expected to decide, and not before, whether he will agree to it or not. And if he do not then sign it, his reason is supposed to be, that he does not choose to enter into such a contract. The fact that the instrument was written for him to sign, or with the hope that he would sign it, goes for nothing.

Where would be the end of fraud and litigation, if one party could bring into court a written instrument, without any signature, and claim to have it enforced, upon the ground that it was written for another man to sign? that this other man had promised to sign it? that he ought to have signed it? that he had had the opportunity to sign it, if he would? but that he had refused or neglected to do so? yet that is the most that could ever be said of the Constitution.* The very judges, who profess to derive all their authority from the Constitution—from an instrument that nobody ever signed—would spurn any other instrument, not signed, that should be brought before them for adjudication.

Moreover, a written instrument must, in law and reason, not only be signed, but must also be delivered to the party (or to some one for him), in whose favor it is made, before it can bind the party making it. The signing is of no effect, unless the instrument be also delivered. And a party is at perfect liberty to refuse to deliver a written instrument, after he has signed it. He is as free to refuse to deliver it, as he is to refuse to sign it. The constitution was not only never signed by anybody, but it was never delivered by anybody to anybody, or to anybody’s agent or attorney. It can therefore be of no more validity as a contract, than can any other instrument, that was never signed or delivered.


V

[. . . .]

We all know [. . .] how careful most men are to have their contracts written and signed[.] For example, most men, if they have money due them, of no larger amount than five or ten dollars, are careful to take a note for it. If they buy even a small bill of goods, paying for it at the time of delivery, they take a receipted bill for it. If they pay a small balance of a book account, or any other small debt previously contracted, they take a written receipt for it.

Furthermore, the law everywhere (probably) in our country, as well as in England, requires that a large class of contracts, such as wills, deeds, etc., shall not only be written and signed, but also sealed, witnessed, and acknowledged. [. . . .]

Such are some of the precautions which the laws require, and which individuals—from motives of common prudence, even in cases not required by law—take, to put their contracts in writing, and have them signed, &c., to guard against all uncertainties and controversies in regard to their meaning and validity. And yet we have what purports, or professes, or is claimed, to be a contract—the Constitution—made [. . .] by men who are now all dead, and who never had any power to bind us, but which (it is claimed) has nevertheless bound [. . .] generations of men, consisting of many millions, and which (it is claimed) will be binding upon all the millions that are to come; but which nobody ever signed, sealed, delivered, witnessed, or acknowledged; and which few persons, compared with the whole number that are claimed to be bound by it, have ever read, or even seen, or ever will read, or see. And of those who ever have read it, or ever will read it, scarcely any two, perhaps no two, have ever agreed, or ever will agree, as to what it means.

Moreover, this supposed contract, which would not be received in any court of justice sitting under its authority, if offered to prove a debt of five dollars, owing by one man to another, is one by which—as it is generally interpreted by those who pretend to administer it—all men, women and children throughout the country, and through all time, surrender not only all their property, but also their liberties, and even lives, into the hands of men who by this supposed contract, are expressly made wholly irresponsible for their disposal of them. And we are so insane, or so wicked, as to destroy property and lives without limit, in fighting to compel men to fulfil a supposed contract, which, inasmuch as it has never been signed by anybody, is, on general principles of law and reason—such principles as we are all governed by in regard to other contracts—the merest waste paper, binding upon nobody, fit only to be thrown into the fire; or, if preserved, preserved only to serve as a witness and a warning of the folly and wickedness of mankind.


VI.

It is no exaggeration, but a literal truth, to say that, by the Constitution—not as I interpret it, but as it is interpreted by thosewho pretend to administer it—the properties, liberties, and lives of the entire people of the United States are surrendered unreservedly into the hands of men who, it is provided by the Constitution itself, shall never be “questioned” as to any disposal they make of them.

Thus the Constitution (Art. 1, Sec. 6) provides that, “for any speech or debate [or vote,] in either house, they [the senators and representatives] shall not be questioned in any other place.”

The whole law-making power is given to these senators and representatives, [when acting by a two-thirds vote]* ; and this provision protects them from all responsibility for the laws they make.

The Constitution also enables them to secure the execution of all their laws, by giving them power to withhold the salaries of, and to impeach and remove, all judicial and executive officers, who refuse to execute them.

Thus the whole power of the government is in their hands, and they are made utterly irresponsible for the use they make of it. What is this but absolute, irresponsible power?

It is no answer to this view of the case to say that these men are under oath to use their power only within certain limits; for what care they, or what should they care, for oaths or limits, when it is expressly provided, by the Constitution itself, that they shall never be “questioned,” or held to any responsibility whatever, for violating their oaths, or transgressing those limits?

Neither is it any answer to this view of the case to say that the particular individuals holding this power can be changed once in two or six years; for the power of each set of men is absolute during the term for which they hold it; and when they can hold it no longer, they are succeeded only by men whose power will be equally absolute and irresponsible.

Neither is it any answer to this view of the case to say that the men holding this absolute, irresponsible power, must be men chosen by the people (or portions of them) to hold it. A man is none the less a slave because he is allowed to choose a new master once in a term of years. Neither are a people any the less slaves because permitted periodically to choose new masters. What makes them slaves is the fact that they now are, and are always hereafter to be, in the hands of men whose power over them is, and always is to be, absolute and irresponsible.*

The right of absolute and irresponsible dominion is the right of property, and the right of property is the right of absolute, irresponsible dominion. The two are identical; the one necessarily implying the other. Neither can exist without the other. If, therefore, Congress have that absolute and irresponsible law-making power, which the Constitution—according to their interpretation of it—gives them, it can only be because they own us as property. If they own us as property, they are our masters, and their will is our law. If they do not own us as property, they are not our masters, and their will, as such, is of no authority over us.

But these men who claim and exercise this absolute and irresponsible dominion over us, dare not be consistent, and claim either to be our masters, or to own us as property. They say they are only our servants, agents, attorneys, and representatives. But this declaration involves an absurdity, a contradiction. No man can be my servant, agent, attorney, or representative, and be, at the same time, uncontrollable by me, and irresponsible to me for his acts. It is of no importance that I appointed him, and put all power in his hands. If I made him uncontrollable by me, and irresponsible to me, he is no longer my servant, agent, attorney, or representative. If I gave him absolute, irresponsible power over my property, I gave him the property. If I gave him absolute, irresponsible power over myself, I made him my master, and gave myself to him as a slave. And it is of no importance whether I called him master or servant, agent or owner. The only question is, what power did I put into his hands? Was it an absolute and irresponsible one? or a limited and responsible one?

For still another reason they are neither our servants, agents, attorneys, nor representatives. And that reason is, that we do not make ourselves responsible for their acts. If a man is my servant, agent, or attorney, I necessarily make myself responsible for all his acts done within the limits of the power I have intrusted to him. If I have intrusted him, as my agent, with either absolute power, or any power at all, over the persons or properties of other men than myself, I thereby necessarily make myself responsible to those other persons for any injuries he may do them, so long as he acts within the limits of the power I have granted him. But no individual who may be injured in his person or property, by acts of Congress, can come to the individual electors, and hold them responsible for these acts of their so-called agents or representatives. This fact proves that these pretended agents of the people, of everybody, are really the agents of nobody.

If, then, nobody is individually responsible for the acts of Congress, the members of Congress are nobody’s agents. And if they are nobody’s agents, they are themselves individually responsible for their own acts, and for the acts of all whom they employ. And the authority they are exercising is simply their own individual authority; and, by the law of nature—the highest of all laws—anybody injured by their acts, anybody who is deprived by them of his property or his liberty, has the same right to hold them individually responsible, that he has to hold any other trespasser individually responsible. He has the same right to resist them, and their agents, that he has to resist any other trespassers.


VII.

It is plain, then, that on general principles of law and reason—such principles as we all act upon in courts of justice and in common life—the Constitution is no contract; that it binds nobody, and never did bind anybody; and that all those who pretend to act by its authority, are really acting without any legitimate authority at all; that, on general principles of law and reason, they are mere usurpers, and that everybody not only has the right, but is morally bound, to treat them as such.

If the people of this country wish to maintain such a government as the Constitution describes, there is no reason in the world why they should not sign the instrument itself, and thus make known their wishes in an open, authentic manner; in such manner as the common sense and experience of mankind have shown to be reasonable and necessary in such cases; and in such manner as to make themselves (as they ought to do) individually responsible for the acts of the government. But the people have never been asked to sign it. And the only reason why they have never been asked to sign it, has been that it has been known that they never would sign it; that they were neither such fools nor knaves as they must needs have been to be willing to sign it; that (at least as it has been practically interpreted) it is not what any sensible and honest man wants for himself; nor such as he has any right to impose upon others. It is, to all moral intents and purposes, as destitute of obligation as the compacts which robbers and thieves and pirates enter into with each other, but never sign.

If any considerable number of the people believe the Constitution to be good, why do they not sign it themselves, and make laws for, and administer them upon, each other; leaving all other persons (who do not interfere with them) in peace? Until they have tried the experiment for themselves, how can they have the face to impose the Constitution upon, or even to recommend it to, others? Plainly the reason for such absurd and inconsistent conduct is that they want the Constitution, not solely for any honest or legitimate use it can be of to themselves or others, but for the dishonest and illegitimate power it gives them over the persons and properties of others. But for this latter reason, all their eulogiums on the Constitution, all their exhortations, and all their expenditures of money and blood to sustain it, would be wanting.


VIII.

The Constitution itself, then, being of no authority, on what authority does our government practically rest? On what ground can those who pretend to administer it, claim the right to seize men’s property, to restrain them of their natural liberty of action, industry, and trade, and to kill all who deny their authority to dispose of men’s properties, liberties, and lives at their pleasure or discretion?

The most they can say, in answer to this question, is, that [. . .] the [. . .] adults of the country have a tacit understanding that they will maintain a government under the Constitution; that they will select, by ballot, the persons to administer it; and that those persons who may receive a majority, or a plurality, of their ballots, shall act as their representatives, and administer the Constitution in their name, and by their authority.

But this tacit understanding (admitting it to exist) cannot at all justify the conclusion drawn from it. A tacit understanding between A, B, and C, that they will, by ballot, depute D as their agent, to deprive me of my property, liberty, or life, cannot at all authorize D to do so. He is none the less a robber, tyrant, and murderer, because he claims to act as their agent, than he would be if he avowedly acted on his own responsibility alone.

Neither am I bound to recognize him as their agent, nor can he legitimately claim to be their agent, when he brings no written authority from them accrediting him as such. I am under no obligation to take his word as to who his principals may be, or whether he has any. Bringing no credentials, I have a right to say he has no such authority even as he claims to have: and that he is therefore intending to rob, enslave, or murder me on his own account.

This tacit understanding, therefore, among the voters of the country, amounts to nothing as an authority to their agents. Neither do the ballots by which they select their agents, avail any more than does their tacit understanding; for their ballots are given in secret, and therefore in a way to avoid any personal responsibility for the acts of their agents.

No body of men can be said to authorize a man to act as their agent, to the injury of a third person, unless they do it in so open and authentic a manner as to make themselves personally responsible for his acts. None of the voters in this country appoint their political agents in any open authentic manner, or in any manner to make themselves responsible for their acts. Therefore these pretended agents cannot legitimately claim to be really agents. Somebody must be responsible for the acts of these pretended agents; and if they cannot show any open and authentic credentials from their principals, they cannot, in law or reason, be said to have any principals. The maxim applies here, that what does not appear, does not exist. If they can show no principals, they have none.

But even these pretended agents do not themselves know who their pretended principals are. These latter act in secret; for acting by secret ballot is acting in secret as much as if they were to meet in secret conclave in the darkness of the night. And they are personally as much unknown to the agents they select, as they are to others. No pretended agent therefore can ever know by whose ballots he is selected, or consequently who his real principals are. Not knowing who his principals are, he has no right to say that he has any. He can, at most, say only that he is the agent of a secret band of robbers and murderers, who are bound by that faith which prevails among confederates in crime, to stand by him, if his acte, done in their name, shall be resisted.

Men honestly engaged in attempting to establish justice in the world, have no occasion thus to act in secret; or to appoint agents to do acts for which they (the principals) are not willing to be responsible.

The secret ballot makes a secret government; and a secret government is a secret band of robbers and murderers. Open despotism is better than this. The single despot stands out in the face of all men, and says: I am the State: My will is law: I am your master: I take the responsibility of my acts: The only arbiter I acknowledge is the sword: If any one denies my right, let him try conclusions with me.

But a secret government is little less than a government of assassins. Under it, a man knows not who his tyrants are, until they have struck, and perhaps not then. He may guess, beforehand, as to some of his immediate neighbors. But he really knows nothing. The man to whom he would most naturally fly for protection, may prove an enemy, when the time of trial comes.

This is the kind of government we have; and it is the only one we are likely to have, until men are ready to say: We will consent to no Constitution, except such an one as we are neither ashamed nor afraid to sign; and we will authorize no government to do any thing in our name which we are not willing to be personally responsible for.


IX.

What is the motive to the secret ballot? This, and only this: Like other confederates in crime, those who use it are not friends, but enemies; and they are afraid to be known, and to have their individual doings known, even to each other. They can contrive to bring about a sufficient understanding to enable them to act in concert against other persons; but beyond this they have no confidence, and no friendship, among themselves. In fact, they are engaged quite as much in schemes for plundering each other, as in plundering those who are not of them. And it is perfectly well understood among them that the strongest party among them will, in certain contingencies, murder each other by the hundreds of thousands (as they [. . .] did do [during the American Civil War]) to accomplish their purposes against each other. Hence they dare not be known, and have their individual doings known, even to each other. And this is avowedly the only reason for the ballot: for a secret government; a government by secret bands of robbers and murderers. And we are insane enough to call this liberty! To be a member of this secret band of robbers and murderers is esteemed a privilege and an honor! Without this privilege, a man is considered a slave; but with it a free man! With it he is considered a free man, because he has the same power to secretly (by secret ballot) procure the robbery, enslavement, and murder of another man, that that other man has to procure his robbery, enslavement, and murder. And this they call equal rights!

If any number of men, many or few, claim the right to govern the people of this country, let them make and sign an open compact with each other to do so. Let them thus make themselves individually known to those whom they propose to govern. And let them thus openly take the legitimate responsibility of their acts. How many of those who now support the Constitution, will ever do this? How many will ever dare openly proclaim their right to govern? or take the legitimate responsibility of their acts? Not one!


X.

It is obvious that, on general principles of law and reason, there exists no such thing as a government created by, or resting upon, any consent, compact, or agreement of “the people of the United States” with each other; that the only visible, tangible, responsible government that exists, is that of a few individuals only, who act in concert, and call themselves by the several names of senators, representatives, presidents, judges, marshals, treasurers, collectors, generals, colonels, captains, &c., &c.

On general principles of law and reason, it is of no importance whatever that these few individuals profess to be the agents and representatives of “the people of the United States”; since they can show no credentials from the people themselves; they were never appointed as agents or representatives in any open authentic manner; they do not themselves know, and have no means of knowing, and cannot prove, who their principals (as they call them) are individually; and consequently cannot, in law or reason, be said to have any principals at all.

It is obvious, too, that if these alleged principals ever did appoint these pretended agents, or representatives, they appointed them secretly (by secret ballot), and in a way to avoid all personal responsibility for their acts; that, at most, these alleged principals put these pretended agents forward for the most criminal purposes, viz.: to plunder the people of their property, and restrain them of their liberty; and that the only authority that these alleged principals have for so doing, is simply a tacit understanding among themselves that they will imprison, shoot, or hang every man who resists the exactions and restraints which their agents or representatives may impose upon them.

Thus it is obvious that the only visible, tangible government we have is made up of these professed agents or representatives of a secret band of robbers and murderers, who, to cover up, or gloss over, their robberies and murders, have taken to themselves the title of “the people of the United States;” and who, on the pretence of being “the people of the United States,” assert their right to subject to their dominion, and to control and dispose of at their pleasure, all property and persons found in the United States.


XI.

On general principles of law and reason, the oaths which these pretended agents of the people take “to support the Constitution,” are of no validity or obligation. And why? For this, if for no other reason, viz. that they are given to nobody. There is no privity, (as the lawyers say),—that is, no mutual recognition, consent and agreement—between those who take these oaths, and any other persons.

If I go upon Boston Common, and in the presence of a hundred thousand people, men, women and children, with whom I have no contract on the subject, take an oath that I will enforce upon them the laws of Moses, of Lycurgus, of Solon, of Justinian, or of Alfred, that oath is, on general principles of law and reason, of no obligation. It is of no obligation, not merely because it is intrinsically a criminal one, but also because it is given to nobody, and consequently pledges my faith to nobody. It is merely given to the winds.

It would not alter the case at all to say that, among these hundred thousand persons, in whose presence the oath was taken, there were [. . .] adults, who had secretly—by secret ballot, and in a way to avoid making themselves individually known to me, or to the remainder of the hundred thousand—designated me as their agent to rule, control, plunder, and, if need be, murder, these hundred thousand people. The fact that they had designated me secretly, and in a manner to prevent my knowing them individually, prevents all privity between them and me; and consequently makes it impossible that there can be any contract, or pledge of faith, on my part towards them; for it is impossible that I can pledge my faith, in any legal sense, to a man whom I neither know, nor have any means of knowing, individually.

So far as I am concerned, then, these [. . .] persons are a secret band of robbers and murderers, who have secretly, and in a way to save themselves from all responsibility for my acts, designated me as their agent; and have, through some other agent, or pretended agent, made their wishes known to me. But being, nevertheless, individually unknown to me, and having no open, authentic contract with me, my oath is, on general principles of law and reason, of no validity as a pledge of faith to them. And being no pledge of faith to them, it is no pledge of faith to anybody. It is mere idle wind. At most, it is only a pledge of faith to an unknown band of robbers and murderers, whose instrument for plundering and murdering other people, I thus publicly confess myself to be. And it has no other obligation than a similar oath given to any other unknown body of pirates, robbers, and murderers.

For these reasons the oath taken by members of Congress, “to support the Constitution,” are, on general principles of law and reason, of no validity. They are not only criminal in themselves, and therefore void; but they are also void for the further reason that they are given to nobody.

[. . . .] The most that these members of Congress can say, in favor of their appointment, is simply this: Each one can say for himself:

I have evidence satisfactory to myself, that there exists, scattered throughout the country, a band of men, having a tacit understanding with each other, and calling themselves “the people of the United States,” whose general purposes are to control and plunder each other, and all other persons in the country, and, so far as they can, even in neighboring countries; and to kill every man who shall attempt to defend his person and property against their schemes of plunder and dominion. Who these men are, individually, I have no certain means of knowing, for they sign no papers, and give no open, authentic evidence of their individual membership. They are not known individually even to each other. They are apparently as much afraid of being individually known to each other, as of being known to other persons. Hence they ordinarily have no mode either of exercising, or of making known, their individual membership, otherwise than by giving their votes secretly for certain agents to do their will. [. . . .] It is [. . .] generally understood that all [. . .] persons, born in the country, [. . .], and (in certain cases) even persons of foreign birth, are permitted to be members. But it appears that usually not more than one-half, two-thirds, or, in some cases, three-fourths, of all who are thus permitted to become members of the band, ever exercise, or consequently prove, their actual membership, in the only mode in which they ordinarily can exercise or prove it, viz., by giving their votes secretly for the officers or agents of the band. The number of these secret votes, so far as we have any account of them, varies greatly from year to year, thus tending to prove that the band, instead of being a permanent organization, is a merely pro tempore affair with those who choose to act with it for the time being. The gross number of these secret votes, or what purports to be their gross number, in different localities, is occasionally published. Whether these reports are accurate or not, we have no means of knowing. It is generally supposed that great frauds are often committed in depositing them. They are understood to be received and counted by certain men, who are themselves appointed for that purpose by the same secret process by which all other officers and agents of the band are selected. According to the reports of these receivers of votes (for whose accuracy or honesty, however, I cannot vouch), and according to my best knowledge of the whole number of male persons “in my district,” who (it is supposed) were permitted to vote, it would appear that one-half, two-thirds or three-fourths actually did vote. Who the men were, individually, who cast these votes, I have no knowledge, for the whole thing was done secretly. But of the secret votes thus given for what they call a “member of Congress,” the receivers reported that I had a majority, or at least a larger number than any other one person. And it is only by virtue of such a designation that I am now here to act in concert with other persons similarly selected in other parts of the country. It is understood among those who sent me here, that all the persons so selected, will, on coming together at the City of Washington, take an oath in each other’s presence “to support the Constitution of the United States.” By this is meant a certain paper that was drawn up eighty years ago. It was never signed by anybody, and apparently has no obligation, and never had any obligation, as a contract. In fact, few persons ever read it, and doubtless much the largest number of those who voted for me and the others, never even saw it, or now pretend to know what it means. Nevertheless, it is often spoken of in the country as “the Constitution of the United States;” and for some reason or another, the men who sent me here, seem to expect that I, and all with whom I act, will swear to carry this Constitution into effect. I am therefore ready to take this oath, and to co-operate with all others, similarly selected, who are ready to take the same oath.

This is the most that any member of Congress can say in proof that he has any constituency; that he represents anybody; that his oath “to support the Constitution,” is given to anybody, or pledges his faith to anybody. He has no open, written, or other authentic evidence, such as is required in all other cases, that he was ever appointed the agent or representative of anybody. He has no written power of attorney from any single individual. He has no such legal knowledge as is required in all other cases, by which he can identify a single one of those who pretend to have appointed him to represent them.

Of course his oath, professedly given to them, “to support the Constitution,” is, on general principles of law and reason, an oath given to nobody. It pledges his faith to nobody. If he fails to fulfil his oath, not a single person can come forward, and say to him, you have betrayed me, or broken faith with me.

No one can come forward and say to him: I appointed you my attorney to act for me. I required you to swear that, as my attorney, you would support the Constitution. You promised me that you would do so; and now you have forfeited the oath you gave to me. No single individual can say this.

No open, avowed, or responsible association, or body of men, can come forward and say to him: We appointed you our attorney, to act for us. We required you to swear that, as our attorney, you would support the Constitution. You promised us that you would do so; and now you have forfeited the oath you gave to us.

No open, avowed, or responsible association, or body of men, can say this to him; because there is no such association or body of men in existence. If any one should assert that there is such an association, let him prove, if he can, who compose it. Let him produce, if he can, any open, written, or other authentic contract, signed or agreed to by these men; forming themselves into an association; making themselves known as such to the world; appointing him as their agent; and making themselves individually, or as an association, responsible for his acts, done by their authority. Until all this can be shown, no one can say that, in any legitimate sense, there is any such association; or that he is their agent; or that he ever gave his oath to them; or ever pledged his faith to them.

On general principles of law and reason, it would be a sufficient answer for him to say, to all individuals, and all pretended associations of individuals, who should accuse him of a breach of faith to them:

I never knew you. Where is your evidence that you, either individually or collectively, ever appointed me your attorney? that you ever required me to swear to you, that, as your attorney, I would support the Constitution? or that I have now broken any faith I ever pledged to you? You may, or you may not, be members of that secret band of robbers and murderers, who act in secret; appoint their agents by a secret ballot; who keep themselves individually unknown even to the agents they thus appoint; and who, therefore, cannot claim that they have any agents; or that any of their pretended agents ever gave his oath, or pledged his faith, to them. I repudiate you altogether. My oath was given to others, with whom you have nothing to do; or it was idle wind, given only to the idle winds. Begone!


XII.

For the same reasons, the oaths of all the other pretended agents of this secret band of robbers and murderers are on general principles of law and reason, equally destitute of obligation. They are given to nobody; but only to the winds.

The oaths of the tax-gatherers and treasurers of the band, are, on general principles of law and reason, of no validity. If any tax gatherer, for example, should put the money he receives into his own pocket, and refuse to part with it, the members of this band could not say to him: You collected that money as our agent, and for our uses; and you swore to pay it over to us, or to those we should appoint to receive it. You have betrayed us, and broken faith with us.

It would be a sufficient answer for him to say to them:

I never knew you. You never made yourselves individually known to me. I never gave my oath to you, as individuals. You may, or you may not, be members of that secret band, who appoint agents to rob and murder other people; but who are cautious not to make themselves individually known, either to such agents, or to those whom their agents are commissioned to rob. If you are members of that band, you have given me no proof of it, and you have no proof that you ever commissioned me to rob others for your benefit. I never knew you, as individuals, and of course never promised you that I would pay over to you the proceeds of my robberies. I committed my robberies on my own account, and for my own profit. If you thought I was fool enough to allow you to keep yourselves concealed, and use me as your tool for robbing other persons; or that I would take all the personal risk of the robberies, and pay over the proceeds to you, you were particularly simple. As I took all the risk of my robberies, I propose to take all the profits. Begone! You are fools, as well as villains. If I gave my oath to anybody, I gave it to other persons than you. But I really gave it to nobody. I only gave it to the winds. It answered my purposes at the time. It enabled me to get the money I was after, and now I propose to keep it. If you expected me to pay it over to you, you relied only upon that honor that is said to prevail among thieves. You now understand that that is a very poor reliance. I trust you may become wise enough to never rely upon it again. If I have any duty in the matter, it is to give back the money to those from whom I took it; not to pay it over to such villains as you.


XIII.

On general principles of law and reason, the oaths which foreigners take, on coming here, and being “naturalized” (as it is called), are of no validity. They are necessarily given to nobody; because there is no open, authentic association, to which they can join themselves; or to whom, as individuals, they can pledge their faith. No such association, or organization, as “the people of the United States,” having ever been formed by any open, written, authentic, or voluntary contract, there is, on general principles of law and reason, no such association, or organization, in existence. And all oaths that purport to be given to such an association are necessarily given only to the winds. They cannot be said to be given to any man, or body of men, as individuals, because no man, or body of men, can come forward with any proof that the oaths were given to them, as individuals, or to any association of which they are members. To say that there is a tacit understanding among [. . .] the [. . .] adults of the country, that they will call themselves “the people of the United States,” and that they will act in concert in subjecting the remainder of the people of the United States to their dominion; but that they will keep themselves personally concealed by doing all their acts secretly, is wholly insufficient, on general principles of law and reason, to prove the existence of any such association, or organization, as “the people of the United States;” or consequently to prove that the oaths of foreigners were given to any such association.


XIV.

On general principles of law and reason, all the oaths which, since the [Civil W]ar, have been given by Southern men, that they will obey the laws of Congress, support the Union, and the like, are of no validity. Such oaths are invalid, not only because they were extorted by military power, and threats of confiscation, and because they are in contravention of men’s natural right to do as they please about supporting the government, but also because they were given to nobody. They were nominally given to “the United States.” But being nominally given to “the United States,” they were necessarily given to nobody, because, on general principles of law and reason, there were no “United States,” to whom the oaths could be given. That is to say, there was no open, authentic, avowed, legitimate association, corporation, or body of men, known as “the United States,” or as “the people of the United States,” to whom the oaths could have been given. If anybody says there was such a corporation, let him state who were the individuals that composed it, and how and when they became a corporation. Were Mr. A, Mr. B, and Mr. C members of it? If so, where are their signatures? Where the evidence of their membership? Where the record? Where the open, authentic proof? There is none. Therefore, in law and reason, there was no such corporation.

On general principles of law and reason, every corporation, association, or organized body of men, having a legitimate corporate existence, and legitimate corporate rights, must consist of certain known individuals, who can prove, by legitimate and reasonable evidence, their membership. But nothing of this kind can be proved in regard to the corporation, or body of men, who call themselves “the United States.” Not a man of them, in all the Northern States, can prove by any legitimate evidence, such as is required to prove membership in other legal corporations, that he himself, or any other man whom he can name, is a member of any corporation or association called “the United States,” or “the people of the United States,” or, consequently, that there is any such corporation. And since no such corporation can be proved to exist, it cannot of course be proved that the oaths of Southern men were given to any such corporation. The most that can be claimed is that the oaths were given to a secret band of robbers and murderers, who called themselves “the United States,” and extorted those oaths. But that certainly is not enough to prove that the oaths are of any obligation.


XV.

On general principles of law and reason, the oaths of soldiers, that they will serve a given number of years, that they will obey the orders of their superior officers, that they will bear true allegiance to the government, and so forth, are of no obligation. Independently of the criminality of an oath, that, for a given number of years, he will kill all whom he may be commanded to kill, without exercising his own judgment or conscience as to the justice or necessity of such killing, there is this further reason why a soldier’s oath is of no obligation, viz. that, like all the other oaths that have now been mentioned, it is given to nobody. There being, in no legitimate sense, any such corporation, or nation, as “the United States,” nor, consequently, in any legitimate sense, any such government as “the government of the United States,” a soldier’s oath given to, or contract made with, such nation or government, is necessarily an oath given to, or a contract made with, nobody. Consequently such oath or contract can be of no obligation.


XVI.

On general principles of law and reason, the treaties, so called, which purport to be entered into with other nations, by certain persons calling themselves ambassadors, secretaries, presidents, and senators of the United States, in the name, and on behalf, of “the people of the United States,” are of no validity. These so-called ambassadors, secretaries, presidents, and senators, who claim to be the agents of “the people of the United States,” for making these treaties, can show no open, written, or other authentic evidence that either the whole “people of the United States,” or any other open, avowed, responsible body of men, calling themselves by that name, ever authorized these pretended ambassadors and others to make treaties in the name of, or binding upon any one of, “the people of the United States.” Neither can they show any open, written, or other authentic evidence that either the whole “people of the United States,” or any other open, avowed, responsible body of men, calling themselves by that name, ever authorized these pretended ambassadors, secretaries, and others, in their name and behalf, to recognize certain other persons, calling themselves emperors, kings, queens, and the like, as the rightful rulers, sovereigns, masters, or representatives of the different peoples whom they assume to govern, to represent, and to bind.

The “nations,” as they are called, with whom our pretended ambassadors, secretaries, presidents and senators profess to make treaties, are as much myths as our own. On general principles of law and reason, there are no such “nations.” That is to say, neither the whole people of England, for example, nor any open, avowed, responsible body of men, calling themselves by that name, ever, by any open, written, or other authentic contract with each other, formed themselves into any bona fide, legitimate association or organization, or authorized any king, queen, or other representative to make treaties in their name, or to bind them, either individually, or as an association, by such treaties.

Our pretended treaties, then, being made with no legitimate or bona fide nations, or representatives of nations, and being made, on our part, by persons who have no legitimate authority to act for us, have intrinsically no more validity than a pretended treaty made by the Man in the Moon with the king of the Pleiades.


XVII.

On general principles of law and reason, debts contracted in the name of “the United States,” or of “the people of the United States,” are of no validity. It is utterly absurd to pretend that debts [. . .] are binding upon [. . .] millions of people, when there is not a particle of legitimate evidence—such as would be required to prove a private debt—that can be produced against any one of them, that either he, or his properly authorized attorney, ever contracted to pay one cent.

Certainly, neither the whole people of the United States, nor any number of them, ever separately or individually contracted to pay a cent of these debts.

Certainly, also, neither the whole people of the United States, nor any number of them, ever, by any open, written, or other authentic and voluntary contract, united themselves as a firm, corporation, or association, by the name of “the United States,” or “the people of the United States,” and authorized their agents to contract debts in their name.

Certainly, too, there is in existence no such firm, corporation, or association as “the United States,” or “the people of the United States,” formed by any open, written, or other authentic and voluntary contract, and having corporate property with which to pay these debts.

How, then, is it possible, on any general principle of law or reason, that debts that are binding upon nobody individually, can be binding upon [. . .] millions of people collectively, when, on general and legitimate principles of law and reason, these [. . .] millions of people neither have, nor ever had, any corporate property? never made any corporate or individual contract? and neither have, nor ever had, any corporate existence?

Who, then, created these debts, in the name of “the United States?” Why, at most, only a few persons, calling themselves “members of Congress,” &c. who pretended to represent “the people of the United States,” but who really represented only a secret band of robbers and murderers, who wanted money to carry on the robberies and murders in which they were then engaged; and who intended to extort from the future people of the United States, by robbery and threats of murder (and real murder, if that should prove necessary), the means to pay these debts.

This band of robbers and murderers, who were the real principals in contracting these debts, is a secret one, because its members have never entered into any open, written, avowed, or authentic contract, by which they may be individually known to the world, or even to each other. Their real or pretended representatives, who contracted these debts in their name, were selected (if selected at all) for that purpose secretly (by secret ballot), and in a way to furnish evidence against none of the principals individually; and these principals were really known individually neither to their pretended representatives who contracted these debts in their behalf, nor to those who lent the money. The money, therefore, was all borrowed and lent in the dark; that is, by men who did not see each other’s faces, or know each other’s names; who could not then, and cannot now, identify each other as principals in the transactions; and who consequently can prove no contract with each other.

Furthermore, the money was all lent and borrowed for criminal purposes; that is, for purposes of robbery and murder; and for this reason the contracts were all intrinsically void; and would have been so, even though the real parties, borrowers and lenders, had come face to face, and made their contracts openly, in their own proper names.

Furthermore, this secret band of robbers and murderers, who were the real borrowers of this money, having no legitimate corporate existence, have no corporate property with which to pay these debts. They do indeed pretend to own large tracts of wild lands, lying between the Atlantic and Pacific Oceans, and between the Gulf of Mexico and the North Pole. But, on general principles of law and reason, they might as well pretend to own the Atlantic and Pacific Oceans themselves; or the atmosphere and the sunlight; and to hold them, and dispose of them, for the payment of these debts.

Having no corporate property with which to pay what purports to be their corporate debts, this secret band of robbers and murderers are really bankrupt. They have nothing to pay with. In fact, they do not propose to pay their debts otherwise than from the proceeds of their future robberies and murders. These are confessedly their sole reliance; and were known to be such by the lenders of the money, at the time the money was lent. And it was, therefore, virtually a part of the contract, that the money should be repaid only from the proceeds of these future robberies and murders. For this reason, if for no other, the contracts were void from the beginning.

In fact, these apparently two classes, borrowers and lenders, were really one and the same class. They borrowed and lent money from and to themselves. They themselves were not only part and parcel, but the very life and soul, of this secret band of robbers and murderers, who borrowed and spent the money. Individually they furnished money for a common enterprise; taking, in return, what purported to be corporate promises for individual loans. The only excuse they had for taking these so-called corporate promises of, for individual loans by, the same parties, was that they might have some apparent excuse for the future robberies of the band (that is, to pay the debts of the corporation), and that they might also know what shares they were to be respectively entitled to out of the proceeds of their future robberies.

Finally, if these debts had been created for the most innocent and honest purposes, and in the most open and honest manner, by the real parties to the contracts, these parties could thereby have bound nobody but themselves, and no property but their own. They could have bound nobody that should have come after them, and no property subsequently created by, or belonging to, other persons.


XVIII.

The Constitution having never been signed by anybody; and there being no other open, written, or authentic contract between any parties whatever, by virtue of which the United States government, so called, is maintained; and it being well known that none but [adult] persons [. . .] are allowed any voice in the government; and it being also well known that a large number of these adult persons seldom or never vote at all; and that all those who do vote, do so secretly (by secret ballot), and in a way to prevent their individual votes being known, either to the world, or even to each other; and consequently in a way to make no one openly responsible for the acts of their agents, or representatives,—all these things being known, the questions arise: Who compose the real governing power in the country? Who are the men, the responsible men, who rob us of our property? Restrain us of our liberty? Subject us to their arbitrary dominion? And devastate our homes, and shoot us down by the hundreds of thousands, if we resist? How shall we find these men? How shall we know them from others? How shall we defend ourselves and our property against them? Who, of our neighbors, are members of this secret band of robbers and murderers? How can we know which are their houses, that we may burn or demolish them? Which their property, that we may destroy it? Which their persons, that we may kill them, and rid the world and ourselves of such tyrants and monsters?

These are questions that must be answered, before men can be free; before they can protect themselves against this secret band of robbers and murderers, who now plunder, enslave, and destroy them.

The answer to these questions is, that only those who have the will and the power to shoot down their fellow men, are the real rulers in this, as in all other (so called) civilized countries; for by no others will civilized men be robbed, or enslaved.

Among savages, mere physical strength, on the part of one man, may enable him to rob, enslave, or kill another man. Among barbarians, mere physical strength, on the part of a body of men, disciplined, and acting in concert, though with very little money or other wealth, may, under some circumstances, enable them to rob, enslave, or kill another body of men, as numerous, or perhaps even more numerous, than themselves. And among both savages and barbarians, mere want may sometimes compel one man to sell himself as a slave to another. But with (so called) civilized peoples, among whom knowledge, wealth, and the means of acting in concert, have become diffused; and who have invented such weapons and other means of defence as to render mere physical strength of less importance; and by whom soldiers in any requisite number, and other instrumentalities of war in any requisite amount, can always be had for money, the question of war, and consequently the question of power, is little else than a mere question of money. As a necessary consequence, those who stand ready to furnish this money, are the real rulers. It is so in Europe, and it is so in this country.

In Europe, the nominal rulers, the emperors and kings and parliaments, are anything but the real rulers of their respective countries. They are little or nothing else than mere tools, employed by the wealthy to rob, enslave, and (if need be) murder those who have less wealth, or none at all.

[. . .M]oney-lenders [. . .]—men who never think of lending a shilling to their next-door neighbors, for purposes of honest industry, unless upon the most ample security, and at the highest rate of interest,—stand ready, at all times, to lend money in unlimited amounts to those robbers and murderers, who call themselves governments, to be expended in shooting down those who do not submit quietly to being robbed and enslaved.

They lend their money in this manner, knowing that it is to be expended in murdering their fellow men, for simply seeking their liberty and their rights; knowing also that neither the interest nor the principal will ever be paid, except as it will be extorted under terror of the repetition of such murders as those for which the money lent is to be expended.

These money-lenders [. . .] say to themselves: If we lend a hundred millions sterling to the Queen and Parliament of England, it will enable them to murder twenty, fifty, or a hundred thousand people in England, [or] Ireland [. . .]; and the terror inspired by such wholesale murder, will enable them to keep the whole people of those countries in subjection for twenty, or perhaps fifty, years to come; to control all their trade and industry; and to extort from them large amounts of money, under the name of taxes; and from the wealth thus extorted from them, they (the Queen and Parliament) can afford to pay us a higher rate of interest for our money than we can get in any other way. [. . . .] And they say the same in regard to [. . .] any other ruler, so called, who, in their judgment, will be able, by murdering a reasonable portion of his people, to keep the rest in subjection, and extort money from them, for a long time to come, to pay the interest and principal of the money lent him.

And why are these men so ready to lend money for murdering their fellow men? Solely for this reason, viz., that such loans are considered better investments than loans for purposes of honest industry. They pay higher rates of interest; and it is less trouble to look after them. This is the whole matter.

The question of making these loans is, with these lenders, a mere question of pecuniary profit. They lend money to be expended in robbing, enslaving, and murdering their fellow men, solely because, on the whole, such loans pay better than any others. They are no respecters of persons, no superstitious fools, that reverence monarchs. They care no more for a king, or an emperor, than they do for a beggar, except as he is a better customer, and can pay them better interest for their money. If they doubt his ability to make his murders successful for maintaining his power, and thus extorting money from his people in future, they dismiss him as unceremoniously as they would dismiss any other hopeless bankrupt, who should want to borrow money to save himself from open insolvency.

When these great lenders of blood-money [. . .] have loaned vast sums in this way, for purposes of murder, to an emperor or a king, they sell out the bonds taken by them, in small amounts, to anybody, and everybody, who are disposed to buy them at satisfactory prices, to hold as investments. They [. . .] thus soon get back their money, with great profits; and are now ready to lend money in the same way again to any other robber and murderer, called an emperor or a king, who, they think, is likely to be successful in his robberies and murders, and able to pay a good price for the money necessary to carry them on.

This business of lending blood-money is one of the most thoroughly sordid, cold-blooded and criminal that was ever carried on, to any considerable extent, amongst human beings. It is like lending money to slave-traders, or to common robbers and pirates, to be repaid out of their plunder. And the men who loan money to governments, so called, for the purpose of enabling the latter to rob, enslave, and murder their people, ar among the greatest villains that the world has ever seen. And they as much deserve to be hunted and killed (if they cannot otherwise be got rid of) as any slave-traders, robbers, or pirates that ever lived.

When these emperors and kings, so called, have obtained their loans, they proceed to hire and train immense numbers of professional murderers, called soldiers, and employ them in shooting down all who resist their demands for money. In fact, most of them keep large bodies of these murderers constantly in their service, as their only means of enforcing their extortions. [. . . .] The enslaved people are, of course, forced to support and pay all these murderers, as well as to submit to all the other extortions which these murderers are employed to enforce.

It is only in this way that most of the so-called governments of Europe are maintained. These so-called governments are in reality only great bands of robbers and murderers, organized, disciplined, and constantly on the alert. And the so-called sovereigns, in these different governments, are simply the heads, or chiefs, of different bands of robbers and murderers. And these heads or chiefs are dependent upon the lenders of blood-money for the means to carry on their robberies and murders. They could not sustain themselves a moment but for the loans made to them by these blood-money loan-mongers. And their first care is to maintain their credit with them; for they know their end is come, the instant their credit with them fails. Consequently the first proceeds of their extortions are scrupulously applied to the payment of the interest on their loans.

In addition to paying the interest on their bonds, they perhaps grant to the holders of them great monopolies in banking, like the Banks of England, of France, and of Vienna; with the agreement that these banks shall furnish money whenever, in sudden emergencies, it may be necessary to shoot down more of their people. Perhaps also, by means of tariffs on competing imports, they give great monopolies to certain branches of industry, in which these lenders of blood-money are engaged. They also, by unequal taxation, exempt wholly or partially the property of these loan-mongers, and throw corresponding burdens upon those who are too poor and weak to resist.

Thus it is evident that all these men, who call themselves by the high-sounding names of Emperors, Kings, Sovereigns, Monarchs, Most Christian Majesties, Most Catholic Majesties, High Mightinesses, Most Serene and Potent Princes, and the like, and who claim to rule “by the grace of God,” by “Divine Right,”—that is, by special authority from Heaven,—are intrinsically not only the merest miscreants and wretches, engaged solely in plundering, enslaving, and murdering their fellow men, but that they are also the merest hangers on, the servile, obsequious, fawning dependents and tools of these blood-money loan-mongers, on whom they rely for the means to carry on their crimes. These loan-mongers [. . .] laugh in their sleeves, and say to themselves: These despicable creatures, who call themselves emperors, and kings, and majesties, and most serene and potent princes; who profess to wear crowns, and sit on thrones; who deck themselves with ribbons, and feathers, and jewels; and surround themselves with hired flatterers and lickspittles; and whom we suffer to strut around, and palm themselves off, upon fools and slaves, as sovereigns and lawgivers specially appointed by Almighty God; and to hold themselves out as the sole fountains of honors, and dignities, and wealth, and power,—all these miscreants and impostors know that we make them, and use them; that in us they live, move, and have their being; that we require them (as the price of their positions) to take upon themselves all the labor, all the danger, and all the odium of all the crimes they commit for our profit; and that we will unmake them, strip them of their gewgaws, and send them out into the world as beggars, or give them over to the vengeance of the people they have enslaved, the moment they refuse to commit any crime we require of them, or to pay over to us such share of the proceeds of their robberies as we see fit to demand.


XIX.

Now, what is true in Europe, is substantially true in this country. The difference is the immaterial one, that, in this country, there is no visible, permanent head, or chief, of these robbers and murderers, who call themselves “the government.” That is to say, there is no one man, who calls himself the state, or even emperor, king, or sovereign; no one who claims that he and his children rule “by the Grace of God,” by “Divine Right,” or by special appointment from Heaven. There are only certain men, who call themselves presidents, senators, and representatives, and claim to be the authorized agents, for the time being, or for certain short periods, of all “the people of the United States;” but who can show no credentials, or powers of attorney, or any other open, authentic evidence that they are so; and who notoriously are not so; but are really only the agents of a secret band of robbers and murderers, whom they themselves do not know, and have no means of knowing, individually; but who, they trust, will openly or secretly, when the crisis comes, sustain them in all their usurpations and crimes.

What is important to be noticed is, that these so-called presidents, senators, and representatives, these pretended agents of all “the people of the United States,” the moment their exactions meet with any formidable resistance from any portion of “the people” themselves, are obliged, like their co-robbers and murderers in Europe, to fly at once to the lenders of blood money, for the means to sustain their power. And they borrow their money on the same principle, and for the same purpose, viz., to be expended in shooting down all those “people of the United States”—their own constituents and principals, as they profess to call them—who resist the robberies and enslavement which these borrowers of the money are practising upon them. And they expect to repay the loans, if at all, only from the proceeds of the future robberies, which they anticipate it will be easy for them and their successors to perpetrate through a long series of years, upon their pretended principals, if they can but shoot down now some hundreds of thousands of them, and thus strike terror into the rest.

Perhaps the facts were never made more evident, in any country on the globe, than in our own, that these soulless blood-money loan-mongers are the real rulers; that they rule from the most sordid and mercenary motives; that the ostensible government, the presidents, senators, and representatives, so-called, are merely their tools; and that no ideas of, or regard for, justice or liberty had anything to do in inducing them to lend their money for the [Civil W]ar. In proof of all this, look at the following facts.

Nearly a hundred years ago we professed to have got rid of all that religious superstition, inculcated by a servile and corrupt priesthood in Europe, that rulers, so called, derived their authority directly from Heaven; and that it was consequently a religious duty on the part of the people to obey them. We professed long ago to have learned that governments could rightfully exist only by the free will, and on the voluntary support, of those who might choose to sustain them. We all professed to have known long ago, that the only legitimate objects of government were the maintenance of liberty and justice equally for all. All this we had professed for nearly a hundred years [prior to the Civil War]. And we professed to look with pity and contempt upon those ignorant, superstitious, and enslaved peoples of Europe, who were so easily kept in subjection by the frauds and force of priests and kings.

Notwithstanding all this, that we had learned, and known, and professed, for nearly a century, these lenders of blood money had, for a long series of years previous to the war, been the willing accomplices of the slave-holders in perverting the government from the purposes of liberty and justice, to the greatest of crimes. They had been such accomplices for a purely pecuniary consideration, to wit, a control of the markets in the South; in other words, the privilege of holding the slave-holders them-selves in industrial and commercial subjection to the manufacturers and merchants of the North (who afterwards furnished the money for the war). And these Northern merchants and manufacturers, these lenders of blood-money, were willing to continue to be the accomplices of the slave-holders in the future, for the same pecuniary consideration. But the slave-holders, either doubting the fidelity of their Northern allies, or feeling themselves strong enough to keep their slaves in subjection without Northern assistance, would no longer pay the price which these Northern men demanded. And it was to enforce this price in the future—that is, to monopolize the Southern markets, to maintain their industrial and commercial control over the South—that these Northern manufacturers and merchants lent some of the profits of their former monopolies for the war, in order to secure to themselves the same, or greater, monopolies in the future. These—and not any love of liberty or justice—were the motives on which the money for the war was lent by the North. In short, the North said to the slave-holders: If you will not pay us our price (give us control of your markets) for our assistance against your slaves, we will secure the same price (keep control of your markets) by helping your slaves against you, and using them as our tools for maintaining dominion over you; for the control of your markets we will have, whether the tools we use for that purpose be black or white, and be the cost, in blood and money, what it may.

On this principle, and from this motive, and not from any love of liberty or justice, the money was lent in enormous amounts, and at enormous rates of interest. And it was only by means of these loans that the objects of the war were accomplished.

And [after the War] these lenders of blood-money demand[ed] their pay; and the government, so called, bec[ame] their tool, their servile, slavish, villanous tool, to extort it from the labor of the enslaved people both of the North and the South. [. . . .]

This programme having been fully arranged and systematized, they put their sword into the hands of the chief murderer of the war, and charge[d] him to carry their scheme into effect. And [. . .] he, speaking as their organ, sa[id]: “Let us have peace.”

The meaning of this [wa]s: Submit quietly to all the robbery and slavery we have arranged for you, and you can have “peace.” But in case you resist, the same lenders of blood-money, who furnished the means to subdue the South, will furnish the means again to subdue you.

These are the terms on which alone this government, or, with few exceptions, any other, ever gives “peace” to its people.

The whole affair, on the part of those who furnished the money, [was], and now is, a deliberate scheme of robbery and murder; [. . .] to monopolize the currency, and thus control the industry and trade, and thus plunder and enslave the laborers, of both North and South. And Congress and the president are to-day the merest tools for these purposes. They are obliged to be, for they know that their own power, as rulers, so called, is at an end, the moment their credit with the blood-money loan-mongers fails. They are like a bankrupt in the hands of an extortioner. They dare not say nay to any demand made upon them. And to hide at once, if possible, both their servility and their crimes, they attempt to divert public attention, by crying out that [. . .], in now paying the “National Debt,” as they call it (as if the people themselves, all of them who are to be taxed for its payment, had really and voluntarily joined in contracting it), they are simply “Maintaining the National Honor!”

By “maintaining the national honor,” they mean simply that they themselves, open robbers and murderers, assume to be the nation, and will keep faith with those who lend them the money necessary to enable them to crush the great body of the people under their feet; and will faithfully appropriate, from the proceeds of their future robberies and murders, enough to pay all their loans, principal and interest.

The pretence that the “abolition of slavery” was either a motive or justification for the war, is a fraud of the same character with that of “maintaining the national honor.” Who, but such usurpers, robbers, and murderers as they, ever established slavery? Or what government, except one resting upon the sword, like the one we now have, was ever capable of maintaining slavery? And why did these men abolish slavery? Not from any love of liberty in general—not as an act of justice to the black man himself, but only “as a war measure,” and because they wanted his assistance, and that of his friends, in carrying on the war they had undertaken for maintaining and intensifying that political, commercial, and industrial slavery, to which they have subjected the great body of the people, both white and black. And yet these impostors now cry out that they have abolished the chattel slavery of the black man—although that was not the motive of the war—as if they thought they could thereby conceal, atone for, or justify that other slavery which they were fighting to perpetuate, and to render more rigorous and inexorable than it ever was before. There was no difference of principle—but only of degree—between the slavery they boast they have abolished, and the slavery they were fighting to preserve; for all restraints upon men’s natural liberty, not necessary for the simple maintenance of justice, are of the nature of slavery, and differ from each other only in degree.

If their object had really been to abolish slavery, or maintain liberty or justice generally, they had only to say: All, whether white or black, who want the protection of this government, shall have it; and all who do not want it, will be left in peace, so long as they leave us in peace. Had they said this, slavery would necessarily have been abolished at once; the war would have been saved; and a thousand times nobler union than we have ever had would have been the result. It would have been a voluntary union of free men; such a union as will one day exist among all men, the world over, if the several nations, so called, shall ever get rid of the usurpers, robbers, and murderers, called governments, that now plunder, enslave, and destroy them.

Still another of the frauds of these men is, that they are now establishing, and that the war was designed to establish, “a government of consent.” The only idea they have ever manifested as to what is a government of consent, is this—that it is one to which everybody must consent, or be shot. This idea was the dominant one on which the war was carried on; and it is the dominant one, now that we have got what is called “peace.”

Their pretences [after the War] that they [. . .] “Saved the Country,” and “Preserved our Glorious Union,” [we]re frauds like all the rest of their pretences. By them they mean simply that they [. . .] subjugated, and maintained their power over, an unwilling people. This they call[ed] “Saving the Country;” as if an enslaved and subjugated people—or as if any people kept in subjection by the sword (as it is intended that all of us shall be hereafter)—could be said to have any country. This, too, they call[ed] “Preserving our Glorious Union;” as if there could be said to be any Union, glorious or inglorious, that was not voluntary. Or as if there could be said to be any union between masters and slaves; between those who conquer, and those who are subjugated.

All these cries of having “abolished slavery,” of having “saved the country,” of having “preserved the union,” of establishing “a government of consent,” and of “maintaining the national honor,” are all gross, shameless, transparent cheats—so transparent that they ought to decieve no one—when uttered as justifications for the war, or for the government that [. . .] succeeded the war, or for [. . . having] compell[ed] the people to pay the cost of the war, or for compelling anybody to support a government that he does not want.

The lesson taught by all these facts is this: As long as mankind continue to pay “National Debts,” so-called,—that is, so long as they are such dupes and cowards as to pay for being cheated, plundered, enslaved, and murdered,—so long there will be enough to lend the money for those purposes; and with that money a plenty of tools, called soldiers, can be hired to keep them in subjection. But when they refuse any longer to pay for being thus cheated, plundered, enslaved, and murdered, they will cease to have cheats, and usurpers, and robbers, and murderers and blood-money loan-mongers for masters.


APPENDIX.

Inasmuch as the Constitution was never signed, nor agreed to, by anybody, as a contract, and therefore never bound anybody, and is now binding upon nobody; and is, moreover, such an one as no people can ever hereafter be expected to consent to, except as they may be forced to do so at the point of the bayonet, it is perhaps of no importance what its true legal meaning, as a contract, is. Nevertheless, the writer thinks it proper to say that, in his opinion, the Constitution is no such instrument as it has generally been assumed to be; but that by false interpretations, and naked usurpations, the government has been made in practice a very widely, and almost wholly, different thing from what the Constitution itself purports to authorize. He has heretofore written much, and could write much more, to prove that such is the truth. But whether the Constitution really be one thing, or another, this much is certain—that it has either authorized such a government as we have had, or has been powerless to prevent it. In either case, it is unfit to exist.



* See “No Treason, No. 2,” pages 5 and 6.

* Suppose it be “the best government on earth,” does that prove its own goodness, or only the badness of all other governments?

* The very men who drafted it, never signed it in any way to bind themselves by it, as a contract. And not one of them probably ever would have signed it in any way to bind himself by it, as a contract.

* And this two-thirds vote may be but two-thirds of a quorum—that is two-thirds of a majority—instead of two-thirds of the whole.

* Of what appreciable value is it to any man, as an individual, that he is allowed a voice in choosing these public masters? His voice is only one of several millions.

04 July 2009

The United States of America (USA)

The State


Independence means secession - then and now

by Kent McManigal

As originally posted: Albuquerque Libertarian Examiner
July 3, 2009


Do these words seem familiar?

We hold these truths to be self-evident, that all men are created equal, that they are endowed by their Creator with certain unalienable Rights, that among these are Life, Liberty and the pursuit of Happiness. - That to secure these rights, Governments are instituted among Men, deriving their just powers from the consent of the governed, - That whenever any Form of Government becomes destructive of these ends, it is the Right of the People to alter or to abolish it, and to institute new Government, laying its foundation on such principles and organizing its powers in such form, as to them shall seem most likely to effect their Safety and Happiness. Prudence, indeed, will dictate that Governments long established should not be changed for light and transient causes; and accordingly all experience hath shewn, that mankind are more disposed to suffer, while evils are sufferable, than to right themselves by abolishing the forms to which they are accustomed. But when a long train of abuses and usurpations, pursuing invariably the same Object evinces a design to reduce them under absolute Despotism, it is their right, it is their duty, to throw off such Government, and to provide new Guards for their future security. - Excerpt from the Declaration of Independence, (emphasis mine).

"All men". We would now say all human beings. Not just those who agree to be bound by the Constitution. Not only those who happen to have been born on land claimed by the US government. Not only those who haven't yet been declared "enemy combatants" by secret accusers. These "men" have rights which no government can ever have the authority to abrogate in any way. That is what was meant by "unalienable". It didn't mention matters of national security, or times of war, or any other excuse, because there is no excuse. None.

So, these governments have been unwisely instituted among men, like wolves in a flock of sheep, by consent of the sheep... I mean the "men"? I don't think so. I do not consent, so no government gets any "just powers" or authority from me, whether it counts me among the "governed" or not.

All governments quickly become destructive of the ends which are used to justify "government". Tragic experience has shown that the only kind of government that can secure the individual rights of "Life, Liberty and the pursuit of Happiness" is self government. Other forms of government don't even make an honest attempt. We now know, through long, hard experience, which type of government is most likely to "effect" our safety and happiness, as well as which type is most likely to affect it. It would be a grave mistake to depose one tyrant only to replace him with another. The mistake has been made innumerable times before. Has no lesson been learned?

No "revolution" was necessary as a follow-up to the Declaration of Independence. The British could have allowed a peaceful secession - a simple parting of the ways. Instead they chose the path of war. Just as Abraham Lincoln did a few generations later. Just as the US will undoubtedly do soon.


Humans will tolerate a lot of abuse from government, as the above excerpt points out. "Don't rock the boat" seems to be the general consensus. The chains become part of the normal pain of life; the fear of shedding those chains keeps people from exploring reasonable options. Better to stay with the evil you know than to face the unknown. For some people. I hope the numbers of people willing to toss the chains aside, or use them to strangle the slavemasters, will increase with each passing day, and with each new abomination committed by government at any level. What better day to begin than today: Independence Day? Let's make it mean something again!


For more info: I recommend reading the reasons for secession listed in the Declaration of Independence, and comparing those to the situation the formerly-free people of America now find themselves facing. You might even realize it is time for a more succinct declaration.

The United States of America (USA)


The Constitution

by Lysander Spooner

The following is reprinted in its entirety from the text of Spooner's The Constitution, vol. 2 of his No Treason series (Boston: Lysander Spooner, 1867). It has been slightly edited in terms of content (in all cases, simply to eliminate dated historical references), and has been edited from its original formatting.


I.

THE CONSTITUTION says:

“We, the people of the United States, in order to form a more perfect union, establish justice, insure domestic tranquility, provide for the common defence, promote the general welfare, and secure the blessings of liberty to ourselves and our posterity, do ordain and establish this Constitution for the United States of America.”

The meaning of this is simply: We, the people of the United States, acting freely and voluntarily as individuals, consent and agree that we will coöperate with each other in sustaining such a government as is provided for in this Constitution.

The necessity for the consent of “the people” is implied in this declaration. The whole authority of the Constitution rests upon it. If they did not consent, it was of no validity. Of course it had no validity, except as between those who actually consented. No one’s consent could be presumed against him, without his actual consent being given, any more than in the case of any other contract to pay money, or render service. And to make it binding upon any one, his signature, or other positive evidence of consent, was as necessary as in the case of any other contract. If the instrument meant to say that any of “the people of the United States” would be bound by it, who did not consent, it was a usurpation and a lie. The most that can be inferred from the form, “We, the people,” is, that the instrument offered membership to all “the people of the United States;” leaving it for them to accept or refuse it, at their pleasure.

The agreement is a simple one, like any other agreement. It is the same as one that should say: We, the people of the town of A—, agree to sustain a church, a school, a hospital, or a theatre, for ourselves and our children.

Such an agreement clearly could have no validity, except as between those who actually consented to it. If a portion only of “the people of the town of A—,” should assent to this contract, and should then proceed to compel contributions of money or service from those who had not consented, they would be mere robbers; and would deserve to be treated as such.

Neither the conduct nor the rights of these signers would be improved at all by their saying to the dissenters: We offer you equal rights with ourselves, in the benefits of the church, school, hospital, or theatre, which we propose to establish, and equal voice in the control of it. It would be a sufficient answer for the others to say: We want no share in the benefits, and no voice in the control, of your institution; and will do nothing to support it.

The number who actually consented to the Constitution of the United States, at the first, was very small. Considered as the act of the whole people, the adoption of the Constitution was the merest farce and imposture, binding upon nobody.

The women, children, and blacks, of course, were not asked to give their consent. In addition to this, there were, in nearly or quite all the States, property qualifications that excluded probably one half, two thirds, or perhaps even three fourths, of the white male adults from the right of suffrage. And of those who were allowed that right, we know not how many exercised it.

Furthermore, those who originally agreed to the Constitution, could thereby bind nobody that should come after them. They could contract for nobody but themselves. They had no more natural right or power to make political contracts, binding upon succeeding generations, than they had to make marriage or business contracts binding upon them.

Still further. Even those who actually voted for the adoption of the Constitution, did not pledge their faith for any specific time; since no specific time was named, in the Constitution, during which the association should continue. It was, therefore, merely an association during pleasure; even as between the original parties to it. Still less, if possible, has it been any thing more than a merely voluntary association, during pleasure, between the succeeding generations, who have never gone through, as their fathers did, with so much even as any outward formality of adopting it, or of pledging their faith to support it. Such portions of them as pleased, and as the States permitted to vote, have only done enough, by voting and paying taxes, (and unlawfully and tyrannically extorting taxes from others,) to keep the government in operation for the time being. And this, in the view of the Constitution, they have done voluntarily, and because it was for their interest, or pleasure, and not because they were under any pledge or obligation to do it. Any one man, or any number of men, have had a perfect right, at any time, to refuse his or their further support; and nobody could rightfully object to his or their withdrawal.

There is no escape from these conclusions, if we say that the adoption of the Constitution was the act of the people, as individuals, and not of the States, as States. On the other hand, if we say that the adoption was the act of the States, as States, it necessarily follows that they had the right to secede at pleasure, inasmuch as they engaged for no specific time.

The consent, therefore, that has been given, whether by individuals, or by the States, has been, at most, only a consent for the time being; not an engagement for the future. In truth, in the case of individuals, their actual voting is not to be taken as proof of consent, even for the time being. On the contrary, it is to be considered that, without his consent having ever been asked, a man finds himself environed by a government that he cannot resist; a government that forces him to pay money, render service, and forego the exercise of many of his natural rights, under peril of weighty punishments. He sees, too, that other men practise this tyranny over him by the use of the ballot. He sees further that, if he will but use the ballot himself, he has some chance of relieving himself from this tyranny of others, by subjecting them to his own. In short, he finds himself, without his consent, so situated that, if he use the ballot, he may become a master; if he does not use it, he must become a slave. And he has no other alternative than these two. In self-defence, he attempts the former. His case is analogous to that of a man who has been forced into battle, where he must either kill others, or be killed himself. Because, to save his own life in battle, a man attempts to take the lives of his opponents, it is not to be inferred that the battle is one of his own choosing. Neither in contests with the ballot—which is a mere substitute for a bullet—because, as his only chance of self-preservation, a man uses a ballot, is it to be inferred that the contest is one into which he voluntarily entered; that he voluntarily set up all his own natural rights, as a stake against those of others, to be lost or won by the mere power of numbers. On the contrary, it is to be considered that, in an exigency, into which he had been forced by others, and in which no other means of self-defence offered, he, as a matter of necessity, used the only one that was left to him.

Doubtless the most miserable of men, under the most oppressive government in the world, if allowed the ballot, would use it, if they could see any chance of thereby ameliorating their condition. But it would not therefore be a legitimate inference that the government itself, that crushes them, was one which they had voluntarily set up, or ever consented to.

Therefore a man’s voting under the Constitution of the United States, is not to be taken as evidence that he ever freely assented to the Constitution, even for the time being. Consequently we have no proof that any very large portion, even of the actual voters of the United States, ever really and voluntarily consented to the Constitution, even for the time being. Nor can we ever have such proof, until every man is left perfectly free to consent, or not, without thereby subjecting himself or his property to injury or trespass from others.


II.

The Constitution says:

“Treason against the United States shall consist only in levying war against them, or in adhering to their enemies, giving them aid and comfort.”

This is the only definition of treason given by the Constitution, and it is to be interpreted, like all other criminal laws, in the sense most favorable to liberty and justice. Consequently the treason here spoken of, must be held to be treason in fact, and not merely something that may have been falsely called by that name.

To determine, then, what is treason in fact, we are not to look to the codes of Kings, and Czars, and Kaisers, who maintain their power by force and fraud; who contemptuously call mankind their “subjects;” who claim to have a special license from Heaven to rule on earth; who teach that it is a religious duty of mankind to obey them; who bribe a servile and corrupt priesthood to impress these ideas upon the ignorant and superstitious; who spurn the idea that their authority is derived from, or dependent at all upon, the consent of their people; and who attempt to defame, by the false epithet of traitors, all who assert their own rights, and the rights of their fellow men, against such usurpations.

Instead of regarding this false and calumnious meaning of the word treason, we are to look at its true and legitimate meaning in our mother tongue; at its use in common life; and at what would necessarily be its true meaning in any other contracts, or articles of association, which men might voluntarily enter into with each other.

The true and legitimate meaning of the word treason, then, necessarily implies treachery, deceit, breach of faith. Without these, there can be no treason. A traitor is a betrayer—one who practices injury, while professing friendship. Benedict Arnold was a traitor, solely because, while professing friendship for the American cause, he attempted to injure it. An open enemy, however criminal in other respects, is no traitor.

Neither does a man, who has once been my friend, become a traitor by becoming an enemy, if before doing me an injury, he gives me fair warning that he has become an enemy; and if he makes no unfair use of any advantage which my confidence, in the time of our friendship, had placed in his power.

For example, our fathers—even if we were to admit them to have been wrong in other respects—certainly were not traitors in fact, after the fourth of July, 1776; since on that day they gave notice to the King of Great Britain that they repudiated his authority, and should wage war against him. And they made no unfair use of any advantages which his confidence had previously placed in their power.

It cannot be denied that, in the [American Civil W]ar, the Southern people proved themselves to be open and avowed enemies, and not treacherous friends. It cannot be denied that they gave us fair warning that they would no longer be our political associates, but would, if need were, fight for a separation. It cannot be alleged that they made any unfair use of advantages which our confidence, in the time of our friendship, had placed in their power. Therefore they were not traitors in fact: and consequently not traitors within the meaning of the Constitution.

Furthermore, men are not traitors in fact, who take up arms against the government, without having disavowed allegiance to it, provided they do it, either to resist the usurpations of the government, or to resist what they sincerely believe to be such usurpations.

It is a maxim of law that there can be no crime without a criminal intent. And this maxim is as applicable to treason as to any other crime. For example, our fathers were not traitors in fact, for resisting the British Crown, before the fourth of July, 1776—that is, before they had thrown off allegiance to him—provided they honestly believed that they were simply defending their rights against his usurpations. Even if they were mistaken in their law, that mistake, if an innocent one, could not make them traitors in fact.

For the same reason, the Southern people, if they sincerely believed—as it has been extensively, if not generally, conceded, at the North, that they did—in the so-called constitutional theory of “State Rights,” did not become traitors in fact, by acting upon it [when seceding from the Union in 1861]; and consequently not traitors within the meaning of the Constitution.


III.

The Constitution does not say who will become traitors, by “levying war against the United States, or adhering to their enemies, giving them aid and comfort.”

It is, therefore, only by inference, or reasoning, that we can know who will become traitors by these acts.

Certainly if Englishmen, Frenchmen, Austrians, or Italians, making no professions of support or friendship to the United States, levy war against them, or adhere to their enemies, giving them aid and comfort, they do not thereby make themselves traitors, within the meaning of the Constitution; and why? Solely because they would not be traitors in fact. Making no professions of support or friendship, they would practice no treachery, deceit, or breach of faith. But if they should voluntarily enter either the civil or military service of the United States, and pledge fidelity to them, (without being naturalized,) and should then betray the trusts reposed in them, either by turning their guns against the United States, or by giving aid and comfort to their enemies, they would be traitors in fact; and therefore traitors within the meaning of the Constitution; and could be lawfully punished as such.

There is not, in the Constitution, a syllable that implies that persons, born within the territorial limits of the United States, have allegiance imposed upon them on account of their birth in the country, or that they will be judged by any different rule, on the subject of treason, than persons of foreign birth. And there is no power, in Congress, to add to, or alter, the language of the Constitution, on this point, so as to make it more comprehensive than it now is. Therefore treason in fact—that is, actual treachery, deceit, or breach of faith—must be shown in the case of a native of the United States, equally as in the case of a foreigner, before he can be said to be a traitor.

Congress have seen that the language of the Constitution was insufficient, of itself, to make a man a traitor—on the ground of birth in this country—who levies war against the United States, but practices no treachery, deceit, or breach of faith. They have, therefore—although they had no constitutional power to do so—apparently attempted to enlarge the language of the Constitution on this point. And they have enacted:

“That if any person or persons, owing allegiance to the United States of America, shall levy war against them, or shall adhere to their enemies, giving them aid and comfort, * * * such person or persons shall be adjudged guilty of treason against the United States, and shall suffer death.”—Statute, April 30, 1790, Section 1.

It would be a sufficient answer to this enactment to say that it is utterly unconstitutional, if its effect would be to make any man a traitor, who would not have been one under the language of the Constitution alone.

The whole pith of the act lies in the words, “persons owing allegiance to the United States.” But this language really leaves the question where it was before, for it does not attempt to show or declare who does “owe allegiance to the United States;” although those who passed the act, no doubt thought, or wished others to think, that allegiance was to be presumed (as is done under other governments) against all born in this country, (unless possibly slaves).

The Constitution itself, uses no such word as “allegiance,” “sovereignty,” “loyalty,” “subject,” or any other term, such as is used by other governments, to signify the services, fidelity, obedience, or other duty, which the people are assumed to owe to their government, regardless of their own will in the matter. As the Constitution professes to rest wholly on consent, no one can owe allegiance, service, obedience, or any other duty to it, or to the government created by it, except with his own consent.

The word allegiance comes from the Latin words ad and ligo, signifying to bind to. Thus a man under allegiance to a government, is a man bound to it; or bound to yield it support and fidelity. And governments, founded otherwise than on consent, hold that all persons born under them, are under allegiance to them; that is, are bound to render them support, fidelity, and obedience; and are traitors if they resist them.

But it is obvious that, in truth and in fact, no one but himself can bind any one to support any government. And our Constitution admits this fact when it concedes that it derives its authority wholly from the consent of the people. And the word treason is to be understood in accordance with that idea.

It is conceded that a person of foreign birth comes under allegiance to our government only by special voluntary contract. If a native has allegiance imposed upon him, against his will, he is in a worse condition than the foreigner; for the latter can do as he pleases about assuming that obligation. The accepted interpretation of the Constitution, therefore, makes the foreigner a free person, on this point, while it makes the native a slave.

The only difference—if there be any—between natives and foreigners, in respect of allegiance, is, that a native has a right—offered to him by the Constitution—to come under allegiance to the government, if he so please; and thus entitle himself to membership in the body politic. His allegiance cannot be refused. Whereas a foreigner’s allegiance can be refused, if the government so please.


IV.

The Constitution certainly supposes that the crime of treason can be committed only by man, as an individual. It would be very curious to see a man indicted, convicted, or hanged, otherwise than as an individual; or accused of having committed his treason otherwise than as an individual. And yet it is clearly impossible that any one can be personally guilty of treason, can be a traitor in fact, unless he, as an individual, has in some way voluntarily pledged his faith and fidelity to the government. Certainly no man, or body of men, could pledge it for him, without his consent; and no man, or body of men, have any right to presume it against him, when he has not pledged it himself.


V.

It is plain, therefore, that if, when the Constitution says treason, it means treason—treason in fact, and nothing else—there is no ground at all for pretending that the Southern people [. . .] committed that crime [by seceding from the Union]. But if, on the other hand, when the Constitution says treason, it means what the Czar and the Kaiser mean by treason, then our government is, in principle, no better than theirs; and has no claim whatever to be considered a free government.


VI.

One essential of a free government is that it rest wholly on voluntary support. And one certain proof that a government is not free, is that it coerces more or less persons to support it, against their will. All governments, the worst on earth, and the most tyrannical on earth, are free governments to that portion of the people who voluntarily support them. And all governments—though the best on earth in other respects—are nevertheless tyrannies to that portion of the people—whether few or many—who are compelled to support them against their will. A government is like a church, or any other institution, in these respects. There is no other criterion whatever, by which to determine whether a government is a free one, or not, than the single one of its depending, or not depending, solely on voluntary support.


VII.

No middle ground is possible on this subject. Either “taxation without consent is robbery,” or it is not. If it is not, then any number of men, who choose, may at any time associate; call themselves a government; assume absolute authority over all weaker than themselves; plunder them at will; and kill them if they resist. If, on the other hand, “taxation without consent is robbery,” it necessarily follows that every man who has not consented to be taxed, has the same natural right to defend his property against a taxgatherer, that he has to defend it against a highwayman.


VIII.

It is perhaps unnecessary to say that the principles of this argument are as applicable to the State governments, as to the national one.

The opinions of the South, on the subjects of allegiance and treason, have been equally erroneous with those of the North. The only difference between them, has been, that the South has held that a man was (primarily) under involuntary allegiance to the State government; while the North held that he was (primarily) under a similar allegiance to the United States government; whereas, in truth, he was under no involuntary allegiance to either.


IX.

Obviously there can be no law of treason more stringent than has now been stated, consistently with political liberty. In the very nature of things there can never be any liberty for the weaker party, on any other principle; and political liberty always means liberty for the weaker party. It is only the weaker party that is ever oppressed. The strong are always free by virtue of their superior strength. So long as government is a mere contest as to which of two parties shall rule the other, the weaker must always succumb. And whether the contest be carried on with ballots or bullets, the principle is the same; for under the theory of government now prevailing, the ballot either signifies a bullet, or it signifies nothing. And no one can consis