Kickback case looms for former Dick's VP: Faces criminal charges for insider trading, exacting payments from owners of prospective store sites

Nov 08, 2009 (Pittsburgh Post-Gazette - McClatchy-Tribune Information Services via COMTEX) -- GLYN | Quote | Chart | News | PowerRating -- A former Dick's Sporting Goods executive is facing criminal charges for insider trading as well as for more than $2 million in payments that prosecutors say he and associates received in connection with the development of new stores for the Findlay retailer.

An indictment filed in federal court in Syracuse, N.Y., targets former Dick's senior vice president Joseph Queri Jr., a Pittsburgh resident. He was indicted in August, almost a year after the Securities and Exchange Commission filed civil insider trading charges against him, his father and 14 others in connection with Dick's 2004 acquisition of Galyan's Trading Co.

In documents filed in federal court in Pittsburgh in 2008, the SEC alleged that Mr. Queri tipped his father and a longtime friend, Gary M. Gosson, of Syracuse, that the acquisition of Galyan's was in the works.

Mr. Queri's father and Mr. Gosson subsequently tipped 11 others, who purchased Galyan's stock and passed the information along to others who did the same, documents show. The purchases, made prior to Dick's June 2004 announcement that it would acquire the Indiana-based retailer, resulted in profits of about $380,000, prosecutors said. That suit since has been settled.

The indictment in Syracuse charges Mr. Queri and Mr. Gosson with conspiracy, money laundering and other charges in connection with insider trading and the kickback scheme involving the development of 27 Dick's stores, including one in Clearview Mall in Butler. Prosecutors said the illegal payments to entities controlled by Mr. Queri Jr., Mr. Gosson and former Pittsburgh attorney Benjamin Viloski were made from 1999 until early 2005, when Mr. Queri Jr. resigned from Dick's.

Dick's Senior Vice President Jeffrey R. Hennion declined to comment on why Mr. Queri left the company, saying it was a personnel matter. Mr. Hennion also declined to comment on the court proceedings.

Mr. Viloski, who at one time represented Dick's in the development of new stores, was indicted in connection with the kickback payments. Gary Camp, a retired insurance salesman and friend of Mr. Gosson's, was criminally charged in connection with the insider trading. According to prosecutors and the SEC, Mr. Camp purchased Galyan's shares on his own as well as with $53,000 Mr. Gosson gave him.

All four defendants have entered not guilty pleas.

"We have a very good defense in this case, so I think we're going to be fine," said Mr. Camp's attorney, James R. McGraw, of Syracuse.

Mr. Queri has signed an agreement that the government may seize his Shadyside home if he fails to appear in court or doesn't comply with other conditions of the agreement, signed a week after his Aug. 5 indictment. He has also turned over his passport.

Several of the charges related to the alleged kickbacks are based on a 1988 change in federal criminal law that targeted corrupt public officials. Critics contend the provision gives prosecutors wide latitude to bring charges when executives, public officials and others fail to provide "honest services" to their companies or constituents. Among others, the law has been used to prosecute former Enron CEO Jeffrey K. Skilling and other high-profile executives, lobbyist Jack Abramoff and former U.S. Rep. Robert W. Ney, of Ohio.

Defense attorneys say the 1988 provision is too broad. Their criticisms have found a sympathetic ear among some U.S. Supreme Court justices.

"The statute has been invoked to impose criminal penalties upon a staggeringly broad swath of behavior," Justice Antonin Scalia wrote in an opinion this year. He said that if carried to its logical conclusion, the law would make it a crime for a mayor to use his influence to get a table at a restaurant without a reservation.

The U.S. Supreme Court will take up the "honest services" concept when it reconsiders the white collar crime convictions of Mr. Skilling and Canadian newspaper executive Conrad Black.

Use of the law "has been limited only by the imagination of the prosecutors who have used it," said Michael Z. Gurland, a Chicago attorney representing Mr. Queri.

"It's an undefined term and a vague term and because of that, there's an argument that the statute is constitutionally void," he said.

Different judges have interpreted the statue differently, Mr. Gurland said. Some have said prosecutors must prove that the defendant's employer was harmed by the behavior while others have required proof that the defendant enriched himself.

"The problem with the charge in this case is that there was no harm to Dick's," Mr. Gurland said. "Mr. Queri was a very loyal, hard-working employee ... . He did great things for Dick's Sporting Goods."

According to court records, Mr. Queri's duties included finding locations for new stores, typically through long-term leases he helped negotiate. The firm's code of conduct prohibited executives from using their position to promote their own interests, court documents state.

Prosecutors allege Mr. Queri and Mr. Viloski, acting as Dick's attorney, required prospective landlords, property owners and others offering possible store locations to pay consulting fees or brokerage commissions to entities they controlled or to companies controlled by Mr. Gosson, who passed on most of the money he received to Mr. Queri.

In addition to the Butler store, payments were made for two stores in Eastern Pennsylvania and stores in 13 other states, court records state. The company did not know about the payments, prosecutors said.

Mr. Queri and others cited in the SEC's civil actions have settled, agreeing to repay $384,000 of their profits and $793,000 in penalties.

Meanwhile, the criminal trial in Syracuse has been postponed until May 3 for several reasons, including the complexity of the case. Court filings indicate prosecutors have collected about 50 boxes of bank, telephone and other records that attorneys for the four men must review. In addition, Mr. Viloski, who now lives in North Carolina, was hospitalized for emergency coronary bypass surgery following his indictment.

Attorneys for Mr. Queri and the other three defendants are waiting to see what the nation's highest court has to say about the "honest services" provision when it takes up the appeals of Mr. Skilling, Mr. Black, as well as a former Alaskan legislator charged under the statute. Those cases will be heard before the Syracuse trial is scheduled to begin.

While the U.S. Supreme Court may not reach a decision on whether to declare the provision unconstitutional or clarify how it can be used before their case is heard, it ultimately could affect what happens to Mr. Queri and the other defendants.

"It's one of those cases that pushes the edge, pushes out a theory of criminal activity which doesn't really reflect business reality," said Mr. Viloski's attorney, Mark J. Mahoney, of Buffalo, N.Y. "Without that, we would not have a case here."

Len Boselovic can be reached at lboselovic@post-gazette.com or 412-263-1941.

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