EDTX Takes Over Fed Inquiry into Dallas DA Watkins

© 2013 The Texas Lawbook.

By Mark Curriden
Senior Writer for The Texas Lawbook

(March 11) — The U.S. Attorney for the Eastern District of Texas and the FBI have officially opened an active federal criminal investigation into Dallas County District Attorney Craig Watkins.

Lawyers with knowledge of the federal inquiry told The Texas Lawbook that the investigation focuses on Watkins’ decision to seek criminal mortgage fraud charges against oil heir Al Hill III in 2010.

Those lawyers, who describe the federal investigation as “extremely serious” and “very active,” say the probe concerns whether Watkins brought the charges against Hill III because one of his political contributors asked him to do so or if he sought the charges because he thought it would please his supporters.

Last week, state District Judge Lena Levario dismissed the mortgage fraud indictment against Hill III after Watkins refused to testify under oath about the circumstances leading up to his decision to take the case to the grand jury. Levario also found Watkins in contempt.

The contempt charges are being pursued separately. Regional Administrative Law Judge John Ovard, in an interview with The Texas Lawbook, said Monday that he plans to name a special judge to handle the Watkins contempt proceedings within the next day or two.

The history of the Hill III case is long and sordid. Half of the law firms in Texas have been involved at one point or another. It started about a-half-dozen years or so ago as a dispute valued in the nine digits between Al Hill Jr. and Al Hill III over the family’s fortune.

Hill Jr. initially won, but Hill III hired a group of prominent lawyers, including Lisa Blue of Dallas. The new legal team turned Hill III’s loss into a huge win. But then, Hill III and his lawyers became involved in a huge fight over lawyer fees totaling $22 million. The dispute over legal fees was pending when the Dallas DA’s office was presented evidence of potential mortgage fraud by one of Hill Jr.’s lawyers.

Lawyers representing Hill III accused Watkins of prosecutorial misconduct, claiming that the district attorney’s decision to indict their client was purely political and a means of currying favor with campaign contributors.

“The DA’s office had never ever pursued a mortgage fraud case like this one, where there was no loss,” says former federal prosecutor John Hueston, a Los Angeles lawyer who represents Hill III. “We spent two years investigating this matter, obtaining phone records and other evidence. We found a dark, grim view of a politician who tries to do the will of his political contributors.”

Hueston and Hill III’s defense team argue that Watkins brought the case to influence the legal fee dispute case on Blue’s behalf.

“We knew we had a difficult battle, because Craig Watkins had developed a positive, national reputation,” says Hueston, who led the U.S. Justice Department’s prosecution of Enron. “We knew there were dangers if we fired at the king and missed.”

Other lawyers familiar with the investigation say that FBI agents attended last week’s hearings in the Hill III case. Those lawyers also said that the FBI agents, following the hearing, approached members of the Hill III defense team, many of which are based in Los Angeles, to ask them to stay in Dallas to share the evidence they had gathered.

Hueston declined to comment on those facts, but added: “We have had discussions with federal law enforcement about this matter.

“Law enforcement initiated those conversations,” he says. “We did not pitch it.”

Ed Tomko, a former state and federal prosecutor, says the FBI could have been alerted to the case and started its investigation a number of different ways.

“This case probably started with someone at the FBI or U.S. Attorney’s Office reading the front page of the Dallas Morning News and they saw that Watkins refused to testify and that [prominent trial attorney and Watkins supporter) Lisa Blue had taken the Fifth Amendment in open court,” says Tomko, who is a partner in the prominent Dallas white-collar criminal law firm Curran Tomko.

“While none of this means that Blue did anything wrong, it does mean that there are things she doesn’t want to talk about and it is raises a huge red flag,” he says.

Bob Hinton, a former prosecutor and now a prominent criminal defense attorney in Dallas, says he sat through the hearings and believes Blue invoked her right against self-incrimination based on her lawyer’s advice.

“Lisa’s decision to take the Fifth was legally smart, even though I’m not sure she’s done anything wrong,” says Hinton.

By contrast, Hinton believes Watkins faces big problems because it appears that he initiated the conversations with Blue.

“The FBI investigation is deadly serious,” he says. “Craig couldn’t take the Fifth because it would have been political suicide.”

Hinton and Tomko agree that the FBI and federal prosecutors are looking to see if there was any quid pro quo between campaign contributions and the decision by Watkins to proceed.

“The FBI is going to look at emails, text messages, phone records and interview their staffs,” says Tomko. “The only two people who may ever know what was said are Watkins and Blue.”

Richard Roper, the former U.S. Attorney in Dallas and now a partner at Thompson & Knight, says people should be cautious about jumping to conclusions.

“Just because the FBI is interviewing people should not infer that the person has done anything wrong,” he says.

Roper and other lawyers say that the U.S. Attorney for the Eastern District, John Malcolm Bales, and his team of prosecutors are well suited to handle the Watkins the case.

Bales is a former FBI agent who investigated public corruption among judges and lawyers in Chicago in the 1980s. He has been a career prosecutor since, working in the Eastern District of Texas since 1989.

“Malcolm has a very experienced group of prosecutors,” says Roper. “His first assistant, Mark McBride, was the lead lawyer overseeing the Don Hill prosecution a few years ago.”

Legal experts say that the decision by U.S. Attorney Sara Saldana to recuse her office from the Watkins investigation was to avoid any conflicts or even any perception of conflicts.

“Because of the nature of the investigation, the U.S. Attorney here, I think, wanted someone else to handle this so there isn’t even an appearance of favoritism or vindictiveness,” says former state and federal prosecutor John Teakell. “Malcom is very experienced and professional.”

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