- The Washington Times - Friday, March 7, 2003

AUSTIN, Texas, March 7 (UPI) — Former Texas Attorney General Dan Morales surrendered Friday to face federal charges that he converted campaign funds to his personal use and tried to steer millions in legal fees to a close friend.

"Every single allegation of wrongdoing in this indictment is untrue," Morales told reporters after a brief court appearance in Austin.

U.S. Magistrate Andrew Austin released Morales on his own recognizance after he surrendered his passport. He was not required to enter a plea in the initial appearance.

Marc Murr, a Houston attorney and friend of Morales, was also named in the 12-count federal indictment. He was expected to make his initial court appearance later Friday.

Morales was charged with mail fraud, conspiracy, filing a false tax return, and making false statements on a loan application. Murr faces charges of mail fraud and conspiracy in connection with the alleged scheme involving legal fees.

Morales could face up to 83 years in prison and $3.6 million in fines, if convicted on the charges. Murr could face up to 10 years and $500,000 in fines, if convicted.

The indictment of Morales and Murr was announced late Thursday by U.S. Attorney Johnny Sutton, ending a long investigation into allegations that the former Democratic attorney general mishandled legal fees from the state's $17.5 billion tobacco settlement.

"This is a case of an elected official charged with abusing the public trust," said Sutton. "It involved attempts by Mr. Morales to fraudulently secure hundreds of millions of dollars for Mr. Murr in attorney's fees that Mr. Murr did not earn."

Morales and Murr tried to engineer a "sweetheart" arbitration after the 1998 settlement that would steer $520 million in legal fees to Murr, according to the indictment. They allegedly "fabricated" and "backdated" documents to make it appear Murr was owned the fees.

Murr was not part of the original team of five private lawyers hired by Morales to file the tobacco lawsuit and they contended Murr did little, if any work on the case. Murr's fee was later reduced to $1 million and when objections were raised he returned the money to the tobacco legal fund.

The other five lawyers received $3.3 billion in fees for handling the tobacco lawsuit, one of many filed by states beginning in 1994 to recover the costs of governments treating smoking-related illnesses. The amount of the fees in the Texas case sparked a political controversy at the time.

The five lawyers put up $40 million of their own money to finance the lawsuit in return for 15 percent of any money collected by the state. Morales said the outside counsel was necessary to match heavyweight talent hired by the tobacco companies. Among those who criticized the fees was then-Gov. George W. Bush.

In a second alleged scheme, Morales used $400,000 in campaign funds in 1998 to make a down payment and pay for improvements on a $775,000 home he purchased in the Austin area. He also made false statements in obtaining a $600,000 mortgage loan, according to the indictment.

Morales was also charged with signing a 1998 income tax return reporting $40,000 in joint income when federal prosecutors say he knew it was not correct.

Morales was an unsuccessful candidate for the Democratic gubernatorial nomination last year, losing to Laredo businessman Tony Sanchez in a tough primary contest. He later crossed party lines and supported Republican Gov. Rick Perry, who defeated Sanchez in November.

In an unrelated federal case, Morales brother, music producer Michael Morales, pleaded guilty in January to attempted extortion against Sanchez. He threatened to reveal damaging information about Sanchez unless he was paid $70,000 a year for four years. His sentencing is scheduled April 11.

Morales, a Harvard Law School graduate, former prosecutor and state legislator, was attorney general from 1990 until December 1998 when he decided not to run for re-election.

Federal prosecutors are believed to have begun investigating Morales and Murr in 1999, when the Clinton administration controlled the Justice Department, according to the Houston Chronicle. Sutton, who worked for Bush when he was governor, inherited the case when Bush appointed him U.S. attorney in Austin last year.

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