Federal Criminal Defense Blog : Georgia Federal Criminal Defense Lawyer & Attorney : Gillen Withers & Lake Law Firm : White Collar Crime, RICO, Trial : Atlanta, Savannah, GA

Federal officials last week announced that Deutsche Bank and its mortgage division, MortgageIT, allegedly engaged in fraud on a massive scale as a civil complaint was filed against Deutsche Bank. The complaint alleges that the massive German bank allegedly defrauded the government of up to $1.2 billion through alleged reckless lending practices. The Federal Housing Administration has allegedly paid out approximately $386 million in wrongful insurance claims. The government is seeking three times this amount in fines and penalties. Among the government's allegations is a charge that documents which would have informed bank officials about high rates of default were hidden in a closet at MortgageIT. The civil complaint fails to disclose any incriminating documents which could be used to establish an intent to defraud the government.

However, according to an article by Fox Business News, the government is holding back in the Deutsche Bank case from bringing criminal charges in response to the alleged massive fraud. The author points to the case as illustrative of a trend by Federal officials to prosecute alleged wrongdoing by corporations through civil, rather than criminal, means.

The article speculates that Federal officials might have elected civil, rather than criminal, proceedings due to the lower burden of proof , as well as the more time and resource-consuming nature of criminal proceedings. It also acknowledges concerns by prosecutors over potential harm to corporations, investors and the economy and markets in general, illustrated by the demise of accounting giant Arthur Andersen in 2002 as a result of the federal prosecution in the wake of the Enron scandal. The article cites the fact that criminal, as opposed to civil, actions, are often accompanied or followed by de-licensing actions by regulatory bodies.

The article also cites the relatively few criminal prosecutions following the financial collapse of 2007. What criminal proceedings there have been have focused on individuals with various Wall Street firms--rather than the firms themselves. Furthermore, several of these prosecutions have ended in failure, as exemplified by the acquittal of former Bear Stearns hedge fund managers Ralph Cioffi and Matthew Tannin in 2009.

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The Blog commented back in October about the investigative report by USA Today on the alleged prevalence of governmental misconduct in Federal criminal cases. Well, the Department of Justice has responded to the allegations through DOJ spokesperson Tracy Schmaler, who released a statement on Friday, published in USA Today, calling the paper's story a "selective review" of a "handful" of cases over the past 18 years. Ms. Schmaler claimed that DOJ  has conducted an internal review of the 90,000 cases brought annually and found prosecutorial misconduct in only a small fraction of them. Ms. Schmaler claimed that the Department corrects any mistakes as quickly as possible, and emphasized its priority to prevent mistakes before they occur. She cited the fact that Attorney General Eric Holder has instituted a comprehensive training curriculum for all Federal prosecutors, and has made discovery training for all prosecutors mandatory. Ms. Schmaler also stated that the DOJ Office of Professional Responsibility has recently caught up on a four year backlog of cases.

The Main Justice blog reports that Attorney General Holder made statements on Friday following a meeting with European officials that the “overwhelming majority” of DOJ attorneys act appropriately.

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As set forth in the official DOJ Blog yesterday, Deputy Attorney General David W. Ogden issued three Memorandum to DOJ prosecutors no doubt intended to remedy some of the setbacks the Department suffered last year as a result of discovery violations. The subject of one of the Memos is “Guidance for Prosecutors Regarding Criminal Discovery.” The second Memo reference is “Issuance of Guidance and Summary of Actions Taken in Response to the Report of the Department of Justice Criminal Discovery and Case Management Working Group.” Finally, a separate Memo is address to all DOJ litigating components and all U.S. Attorneys.

Taking the "Memo to the U.S. Attorneys and DOJ Components" first, Odgen summarizes that he had convened a working group to address DOJ policies and practices regarding criminal discovery issues. Odgen references that he is sending to all DOJ trial attorneys and AUSAs a memo containing Guidance For Prosecutors Regarding Criminal Discovery that prosecutors should follow to ensure that discovery obligations are met in all future cases. Interestingly, Odgen directs that each U.S. Attorney’s Office develop a discovery policy consistent with the law and local rules and practices. That policy must be in place by March 31, 2010.

The “Guidance For Prosecutors Regarding Criminal Discovery” Memo sets out detailed steps prosecutors are to follow regarding discovery. The six page Memo first advises that the prosecutors must determine who is a member of the “Prosecution Team” for the purpose of determining what documents must be reviewed for disclosure.

The Guidance Memo then directs that the discovery review should cover the following: 1) the investigative agency’s files, 2) Confidential Informant/Witness/Source files, 3) Evidence and Information Gathered During the Investigation, 4) Documents or Evidence Gathered by Civil Attorneys and/or Regulatory Agencies in Parallel Civil Investigations, 5) Substantive Case Related Communications, 6) Potential Giglio Information Relating to Law Enforcement Witnesses, 7) Potential Giglio Information Relating to Non-Law Enforcement Witnesses and Fed.R.Evid. 806 Declarants, 8) Information Obtained in Witness Interviews, a) Witness Statement Variations and the Duty to Disclose, b) Trial Preparation Meetings With Witnesses and c) Agent Notes.

The Guidance Memo then directs that although prosecutors may delegate the process of review to others, they “should not delegate the disclosure determination itself.”

The Guidance Memo reminds prosecutors that discovery within DOJ is covered by the U.S. Attorney’s Manual Section 9-5.001, which is broader than what the law requires and that if a prosecutor chooses to follow that broader course, “defense counsel should be reminded that the prosecutor is electing to produce discovery beyond what is required . . .” The Memo then addresses the scope, timing and form of discovery disclosures, but cautions that, “[p]rosecutors should never describe the discovery being provided as ‘open file.’”

Finally, the Guidance Memo counsels that the prosecutor should make a good record regarding the disclosures.

The “Issuance of Guidance and Summary of Actions Taken in Response to the Report of the Department of Justice Criminal Discovery and Case Management Working Group” Memo reminds prosecutors of the words of Justice Sutherland that it is the prosecutor’s duty is “that justice shall be done.” Berger v. United States, 295 U.S. 78, 88 (1935). This Memo informs prosecutors of the establishment of the Guidance Memo set out above and that each U.S. Attorney’s Office shall have a “discovery coordinator.” In addition, DOJ has:
 

• Created an online directory of resources pertaining to discovery issues that will be available to all prosecutors at their desktop;
• Produced a Handbook on Discovery and Case Management similar to the Grand Jury Manual so that prosecutors will have a one-stop resource that addresses various topics relating to discovery obligations;
• Implemented a training curriculum and a mandatory training program for paralegals and law enforcement agents;
• Revitalized the Computer Forensics Working Group to address the problem of properly cataloguing electronically stored information recovered as part of federal investigations;
• Created a pilot case management project to fully explore the available case management software and possible new practices to better catalogue law enforcement investigative files and to ensure that all the information is transmitted in the most useful way to federal prosecutors.
 

No doubt much will be written in coming days and weeks regarding these Memoranda and what I’ve set out here is strictly an overview. Every criminal practitioner in federal court should read, study and be familiar with these Memoranda.

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In a fascinating case out of the District of Nevada, the Ninth Circuit (opinion available here, 2008 WL 1946744) has affirmed the district court’s dismissal of the indictment against three defendants who were charged in a 64 count indictment with, among other things, wire fraud, securities fraud, and money laundering. The government’s case revolved around what the Ninth Circuit described as a “box job” scheme where a small number of individuals control a corporation’s stock through strawmen officers, directors and shareholders. One of the core allegations was that the defendants allegedly made more than $12 million, which was laundered through the law firm of two of the defendants.

The Motion to Dismiss filed in the district court, available here, outlines a litany of what the district court called “unconscionable” conduct by the government that including Brady and discovery violations as follows: 1) failing to provide the defense with Jencks materials relating to the case agent, 2) failing to disclose the rap sheet and prior convictions of one of the government witnesses, 3) failing to produce notes a witness had provided to the investigating agent, 4) failing to disclose that the investigating agent had countenanced the continued unlawful activity of a cooperating witness, 5) failing to produce documents essential to the “box job” allegation, 6) failing to disclose memoranda that contradicted witness testimony, and 7) producing some 650 pages of documents, including rap sheets, during trial. The motion to dismiss was filed during the third week of trial. In declaring a mistrial, the district court noted that the AUSA in charge of the prosecution had acted “flagrantly, willfully, and in bad faith.” 2008 WL 1946744, *4.

In an excellent discussion of the applicable law dealing with dismissal of an indictment for prosecutorial misconduct and whether that ultimate sanction was required here, the Ninth Circuit, noted that the government even conceded that a mistrial was an appropriate remedy, for the government’s violations of “its constitutionally imposed discovery obligations.” Id., *12.  Both the district court and, apparently, the Ninth Circuit, were concerned that any sanction short of dismissal, would have countenanced the government's unlawful conduct.

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The fur continues to fly in the Wecht case in the run up to the retrial, currently scheduled for May, 27 2008. 

As I have previously stated in this blog, it is my hope that this blog will raise the standard of the criminal defense bar by posting pleadings that can be accessed and then used in one’s own practice. In that respect, the filings by Wecht’s counsel provide us with an excellent standard to emulate:

•             The defense has recently filed a Motion to Dismiss for Prosecutorial Misconduct (the brief is available here), alleging that the investigating agent and the lead AUSA have committed prosecutorial misconduct which infected the search warrant affidavit and the trial by suggesting that the movement of certain evidence occurred on one day in an effort at concealment, when, in fact, it occurred on a different day, such that no concealment could have occurred. This post trial motions practice is of an exceptionally high quality and brings to light some very disturbing allegations related to the prosecution’s handling of this troubling case.
•             The defense has Renewed its Motion for Verdict of Acquittal under Federal Rule of Criminal Procedure 29 alleging that the government failed to prove any misrepresentation or concealment. It is particularly interesting how interwoven these pleadings are because the Renewed Motion for Verdict of Acquittal ties in nicely with the prosecutorial misconduct motion and the government contention of concealment of evidence, which, is at the very least mistaken.  
•             And, finally, the defense has raised a Double Jeopardy claim related to the manner in which the mistrial was declared (this is no doubt a long shot, but generally a litigant is entitled to a direct appeal from the denial of a double jeopardy claim), and now seeks to appeal the trial judge’s denial of that motion.

Wecht is being capabably represented. These pleadings provide all of us in the defense bar with exceptional post judgment guides.

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