i am informed all parties are here so let's start with the argument hearing first from the a balance the court in this case the government has failed to prove the required materiality and harm elements of fraud i will address the government's theory of materiality the theory is wrong as a matter of law the theory is not based on the language of the contracts namely the letters of credit and the guarantees the theory is not based on the law governing letters of credit the theory relies exclusively on witness testimony their interpretation of the contracts and their understanding of the law key testimony is wrong on the law and falsely interprets the contracts first the bankers testified that had the bank's known of changes made to the documents they would not have honored even if admittedly the documents were facially compliant second professor byrn the government's expert witness testified that a copy of a bill of lading stamped copy nonnegotiable does not comply with the condition of being a copy of an original the banker's understanding of the law is erroneous and professor burns testimony is false as a matter of  matter of the me that banks are required to accept facially compliant documents even if they are not originals not original copies well they have to the  testimonies he has had the banks known of the changes that's not sufficient my point is that now is not sufficient facts to be able to legally  dishonor presentation if they know that the date had been changed that would not have been enough no the q b you want me to drop jump into the law i'd like to know what kind of a system it is where you can change the date to was there to make it compliant with the program there  the changed date brought it into compliance with the program the the what what matters is the shipment there's many different documents for example of that's jump into the the date if you like  that one case where if the date hadn't been changed it wouldn't have been eligible for the program because it didn't fall within the range that's  that the october fifth was not in the range october six was in the range right so the question is whether october six was a valid date of export for the shipment so in terms of you if we're looking at the the the date of export the question is that our point is that the definition in the regulations this is a something it's not this  requirement of c c c it's in the it's a language of the regulations it has to be analyzed we say that there's an ambiguity in the definition of date of export so that the  the regulations fourteen ninety three twenty d defines the date of export of a shipment is the on board date of an ocean bill of lading but that's we say that that's ambiguous for example a a bill of lading may have two on board dates on it for example in my brief in page thirty six i give the example of ref lire bill of lading number five it had to book on board dates october seventh and october twenty third the issue date of the bill of lading october twenty third is an on board date of the shipment the shipment is on board for weeks every single one of those days is that what you think it needs onboard or the whole time that this shipment is on the boat that's on board day yes but it doesn't say date as on board date singular on board date but that then that's where the ambiguity lies any of those dates is an on board date and on board dates you might have a better argument but one says on board date that sounds like a specific date so which one is it well they were they were issued that that's on my brief page thirty six which i discuss it they were issued at the port of discharge right so but most likely those were the second set of of bills of lading because bills of lading ins would also have been issued at the port of loading so you have the same one shipment two different potentially two different intervene to loans with the russian bank that assumed there would be discrepancies in the documents how do you know the letters of credit say so if you look at joint appendix page eight hundred fifty two there is an express provision that says payment applicant authorizes payment against discrepancies but without affecting c c c requirements that is in every single letter of credit that mean actually what it yes what it means is that letters of credit are payment mechanisms that are designed to protect banks and the underlying transport documents are designed to ensure that there is actual goods here there was no dispute there were actual goods the real chickens on real ships that went to real russian importers and the only question is whether or not there are discrepancies in the underlying transport documents the way the u worded it is designed to protect banks in the event that there are discrepancies in these transport documents how do we know on joint appendix page eighty nine the authors of the  that the recent changes to the u c p r because seventy percent of documents prior to that time had discrepancies and were creating problems in the letters of credit and so the design of the u c p to protect banks meant that if the banks did not know that there were discrepancies in the underlying transport documents they were to be protected because it is i'm sorry was it a c c c requirement that there be a copy of the original bill of lading a copy of an original yes a copy of an original though is exactly what was provided the copy of original and original bill of lading  understand the theory first c c c requirements no discrepancies as to those that they had to be strictly complied with not necessarily because regulations seven c f r fourteen ninety three point one twenty he says yes seven c f r fourteen ninety three point one twenty says that if  have knowledge that there are discrepancies in these documents good faith they take it in good faith and they are given their guarantee and they are protected and so as a result of that these banks got everything they bargained for they knew they were going to a u approved russian bank on terms that these banks accepted with documents that they knew had a probability that there would be discrepancies as to them and so under bin day under novak and under retail stores because they got the benefit of their bargain there was no contemplation of harm by these defendants as to the banks now at the very least you have to reverse the restitution argument as well because the restitution rested entirely on the theory this somehow the defendants increase the probability of the russian default but there was no evidence of that these trips are proximate cause that's correct there is no evidence that the when these discrepancies in these transport talking it's occurred that that did anything to increase the risk that this russian bank was going to default but it is the argument is is your argument that it has to be within the zone of risk it has to relate to the risk of default of the russian rank i mean it was clearly forseeable and if you could get the money from the bank by making statements to the bank you clearly got but for causation i'm having difficulty seeing why you russian bank default tying it to the omissions and misrepresentations alterations in the bills of lading they have no connection and temporally these transport document discrepancies arose two years before the russian bank to fall to the russian bank had paid off almost half of the loan when it defaulted and what the government has sought to do here in overreaching in this prosecution i would submit is to blame the defendants by looking at these discrepancies in these documents and saying that they somehow should be responsible for the russian bank defaulting when there was no evidence that these transport documents conveyed anything about the risks of this russian bank default and judge livingston the record also made clear that there were one hundred thirty five million dollars some of the loans that were tied up in this russian bank default for which the defendants had no responsibility or tile whatsoever and so if proximate cause means anything and the statute says direct cause there has to be a linkage between the misrepresentations underlying the commission of a fan yes and the restitution order for the victim in here there is none the u s d a paid out the money on the guarantee that that's correct and the bank and here again the district court decided the case on a hypothetical the hypothetical was assume that the banks would have a risk about the default but they couldn't have done it under that regulation that i just cited the fourteen ninety three point one twenty eat regulation the government only references that regulation in one place in its br in a footnote on page forty eight and there it gives the wrong standard for what should be applied here they prosecuted this case on the theory that the banks had no knowledge they can't then turn around and say that there somehow some greater risk that the banks are not going to get the guarantee that the u s d a provides when under the regulation itself which i just quoted to you it says that if the banks do not know they going to be given the benefit of the doubt and so what you have here is a situation in which both the benefit of the bargain problem with the prosecution and the restitution problem with the sentencing are completely diverge from how the rules are supposed to work now if you'd like me to address materiality i would be happy to do so do it now yes your questions judge pooler with respect to the date change they do go to the discrepancies there was a but let me make this one point which is that if you don't agree with us about that you still have to reverse the restitution because the restitution award was based soley on the stamps putting in original you and you not you not arguing about the forfeiture only the arrested correct and the restitution is based on our statutory interpretation of the definition of victim so as to the date change if you were to disagree with us about that you still would have to reverse four of the substantive counts the only count that would be left would be the conspiracy count because the other four substantive counts all rested on the cool express transaction which was putting the original stamp on there were no date changes on the cool express transaction and you would have to reverse the restitution a lot and that is acceptable of course of dealing to put in a regional stamp on a document that is not obviously original well it's a copy of an original and that was an oxymoron to make it he you know it is your honor but the point is that the only original bills of lading that matter in the transport world are the ones that go with the goods those are documents of title and you need to have an original ink signature on those in order to convey title to the goods that's not what we're talking about here we're talking about a copy that under the article fourteen serves the function of a transport document in other words it proves there were real chickens on real ships they got to the real places appendix that the document examiner ecole bank like to have the documents in a certain way and he was trying to facilitate the transaction in order to do just that requirements did require copy of an original not copy of the non negotiable copy ok so let's under packwood exactly what that is judge livingston is a sort of practical term when you get a bill of lading it's usually done in triplicate those of us the old timers remember that there is like a white copy and a pink copy and a yellow copy and if you press really hard it he may or all originals no the top one is the original the bottom one is a nonnegotiable copy and so what you something where the document examiners in order to allay their confusion made these these changes were made to the copy but that did not affect the ability of the bank to obtain payment because the letter of credit rules under the article fourteen expressly say that it might have increased the risk that the c c c would honor a guarantee of need no because then the regulations says if the banks don't know they are protected right assuming that the banks are able to persuade the c c c they acted in good these rules are all designed to protect the banks and that's why the bank isn't a victim here because the bank got protected have to look at there is no charge to conduct that these defendants affected the risk of a russian bank default one jot one jot nothing there's no evidence and they couldn't have because the u s d a had approved the russian bank coping had approved the russian bank coping had negotiated the terms of the loan all of this economic interaction had occurred before the documents were even created or stamped or altered with respect to the transportation of these goods the u s d a charged rates that ensured that it was going to break even  expected that there would be defaults and when the world economic crisis of two thousand and seven to two thousand and ten occurred there were many banks that defaulted and that affected u s d a but you can't put these men in prison by virtue of these changes in these documents where you have a russian bank that everybody knew was going to be a risky venture and in fact when it defaulted there was nothing in no representations that these defendants had anything to do with  good afternoon your honour's my name is mike mcgarry emesis u s attorney from the district of connecticut on behalf of the united states of america i was counsel below and with me a counsel table today is this is united states attorney john pierpont who is also on the trial team below u s attorney john durham who also tried the case is not it able to come today but sends his regards this is a case where the defendant's alter documents change dates removed watermarks removed legend's that said certified copy non negotiable stamp them original to cause the banks to root release money that the banks otherwise would not have released to put millions of  risk that they otherwise would not have released so that you can see that the only money loss was because the bank failed no i don't i don't agree with that version of the facts the bank failed they're correct well again to having reviewed the published decisions of this court the risk is increased dramatically for instance you talked about the changing of dates when they changed the dates from outside the program to inside the program they had millions of dollars at risk that the u s d a may not have guaranteed and regardless of what council argues maybe couldn't have guaranteed because as we know from the recent government shut down when money is allocated for specific program at a specific period of time the government can't just decide oh we're going to reallocate it outside that time frame so if the shipment is october fifth and if their head not been money allocated left for an october fifth shipment just because they changed the date to october sixth doesn't bring it into the program and it doesn't mean that the u s d a necessarily had to or could take money from the sixth forward and necessarily use it on the fifth now that particular transaction that we talked about we talked about with the u s d a rep mr dr we talked about with a bank rep was the and cash queen and the ref lira those particular transactions didn't defaults but the risk the risk of loss was increased astronomically for that transaction because in fact it may well not have been cover supposed to look at the risk not at the outcome well i think when we look at what we don't want to necessarily be outcome determinative i agree with that because the banks have to make their charge with making a discretionary economic decision and when they make an economic i think as this court has said they have a right for accurate information to be in front of them when they and as the court has pointed out on a number of occasions the statute i believe it's thirteen forty nine there are from experts there are different copies of bills of lading there actually were blue the ones from maersk and they say original on them and they come in three copies and they can be for shipping documents they can show they can be a negotiable bill and the c c c under the regulations at the time said we want the copies of the bills copies of the originals there are other copies that say non negotiable that's what the defendants altered and they change because they couldn't get the originals that said original are circumstances in the last surrounding letters of credit where these non negotiable copies can substitute for the original deutsche bank testified that they wanted the original regionals to comply with the terms of the letter of credit and he testified at joint appendix four eighteen  when we and i'm going to quote him but it's on page fourteen when we say the documents are ok and the other banks say the documents are not ok then we have a dispute obviously we don't want to end up in that maybe you know we lose out if we made a mistake so if the letter of credit here is calling for an original and deutsche bank or co bank except it's something else they run the risk that the counterparty or the bank the foreign bank my say will show us your complying presentation and when they show up and say well that wait a second that's not what we call for they might have a right to refuse that whether there are situations in letter of credit law not here to answer your question directly where you can substitute something else out i can't speak to that but i can tell you that the trial evidence from mr f ing from deutsche bank from ms hollywood from co bank from the e mails of mr a little a mo himself two other people at the time said copy non negotiable we can't do it without a cut without a copy with a copy  the original he said that too and among other people mr just around where he said we can't do the deal and the bank is asking for a copy of the original can you get me a copy of the original  and that's in the letter of credit i believe it does say this discrepancies waived provided they're not affecting c c c requirements which i think were first of all we took the position at trial we argued a trial and the jury agreed with us by virtue of the convictions that it was material and that is a question for the jury that it is material and that we argued changing dates is not the discrepancy whiting out a watermark that says certified true copy is not a discrepancy why do you now certify true copy and stamping original is not the shading issue exactly you waived no we haven't your honor and i don't know why they put that in your brain in the brief but if you look at page i believe it's footnote we simply say there's another way that they alter documents actually it's probably on page thirteen the defendants also altered certain documents that had been whited out so that they would be less obvious that the documents had been altered so we didn't wave that it's they what happened was they got these documents we could call them bootleg documents we could cost them secondhand documents but the  the a big square was totally whited out and as the experts are not the expert but the woman from maersk who testified there's usually like a blue background and if you white it out and then you make a photocopy of it that part that's white is going to come out even brighter white while the rest of it kind of has a great hue to it so what one of the secretaries did was to shaded so it wasn't so obvious to the bank and mr calderon who's here today sent an e mail that says you know she said i shaded it so it's not so obvious to the bank that it's been changed and he said good job so clearly they have an intent to defraud the bank where they're saying let's make it so it's not so obvious also as far as intent if these were not typographic it was a clerical errors these were not clerical errors these were intentional changes intentional changes to get the banks to release millions of dollars and when john dost or and this woman with the last name wang did an audit they went up to mr calderon's house in connecticut which was also his office and they were asking him about these bills of lading because as mr duster had testified they had some problems with the bills of lading they had some questions they didn't tell them anything about the change in the dates these stamping of originals these shading of the documents which clearly if they were if it was merely a clerical error and this is it in an audit that went through the course of two days they they met them they went to lunch they went back to mr cal yes as far as the topic of restitution we think judge paul got it correct on restitution the banks did lose money the loss was passed on to the u s d a and the u s d a guaranteed there needs to be a necessary causal nexus between the offense and the losing of the money i think the court discourse also said in paul if the victims payments to the defendants were the mechanism through which the defendant profited from his conspiracy and it is clear that no reasonable person or bank would have given the defendant her money if she had known the plan then the district court must order restitution don't you agree that these defendants had nothing to do with the failure of the russian bank well i think that's beside the point your honor because i think as we saw from all the mortgage fraud cases and i think if we look at paul what the defendant there argued was well he had the law of the securities were inflated as collateral and he had nothing to do with the collateral going down in value but he still had made a fraudulent application for a loan we language in reno your adversary relies on the risk that cause is the risk that caused the loss within the zone of risk concealed by the misrepresentations clearly the misrepresentations here didn't have anything to do with the risk of the bank defaulting well i think again i don't read miranda as helping the defendant i read miranda was helping our argument in that it's more a know is the way i read it is the buy you capital case where there's a sixty million dollars ponzi scheme and then there's this other fellow mr marino who is the accountant who's doing the false books and the court said well no that was enough of a causal connection because you did the false books that if you had done truthful books the pozzi scheme would have been discovered if that is sufficiently close here the false statements literally caused the bank to release the money and it didn't cause the rush of bank to fail it didn't your honor by but once the money is put at risk then that's your honor it says it also says explains that were cash is taken from a bank but the bank is fully insured the theft is complete when the cash is taken so taking that from the supreme court in shaw the theft here is complete when mr little and calderon had the bank release the money the fact that therefore there is the  transactions well i think the i would say no your honor because the purpose of the whole program is to protect the banks in case the russian banks fail so that is reasonably forseeable it's so forseeable that there's a program that if august documents and if actual non fraudulent loans are done then the u s d a is going to support it so again if we look at marino as within you know is it reserved for seeable is that something that is within the causal nexus the russian bank failing that's clearly forseeable that's why there's the program in case these foreign banks in case these foreign banks  don't come through and i think also the archer case also talks about that as well as to what the definition is with respect to being within the the  and so an archer the fed was charged with conspiracy i believe well i'm not i don't want to struggle looking for the quote but i think the archer case helps us as well and i guess what i would say your honor is when we look at the robers case again which is a supreme court case and it specifically talks about the basic question that a proximate cause requirement princes whether the harm alleged had a sufficiently close connection to the conduct at issue there exists their existence is it first seeable and the losses in part incurred through a decline in the value of collateral sold are directly related to an offender's having obtained collateral property through fraud so here the decline and the fact that the bank failed is is directly forseeable and it is clearly not only is it a close connection to the conduct but it is the conduct their conduct caused the fraud and again if i know i know i'm a little bit over on the fraud you claim but it doesn't but their conduct did not cause the russian bank to fail well that's a misunderstanding the not cause correct in a matter of fact the money from the u s bank paid for by the u s d a may well have propped up these russian banks for a little longer period of time but i think the interesting point that we made a trial to the jury when we were arguing  regarding materiality is by virtue of the fact that they knew they could under their scheme use fraudulent documents it allowed them to take a much more aggressive position and it allowed them to get more guarantees and take more loans because unlike other people in this space if they didn't have a shipment they would just go out buy the documents in these cases fraudulent change the documents to make them comply so therefore we think we established and prove to the jury satisfaction one of the aspects of the fraud was more money was put at risk than otherwise would have that these are not clerical errors but it allowed them to take out more loans from the u s banks that then went over to the russian banks and again i guess the last thing i would say is your honor if somebody lies on a student loan and then fails to pay it back we don't say well the fact that they didn't pay it back you know that's not what caused them to close the connection in the connection here well again why don't know why that person didn't pay their student loan back they maybe thought they were going to be a successful tennis player so she took out a student loan for college didn't go to college but broke or rankle couldn't play tennis and now couldn't pay it back we don't look and say well she couldn't for see that she was going to twist her ankle and never play another pro game of tennis she took out a student loan by and then for mr frederick i'd like to bring your attention to the case the law of the circuit recon optical versus government of israel  credit that is the law that governs letter of credit the law in the second circuit so it's called a fight in sections five explain in those cases that i'm that i  transaction you made there were really chickens so here the so so let's we have to f so so the underline transaction must be examined and found to be pro fraudulent ok so let's look at the underlying transaction ok the letter of the there's three parties in the online transaction the beneficiary the l c beneficiary else the applicant and the c c c the beneficiary and the applicant are in effect the same party there's no fraud there the only possible victim of fraud in the underlying transaction is u s d a so to to to be able to dishonor to be able to refuse to pay the banks had to prove that there was fraud on the u simply no showing a fraud in the u s d a here the factual basis for dishonor simply does not exist so the bankers are wrong had the banks learned of the alleged document changes they would have honored either voluntarily or by court order because i would have sued them for wrongful disorder and i would have won because they can't show that we defrauded the c c c now in the case of the of the change stamps there's no dispute that the shipments existed that we acquired the rights to use the shipments in the program and that they qualify for the guarantees that the government has to conceive concede that for those cases for those for the cases the chain stamps the guarantees were properly issued and there was no fraud in obtaining a signing or claiming on the guarantees now on the case of the change dates well the jury well let the jury and the witnesses don't a pine on the law and on the contract time unless the contract is a big us so we we say now in hindsight the contract is ambiguous and therefore there's a genuine contractual dispute in a contractual dispute does not rise to fraud in the transaction whereby the beneficiary has no kobo right to expect honor so there was no grounds for the banks to refuse payment because they would have never shown that there was outright fraud they would they could have shown that there might be a dispute on the dates on the date of export but that are you also have some time for thank you your honors let me start with the novak case because in that case the court found materiality but it did not find that the benefit of the bargain had been established so even if you don't agree with us about the changes to the documents and you believe that it was a discretionary decision to release the money you still have to reverse because the banks got the benefit of their bargain there was no  whatsoever here talking every verse in the entire reversing the jury verdict that's correct because as a matter of law the government does not dispute that the use applies the letters of credit all incorporated the u p and as a matter of law and the government says nothing about the sections of our prefigure meticulously through the articles of the u c p that say the copies are allowed the copies do not have to be exact and identical and that copies have to perform the function the banks knew it why do we have to worry about in a broad sense the last surrounding letters of credit here if the requirements of the program imposed a copy of the original because then the program isn't being complied with in the argument the theory would be the bank is is deprived of economic and information going to its risk on the guarantee if the government didn't prosecut fraud on the government theory the government prosecutor fraud in the bank theory and under the regulation the bank is protected mr mcgarry stood here and said the rules are designed to protect the banks and that's exactly what happened buyers got exactly what they had been promised even though they were induced fraudulently through misrepresentations to enter into the transaction to begin with here the banks got exactly what they bargained for they knew that there was a russian bank it was risky risky that they didn't bargain for and that's what the government says but the risk was absolutely diametrically opposed to their theory of prosecution if they had prosecuted the case on the theory that the banks could have known or they ran some opportunity of noncompliance here that would have risked their guarantee we would have a different case but he stood up here and told you that the rules are designed to protect the banks they prosecuted the case on the theory the banks don't know about these alterations and so they can now say that in fact the banks risk something when their whole theory of prosecution was they couldn't have risked anything because they did not know about these alterations in the underlying transport documents and that's why the banks got everything that they bargained for here they knew they were entering into risky loans they knew there was a risk of a russian bank default they knew that that there could be discrepancies in the transport documents they contract did to allow discrepancies in the in the documents they incorporated international rules that allowed for the discrepancies in these transport documents and for them to now say all of a sudden and the district courts tried mightily to uphold the jury verdict here by coming up with a hypothetical that actually was one hundred eighty  opposite of the government's prosecution theory you simply cannot sustain the convictions on that basis and restitution tries he's my today he has no theory for how the banks were somehow cheated through these transport documents in a way that would have affected the risk of the default because there is no linkage whatsoever between what the alterations to these transport documents were and the risks of a russian bank to fall judge pooler your questions and just letting some your questions completely expose the government here so at the very least you should reverse the convictions and you should reverse the restitution now on materiality i think that it really comes down to the if the government has nothing to say about the u c p rules and those you c p rules are designed to keep and prevent banks from doing the underlying fly  he gave you the answer the rules are designed to protect the banks and so long as the banks are operating in paper or not the underlying transaction the international rules and the federal regulations are going to protect the banks and as a result of that none of these alterations made a whit of difference to the underlying transaction because under article eight of the u c p the banks must honor if the document appears to be facially compline these documents all facially complied the banks were required under the international rules to release the money that's what they did that's what they wanted to do because that's how they made