Source: https://www.scribd.com/document/79259107/Farkas-Appeal-011812
Timestamp: 2016-10-22 19:06:07
Document Index: 662236826

Matched Legal Cases: ['§ 2', '§ 3006', '§ 3231', '§ 981', '§ 982', '§ 1344', '§ 1343', '§ 1348', '§ 1349', '§ 853', '§ 127', '§ 1291', '§ 607', '§ 127', '§ 3231', '§ 1291', '§ 1344', '§ 853', '§ 3006', '§ 2', '§ 607', '§ 981', '§ 1344', '§ 1344', '§ 157', '§ 371', '§ 1344', '§ 1344', '§ 1344', '§ 1344', '§ 1344', '§ 1344', '§ 1344', '§ 1344', '§ 2']

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RECORD NO. 11-4714
v. LEE BENTLEY FARKAS,
OPENING BRIEF OF DEFENDANT-APPELLANT LEE BENTLEY FARKAS ON APPEAL FROM THE UNITED STATES DISTRICT COURT FOR THE EASTERN DISTRICT OF VIRGINIA AT ALEXANDRIA
David M. Coorssen Stuart A. Scherer 539 W. Market Street Old Portland Building Fourth Floor Louisville, Kentucky 40402 (502) 568-8901 (Direct) (502) 589-4012 (Facsimile) dmc@coorssenlaw.com sscherer@smithhelman.com Counsel for Appellant Lee Bentley Farkas The Appellate Link
6020 Bremo Road
Appeal: 11-4714
UNITED STATES COURT OF APPEALS FOR THE FOURTH CIRCUIT ____________________ No. 11-4714 (1:10-cr-00200-LMB-1) ____________________ UNITED STATES OF AMERICA Plaintiff-Appellee v. LEE BENTLEY FARKAS Defendant - Appellant _______________________________________________ DISCLOSURE OF CORPORATE AFFILIATIONS AND OTHER INTERESTS ______________________________________________ The Defendant - Appellant, LEE BENTLEY FARKAS, is an individual, noncorporate, criminal defendant, and, as such, is exempt from the requirements of FRAP 26.1 pursuant to Local Rule 26.1.(a)(1)(B). /s David M. Coorssen (Signature of Counsel) 06, January 2012 (Date)
TABLE OF CONTENTS Page CORPORATE DISCLOSURE STATEMENT .......................................... TABLE OF CONTENTS ............................................................................ TABLE OF AUTHORITIES ...................................................................... STATEMENT OF SUBJECT MATTER AND APPELLATE JURISDICTION.......................................................................................... STATEMENT OF THE ISSUES................................................................ STATEMENT OF THE CASE..................................................................... STATEMENT OF FACTS .......................................................................... SUMMARY OF THE ARGUMENT .......................................................... ARGUMENT (with Standard of Review).................................................... I. THE TRIAL COURT’S RUSH TO JUDGMENT, ESPECIALLY IN LIGHT OF THE UNPRECEDENTED AND MASSIVE DOCUMENTARY DISCOVERY PRODUCTION, VIOLATED MR. FARKAS’S RIGHTS AS GUARANTEED UNDER THE SIXTH AMENDMENT TO THE UNITED STATES’ CONSTITUTION ........................................................................................................... The Trial Court’s Refusal to Transfer the Case to the Middle District of Florida Deprived Mr. Farkas of an Effective Opportunity to Coordinate withCounsel ...................................................................................... The Monumental Discovery Production Justified the Defense’s Requests for Continuances, and the Trial Court Erred in Denying the Same ... i ii iv
1 1 2 3 11 12
The Trial Court’s Rush to Judgment Deprived Mr. Farkas of Counsel of His Choice.......................................................................................... THE TRIAL COURT’S INSTRUCTION THAT THE JURY’S “SOLE INTEREST IS TO SEEK THE TRUTH FROM THE EVIDENCE RECEIVED,” WITHOUT ALLOWING FURTHER DEFINITION OR EXPLANATION OF “REASONABLE DOUBT” UNCONSTITUTIONALLY DILUTED THE GOVERNMENT’S BURDEN OF PROOF....................................................................... THE TRIAL COURT UNDULY RESTRICTED AND INHIBITED DEFENSE CROSS-EXAMINATION............................................... THE TRIAL COURT’S FINDING THAT TBW WOULD HAVE FAILED “BUT FOR” THE FRAUD IS CLEARLY ERRONEOUS ............................................................................................................
35 38 38 38 39
CONCLUSION............................................................................................. STATEMENT IN SUPPORT OF ORAL ARGUMENT ........................... CERTIFICATE OF COMPLIANCE ........................................................... CERTIFICATE OF SERVICE ....................................................................
TABLE OF AUTHORITIES Cases Alford v. United States, 282 U.S. 687 (1931) ...................................... Beaudine v. United States, 368 F.2d 417 (9th Cir. 1966) .................... Boyde v. California, 494 U.S. 370 (1990) ............................................ Brady v. Maryland, 373 U.S. 83 (1963) ............................................... Cage v. Louisiana, 498 U.S. 39 (1990) ................................................. Caplin & Drysdale v. United States, 491 U.S. 617(1989) .................... Davis v. Alaska, 415 U.S. 308 (1973) .................................................. Delaware v. VanArsdall, 475 U.S. 673(1986) ...................................... Estelle v. McGuire, 502 U.S. 62 (1991) ............................................... Harris v. United States, 371 F.2d 365 (9th Cir. 1967) .......................... L.J. v. Wilbon, 633 F.3d 297 (4th Cir. 2011) ........................................ Massaro v. United States, 538 U.S. 500 (2003) ................................... Morris v. Slappy, 461 U.S. 1 (1983) ..................................................... Murphy v. Holland, 475 U.S. 1138 (1986) ........................................... Olden v. Kentucky, 488 U.S. 227 (1988) ............................................. O'Neill v. Windshire-Copeland Associates, 372 F.3d 281 (4th Cir. 2004) ....................................................................................... Page 34 35 26 21 27 23 32, 33 33 26, 27 34 13 20 14, 18 29 33
Platt v. Minn. Mining & Mfg. Co., 376 U.S. 240 (1964) ..................... Powell v. Alabama, 287 U.S. 45 (1932) ............................................... Quinn v. Haynes, 234 F.3d 837 (4th Cir. 2000) ................................... Scotts Co. v. United Indus. Corp., 315 F.3d 264 (4th Cir.2002) .......... Tights v. Acme McCrary Corp., 541 F.2d 1047 (4th Cir. 1976) .......... Ungar v. Sarafite, 376 U.S. 575 (1964) ................................................ United States v. Badwan, 624 F.2d 1228 (4th Cir. 1980) ...................... United States v. Bakker, 925 F.2d 728 (4th Cir. 1991) ........................ United States v. Bostian, 59 F.3d 474 (4th Cir. 1995) ......................... United States v. Boyd, 53 F.3d 631 (4th Cir. 1995) ............................. United States v. Bragan, 499 F.2d 1376 (4th Cir. 1974) ...................... United States v. Cabrales, 524 U.S. 1 (1998) ....................................... United States v. Cronic, 466 U.S. 648 (1984) ...................................... United States v. Farmer, 274 F.3d 800 (4th Cir. 2001) ......................... United States v. Fisher, 477 F.2d 300 (4th Cir. 1973) ......................... United States v. Forde, No. 09B4704, 407 Fed.Appx. 740, 2011 WL 63831 (4th Cir. 2011) [included in Addendum] .................... United States v. Gallop, 838 F.2d 105 (4th Cir. 1988) ......................... United States v. Gibbs, 739 F.2d 838 (3rd Cir.1984) ...........................
15 22 33 29 34 18 18, 19 13, 18 26 35 25 13 19 23, 24 25
28 22-23 30
United States v. Gonzalez-Balderas, 11 F.3d 1218, (5th Cir. 1994) ..... United States v. Gonzalez-Lopez, 548 U.S. 140 (2006) ...................... United States v. Heaps, 39 F.3d 479 (4th Cir. 1994) ............................ United States v. Hedgepeth, 418 F.3d 411 (4th Cir. 2005) ................... United States v. Herder, 594 F.3d 352, 363-64 (4th Cir. 2010) cert. denied, 130 S.Ct. 3440 (2010) ...................................................... United States v. Horak, 833 F.2d 1235 (7th Cir. 1987) ....................... United States v. Hughes, 401 F.3d 540 (4th Cir. 2005) ....................... United States v. Inman, 483 F.2d 738 (4th Cir. 1973) ......................... United States v. Johnson, 510 F.3d 521 (4th Cir. 2007) ........................ United States v. Jordan, 466 F.2d 99 (4th Cir. 1972) ........................... United States v. LaRouche, 896 F.2d 815 (4th Cir.1990) .................... United States v. Leja, 568 F.2d 493 (6th Cir. 1977) ............................ United States v. Lighty, 616 F.3d 321 (4th Cir. 2010) ........................ United States v. Mincoff, 574 F.3d 1186 (9th Cir. 2009) .................... United States v. Monsanto, 491 U.S. 600 (1989) ................................. United States v. Oriakhi, 57 F.3d 1290 (4th Cir.1995) ........................ United States v. Russell, 971 F.2d 1098 (4th Cir. 1992) ...................... United States v. Skilling, 554 F.3d 529 (5th Cir. 2009) .......................
27-28, 29 22 13, 15 13
36 36 30, 32, 35 25 14 34-35 19 34 29 20 23 28 26 21
United States v. Stephenson, 895 F.2d 867 (2d Cir. 1990) .................. United States v. Walton, 207 F.3d 694 (4th Cir. 2000) ........................ United States v. Warshak, 631 F.3d 266 (6th Cir 2010) ...................... Wheeler v. United States, 351 F.2d 946 (1st Cir.1965) ....................... Federal Constitutional Provisions
15 28, 29 21 34 Page
U.S. CONST. amend. VI ........................................................................ 12-13, passim U.S. CONST. art. III, § 2, cl. 3 ............................................................... Federal Statutes 18 U.S.C. § 3006(A) ............................................................................. 18 U.S.C. § 3231 ................................................................................... 18 U.S.C. § 981(a)(1)(C) ...................................................................... 18 U.S.C. § 982 ..................................................................................... 18 U.S.C. § 1344 ................................................................................... 18 U.S.C. § 1343 ................................................................................... 18 U.S.C. § 1348 ................................................................................... 18 U.S.C. § 1349 ................................................................................... 21 U.S.C. § 853(e)(1)(A) ...................................................................... 28 U.S.C. § 127 (a) ................................................................................ 28 U.S.C. § 1291 ...................................................................................
14 Page 8 1 36 36 2 2 2 2 6 1 1
Rules FED. R. CRIM. P. 18 ............................................................................... FED. R. CRIM. P. 21 (b) .......................................................................... FED. R. CRIM. P. 30 (d) .......................................................................... FRAP 32.1 (b) ....................................................................................... Local Rule 32.1 ..................................................................................... Treatises 4 Jack B. Weinstein et al., Weinstein's Federal Evidence § 607.04[1] (2d ed. 2000) ......................................................................................... 14 14 26-27 28 28
STATEMENT OF SUBJECT MATTER AND APPELLATE JURISDICTION This is an appeal from a final judgment entered on June 30, 2011 (R. 301, Judgment in a Criminal Case; J.A. pg. 2214) in a criminal case involving offenses against the laws of the United States which were alleged to have occurred within the geographic and statutory jurisdiction of the District Court, 28 U.S.C. § 127 (a). The District Court had original subject-matter jurisdiction pursuant to 18 U.S.C. § 3231. The Court of Appeals has jurisdiction over this appeal pursuant to 28 U.S.C. § 1291. Notice of Appeal was timely filed on behalf of Appellant on July 12, 2011 (R. 306, Notice of Appeal; J.A. pg. 2220). Upon discovering that the trial court sua sponte extended the time for appeal until the forfeiture issues had been fully developed, this Honorable Court held this appeal in abeyance pending a final order of the trial court. Said final order was entered on October 26, 2011 (R.355, Memorandum Opinion; J.A. pg. 2261). STATEMENT OF THE ISSUES I. Whether the trial court properly balanced the Sixth Amendment’s competing interests between a speedy trial and the effective assistance of counsel? Whether instructing a jury “its sole interest is to seek the truth” without allowing further definition or explanation as to “reasonable doubt” unconstitutionally dilutes the burden of proof ? Whether the trial court abused its discretion and clearly erred in its evidentiary
and factual rulings? STATEMENT OF THE CASE On or about June 15, 2010 a federal Grand Jury in Alexandria, Virginia indicted the Defendant-Appellant, Lee Bentley Farkas (hereinafter “Mr. Farkas”) under a sixteen count indictment alleging: bank fraud; wire fraud; securities fraud; and conspiracy to commit the same, in violation of 18 U.S.C. §§ 1344; 1343; 1348 and 1349 (R.1, Indictment; J.A. 14). In addition to Mr. Farkas, six of his alleged, known co-conspirators were indicted separately in the United States District Court for the Eastern District of Virginia: Desiree Elizabeth Brown [Criminal No. 1:11cr84]; Catherine Kissick [Criminal No. 1:11cr88]; Raymond Edward Bowman [Criminal No. 1:11cr118]; Teresa A. Kelly [Criminal No. 1:11cr119]; Sean William Ragland [Criminal No. 1:11cr162]; and, Paul Richard Allen [Criminal No. 1:11cr165]. Mr. Farkas maintained his not guilty plea and proceeded to trial, whereas each of these co-conspirators ultimately plead guilty, agreed to cooperate with the government, and testified against Mr. Farkas at his trial. Following a nine day trial, which commenced on April 4, 2011, the jury convicted Mr. Farkas on all of the remaining fourteen counts.1 Thereafter, on June
Two of the wire fraud counts, Counts 12 and 13, were dismissed on the government’s motion during the trial (R. 182, 183).
30, 2011 the District Court sentenced Mr. Farkas to a total combined term of thirty years (360 months) (R. 301, Judgment in a Criminal Case; J.A. 2214). This appeal followed (R.306, Notice of Appeal; J.A. 2220). STATEMENT OF FACTS Mr. Farkas is the majority shareholder of Taylor, Bean & Whitaker Mortgage Corp. (“TBW”), which he purchased in 1991 and served as chief executive officer until about July 2003 (R.1 Indictment, ¶ 11; J.A. at pg. 19). During his tenure and ownership, TBW grew from closing less than a million dollars worth of loans - - or 20-40 loans per month - - to closing 25,000 loans per month at its peak to become “one of the largest privately held mortgage lending companies in the United States . . . originat[ing] . . . billions of dollars in new residential loans on an annual basis.” (Ibid., ¶ 1; J.A. at pg. 15). TBW, working primarily through community banks, would fund, and/or originate residential mortgages which were then generally sold in the secondary mortgage market to third-party investors, with TBW maintaining the Mortgage Servicing Rights (MSR’s). These MSR’s were TBW’s principal source of income (Id., at ¶ 2 ). Third-party investors included both private commercial investors and the Federal Home Loan Mortgage Corporation (“Freddie Mac”). TBW would also pool loans into mortgage-backed securities which were guaranteed by the
Government National Mortgage Association (“Ginnie Mae”)(Id., at ¶ 1). TBW’s primary source of funding and principal banker was Colonial Bank,2 specifically its Mortgage Warehouse Lending Division (MWLD) based in Orlando, Florida. TBW was the MWLD’s largest customer, accounting for seventy to seventyfive percent of its business, and the MWLD was one of Colonial Bank’s most profitable divisions, accounting for at least twenty percent of Colonial Bank’s pre-tax income from 2005 through 2009 (Id., at ¶ 7; J.A. at pp. 17-18). Despite the overt and objective success of both TBW and Colonial Bank’s MWLD, the government alleged wrongdoing behind the scenes.3 According to the government, TBW and Colonial’s MWLD employees engaged in an evolving and wide spread course of fraudulent transactions to cover TBW’s ongoing cash-flow problems. As alleged, the scheme first involved “sweeping” of money from various accounts into TBW’s master account on an almost daily basis to hide TBW’s overdrawn balance (Id., at ¶¶ 16-17; J.A. at 20-21). Subsequently, the scheme
Colonial Bank was a wholly owned subsidiary of Colonial BankGroup, Inc., a publicly traded Delaware corporation. Both Colonial Bank and its parent and holding company were headquartered in Montgomery, Alabama (R.1, Indictment, ¶¶ 5 & 6; J.A. at pg 17).
Each of the indicted co-conspirators were employees of TBW or Colonial Bank’s MWLD, and with the exception of Paul Allen, all were residents of the Middle District of Florida.
purported to evolve into one where TBW would sell Colonial interests in individual mortgages, and latter into pools of mortgage loan “trades,” where the underlying collateral either did not exist, had previously been sold or had significantly impaired value, and to “recycle” the same to make it appear that older transactions were being closed out and replaced by new ones (Id., ¶¶ 14, 18-35; J.A. at pp. 21-27). In addition to the schemes alleged to have been run through the MWLD, the government also alleged TBW misappropriated money from its wholly-owned subsidiary, Ocala Funding, LLC, via improper fund transfers, fraudulent transactions and false documentation (Id., ¶¶ 15, 36-37; J.A. pg. 20 & pp. 27-28). The remaining incident in the Indictment concerned Colonial Bank’s unsuccessful effort to take part in the Troubled Asset Relief Program [TARP] (Id., ¶¶38-43; J.A. pp. 28-30). On August 3, 2009, following an investigation begun by the Office of the Special Inspector General for the Troubled Asset Relief Program [SIGTARP], and joined by the FBI and other government agencies, search warrants were simultaneously executed on TBW and the MWLD. On or about August 14, 2009 Colonial Bank was seized by its state regulator and the FDIC was appointed as receiver (Id., ¶ 6; J.A. 17). TBW filed for bankruptcy protection in the United States Bankruptcy Court for the Middle District of Florida in Jacksonville on or about August 24, 2009 (Id., ¶1; J.A. 15); the next day, Colonial BankGroup likewise filed
for bankruptcy (Id., ¶5; J.A. 17). The indictment against Mr. Farkas was returned on June 15, 2010. An arrest warrant was entered the same day (R.2) and Mr. Farkas was then arrested in Florida (R.17). The following day, June 16, 2010, the trial court entered a Restraining Order enjoining the sale or transfer of Mr. Farkas’s assets pursuant to 21 U.S.C. § 853(e)(1)(A), (R.8). Following his Rule 5 Initial Appearance on June 17 in the Middle District of Florida, and a detention hearing on June 23, 2010, Mr. Farkas was released on financial and non-financial conditions and ordered to appear for Arraignment before the trial court on July 2, 2010. [Records related to the initial proceedings held in Florida are included in the record herein (R.19, Rule 5(c)(3) Documents).] Mr. Farkas appeared at his arraignment with his Florida counsel, Gerald J. Houlihan, Esq., and Jeffrey Harris, Esq., who was to be local counsel. However, as Mr. Farkas’s assets had been frozen and coverage under his D&O insurance policy was in dispute, counsel were unable to make a formal appearance on his behalf (R.64, Transcript of Arraignment, [3-5]; J.A. pp. 48-50). After discussing the issues of “carving out” seized assets to secure representation, the D&O policy, and that a hearing was scheduled in TBW’s bankruptcy the following week which would be relevant to said policy (Ibid., at [5 & 7]; J.A. pg. 50 & 52) , the trial court allowed
Messrs. Houlihan and Harris to make an interim appearance (Id., at [8]; J.A. 53), arraigned Mr. Farkas (Id., at [9]; J.A. 54, see also, R.21, Arraignment; J.A. 44) and accepted his waiver of the Speedy Trial Act (Id., at [8] & [14-15]; J.A. pp. 59-60; and see R.22, Waiver of Speedy Trial; J.A. 45). Also at the arraignment, the trial court discussed with the parties the extent and nature of the anticipated discovery in the case. At that time, the government was in the process of uploading the electronic information into a searchable database, which then contained approximately a million pages of documents (Id., [10-11]; J.A. pp. 5560) [or one million documents, with five million pages (Id., at [6]; J.A. 51)], and although this process would not be completed by the end of the month, the government anticipated that this “[would] be the bulk of it,” (Id., [11] lines 15- 19; J.A. 56). Despite the incomplete nature of the already voluminous discovery, the uncertainty of Messrs. Houlihan and Harris’s representation, and the court’s sua sponte finding that this would be “an extremely complex case,” (Id., [15]; J.A. 60), the trial court scheduled the initial trial date for November 1, 2010 - - a mere 52 day extension of the 70 days otherwise required under the Speedy Trial Act. At that time the defense indicated that this was “too soon” (Id., [13]; J.A. 58 ) and requested trial in mid-March of 2011 (Id., [9]; J.A. 54), to which the trial court responded that only
a capital case would be given such time and that it would be “way more than you need in this case,” (Id., [9-10]; J.A. pp. 54-55), and that: “It’s been my experience when I give attorneys too much time, it just creates problems, so I’m going to give you a much shorter trial date, and you’ll just need to perhaps cut some corners,” (Id., [12]; J.A. 57). A month latter, after making no progress on the D&O policy and carve out issues, the government petitioned the trial court for a status hearing (R.26, Motion for Status Hearing; J.A. 72) [see also, R.23&24, Status Report(s) of Prospective Defense Counsel; J.A. 66 & 69)]. This hearing was held on August 11, 2010 at which time the trial court confirmed its Order the prior day appointing William B. Cummings, Esq. as counsel for Mr. Farkas under the Criminal Justice Act, 18 U.S.C. § 3006(A) (R.29, Order & R.30, CJA 20 form; J.A. 78 & 79)(R.62, Transcript of Status Hearing [2]; J.A. 81). Mr. Farkas was not present for the Status Hearing (Id., [2-3]; J.A. 81-82), but he was present two and a half weeks latter for the next court hearing held on August 30, 2010 (R.65, Transcript of Motions Hearing; J.A. 90). Thereat, Mr. Farkas objected to the appointment of Mr. Cummings in lieu of his choice of counsel (Id., at [15]; J.A. at 104) and indicated that he would have the assets necessary to retain his chosen counsel either pending the bankruptcy court ruling, or potential government ruling releasing a portion of his enjoined assets (Id., [17-18]; J.A. pp.
106-07). It was also during this hearing that the trial court and the parties resolved the various protective order issues and began to address the daunting discovery challenges (Id., [3-13]; J.A. 92-102). Given the size of the anticipated discovery, the government processed its Rule 16 material onto an OMEGA database which was created and administered by a thirdparty data services provider [CACI]. It would not be hyperbole to characterize the amount of discovery as staggering. The one to five million pages of documents at arraignment had ballooned to 19 million pages of documents by the time Mr. Cummings was appointed (R.96, Memorandum in Support of Defendant’s [2nd] Motion to Continue Trial; J.A. 224 ). As early as September of 2010, the trial court was expressing its concern over the scope of the discovery: Well, I have also been very concerned about the amount of information that [the defense has] been given. 19 million pages, you know, in some respects, too much information is no information. . . . If this were a civil case, we would be absolutely all over the plaintiff to refine that kind of a discovery production, and I don’t think it’s inappropriate in a case like this to make a similar - - put a similar burden on the government. (R.72, Transcript of September 10, 2010 Motions Hearing, [16], lines 13-24; J.A. 180). In a remarkable display of prescience, the court foreshadowed the issue: Well, at some point, the government has to cut it off. . . . I mean, you’ve obviously been investigating this case for some period of time, and what I don’t want to have happen is, you know, three weeks before trial, there’s a whole new dump of hard drive or a whole new batch of data
that defense counsel has to start absorbing. So you’re going to need to make sure you get everything together and get it in, and at some point, just whatever else comes in you don’t get to use. (R.65, Transcript of August 30, 2010 Motions Hearing, [13]; J.A. 102). Despite the trial court’s precognition and admonition, the deluge of discovery continued, reaching 59 million pages of documents by mid November 2010 (R.96; J.A. 224 ), with an additional 500,000 documents being uploaded between December 2010 and March 2011 (R.144, Memorandum in Support of Defendant’s [3rd] Motion to Continue Trial; J.A. 260). Not only the gargantuan size of the discovery, but its electronic nature also stymied the defense efforts to assimilate and effectively utilize the discovery. While the government considered the CACI/OMEGA database to be “state-of-the-art” (R.72, Transcript of September 10, 2010 Motions Hearing, [26]; J.A. 190), and “organized” by source” (Id., [24]; J.A. 188), the defense found it confusing, difficult to work with, and “a mess” (Id., [10-13]; J.A. pp. 174-77). The nature and extent of the monumental and expanding discovery materials were cited as grounds for all of Mr. Farkas’s motions for a continuance (R.54, pg. 275); (R.96; J.A. at 224)4; (R.144; J.A. at 260). It was also cited as a factor, and the At that time, the issue of the D&O policy had just been resolved and Mr. Farkas had retained Messrs. Kuglar and Rogow to assist in his representation (Id.), and due to a previously scheduled demand on Mr. Kuglar’s calendar, the defense
most important one, in Mr. Farkas’s Rule 21(b) Motion to Transfer the Proceedings to the Middle District of Florida (R.41; J.A. 111; R.42, Memorandum In Support thereof; J.A. 128-30); and see (R.72, Transcript of Motions Hearing on this issue [1016]; J.A. pp. 174-80). As indicated above, the trial commenced as scheduled on April 4, 2011, and the jury convicted Mr. Farkas on all counts. Mr. Farkas’s conviction was hailed by Christy Romero, Acting Special Inspector General for TARP, as “the most significant criminal prosecution to date rising out of the financial crisis.” 5 SUMMARY OF THE ARGUMENT The trial court’s myopic insistence on rapidly moving the case to trial, while diligently preserving and protecting the speedy trial guarantee of the Sixth Amendment, abrogated the other constitutional protections guaranteed therein. The monumental challenge of the discovery in this case made coordination with appointed counsel next to impossible and required transferring the case to the Middle District
requested a continuance until after May 23, 2011 (Id., at; J.A. 225-26). Despite this request, although the trial court granted the Motion to Continue, the trial was rescheduled only until April 4, 2011 (R.105, Order; J.A. 252). As this date conflicted with another of Mr. Farkas’s counsel’s schedules, the defense moved to amend this Order (R.101; J.A. 250) which was overruled (R.107; J.A. 253). SIGTARP press release, April 20, 2011, available at: www.sigtarp.gov/press/2011/Farkas%20SIGTARP%20Press%20Release.pdf
of Florida, and further justifying defense’s requests for continuances. The trial court’s rush to trial also prohibited Mr. Farkas a meaningful opportunity to retain counsel of his choosing. Additionally, the trial court’s jury instructions improperly diluted the government’s burden of proof and justified the defense’s request for further clarification. The trial court also improperly limited Mr. Farkas’s rights to confront adverse witnesses. However, defense counsel inexplicably did not raise a
contemporaneous Constitutional challenge. Finally, the trial court’s determination that TBW was financially insolvent throughout the entirety of the time frame of the acts alleged under the Indictment, and that it would have failed “but for” the scheme to defraud, is clearly erroneous and must be set aside. ARGUMENT I. THE TRIAL COURT’S RUSH TO JUDGMENT, ESPECIALLY IN LIGHT OF THE UNPRECEDENTED AND MASSIVE DOCUMENTARY DISCOVERY PRODUCTION, VIOLATED MR. FARKAS’S RIGHTS AS GUARANTEED UNDER THE SIXTH AMENDMENT TO THE UNITED STATES’ CONSTITUTION
The Sixth Amendment provides: In all criminal prosecutions, the accused shall enjoy the right to a speedy and public trial, by an impartial jury of the State and district wherein the
crime shall have been committed, which district shall have been previously ascertained by law, and to be informed of the nature and cause of the accusation; to be confronted with the witnesses against him; to have compulsory process for obtaining witnesses in his favor, and to have the Assistance of Counsel for his defence. U.S. CONST. amend. VI. In the case sub judice the trial court’s myopic focus on the speedy trial aspect of the Sixth Amendment violated the remaining protections inherent therein. Standard of Review A District Court’s ruling on a motion to transfer a case under Rule 21 (b) is reviewed for abuse of discretion. United States v. Heaps, 39 F.3d 479, 482 (4th Cir.1994) (abrogated on other grounds, United States v. Cabrales, 524 U.S. 1, 118 S.Ct. 1772, 141 L.Ed.2d 1 (1998)). “A district court abuses its discretion only where it ‘has acted arbitrarily or irrationally[,] ... has failed to consider judicially recognized factors constraining its exercise of discretion, or when it has relied on erroneous factual or legal premises.’” L.J. v. Wilbon, 633 F.3d 297, 304 (4th Cir. 2011) (citing and quoting, United States v. Hedgepeth, 418 F.3d 411, 419 (4th Cir. 2005)). Likewise, the denial of a motion to continue is reviewed for abuse of discretion. United States v. Bakker, 925 F.2d 728, 735 (4th Cir.1991). “Abuse of discretion has been defined in these circumstances as ‘unreasoning and arbitrary insistence on expeditiousness in the face of a justifiable request for delay.’” Id., citing
and quoting, Morris v. Slappy, 461 U.S. 1, 11–12, 103 S.Ct. 1610, 1616–17, 75 L.Ed.2d 610 (1983). A. The Trial Court’s Refusal to Transfer the Case to the Middle District of Florida Deprived Mr. Farkas of an Effective Opportunity to Coordinate with His Counsel. Generally, the Constitution requires the trial of all crimes in the State where they were committed: U.S. CONST. art. III, § 2, cl. 3; U.S. CONST. Amend. VI; and see Rule 18 FED. R. CRIM. P. (“the government must prosecute an offense in a district where the offense was committed . . .”). However, the venue of the trial court was not contested,6 and the issue was raised under Rule 21 (b). Rule 21 of the Federal Rules of Criminal Procedure allows for the transfer of proceedings for prejudice (§ a) or convenience (§ b). Mr. Farkas moved under the latter ground (R.41; J.A. 111). This rule provides, in pertinent part: “Upon the defendant’s motion, the court may transfer the proceeding . . . to another district for the convenience of the parties, any victim, and the witnesses, and in the interest of justice.” FED. R. CRIM. P. 21 (b). In its analysis of the issue - -and as is commonplace - -the trial court considered
Not only did Mr. Farkas stipulate that venue was appropriate in the Eastern District of Virginia (R.42, Memorandum In Support of Motion to Transfer; J.A. 117), any such challenge would have been futile. See e.g. United States v. Johnson, 510 F.3d 521 (4th Cir. 2007).
the so called “Platt factors:” (1) location of [the] defendant; (2) location of possible witnesses; (3) location of events likely to be in issue; (4) location of documents and records likely to be involved; (5) disruption of defendant’s business unless the case is transferred; (6) expense to the parties; (7) location of counsel; (8) relative accessibility of place of trial; (9) docket condition of each district or division involved; and (10) any other special elements which might affect the transfer. Platt v. Minn. Mining & Mfg. Co., 376 U.S. 240, 243–44, 84 S.Ct. 769, 771-72, 11 L.Ed.2d 674 (1964).7 None of the factors are individually dispositive. “It remains for the court to try to strike a balance and determine which factors are of greatest importance.” United States v. Stephenson, 895 F.2d 867, 875 (2d Cir.1990). The trial court undertook a thorough analysis of each of the Platt factors, and issued a written Memorandum Opinion detailing the same (R.76; J.A. 206). While Mr. Farkas does not agree with the trial court’s resolution on many of the Platt factors, see e.g. the court’s discussion of the “Location of Events” factors (Id.; J.A.
It should be noted that these “factors” were not developed by the Supreme Court, but were rather the considerations of the district court, and that except for an erroneous consideration of the government’s ability to receive a fair trial in the target district, neither the parties nor the United States Court of Appeals for the Seventh Circuit found anything problematic with the same. The Supreme Court therefore ‘assumed without deciding their validity’ for purposes of a Rule 21 (b) motion. Id., at 244. They have since been routinely upheld as the appropriate considerations. See e.g. Heaps, supra. 39 F.3d at 483.
212-214,)8 the irrational and arbitrary focus on docket conditions and “the wonders of modern communication technology” (Id.; J.A. at 214) worked in tandem to deprive Mr. Farkas of effective assistance of counsel. Mr. Farkas, through counsel, pointed out that although the physical location of the digitalized records would be a non-factor, the pre-trial preparation of the defense in conferring with Mr. Farkas and his witnesses in Florida, given the volume of the documents at issue, would make coordination “incredibly inconvenient, even prohibitively inconvenient,” (R.42; J.A. 128-29; and see R.72, Transcript of Motions Hearing on this issue [10-16]; J.A. pp. 174-80). The trial court, after noting that “we [in the Eastern District of Virginia] try our cases a lot faster, and the time between filing and disposition is faster than the Middle District [of Florida],” (R.72, Transcript of September 10, 2010 Motions Hearing, [7], lines 22-24; J.A. 171) and citing “the wonders of modern communication technology,” found as follows:
Whereat trial court not only misstates and mischaracterizes Mr. Farkas’s argument as “attempt[ing] to portray the indictment as alleging merely a local crime that did not extend beyond the Florida border” (R.76; J.A. 212) [compare R. 42, Memorandum in Support; J.A. 124-28] but casually dismisses the import of the fact that Mr. Farkas, TBW, Ocala Funding, Colonial’s MWLD, and all but one of the eventually indicted co-conspirators were residents of the Middle District of Florida - - or “ground zero” for virtually every allegation of fraud contained in the indictment (Ibid.; J.A. 125).
During oral argument, Farkas’s attorney expressed serious concerns about working from Virginia with a client who is located in Florida. Understandably, Farkas’s attorney prefers to meet with Farkas in person to review documents. However, as previously discussed the availability of the evidence in digital format allows for web conferencing, making in-person contact less important than it was in the past. . . . [A]nd the trial has been continued from November 1, 2010 to February 22, 2011 to give Farkas and his counsel nearly four additional months to review documents and strategize. (Id.; J.A. 219-20). However, even if telephone, e-mail, teleconferencing and other modern communication technology were sufficient to allow the defense to coordinate the review of 19 million pages of documents in four months - - during those same four months, the discovery production grew exponentially, reaching an astounding 59.5 million pages by March 2011 (R.144; J.A. 260). The trial court’s ruling on this issue simply highlights and segues into the next salient point - - the rush to trial, especially in light of the monumental discovery, deprived Mr. Farkas of a fair trial and effective representation thereat. As was advocated early on: “Counsel is well aware of the jealous manner in which [the trial court] guards its reputation as the Rocket Docket. However, a rush to trial in this case . . . will only give rise to fairness concerns about counsel’s ability to provide effective representation to his client.” (R.54, Memorandum in Support of Defendant’s [1st] Motion to Continue Trial at pg. 275).
The Monumental Discovery Production Justified the Defense’s Requests for Continuances, and the Trial Court Erred in Denying the Same. As stated previously, the denial of a motion for a continuance is reviewed for
abuse of discretion, which in context equates to an “unreasoning and arbitrary insistence upon expeditiousness in the face of a justifiable request for delay.” Bakker, supra., Morris v. Slappy, supra. As recognized in United States v. Badwan, 624 F.2d 1228, 1229 (4th Cir. 1980), Ungar v. Sarafite, 376 U.S. 575, 589, 84 S.Ct. 841, 11 L.Ed.2d 921 (1964) establishes the standard and perspective for reviewing a denial of a motion to continue: The matter of continuance is traditionally within the sound discretion of the trial judge, and it is not every denial of a request for more time that violates due process even if the party fails to offer evidence or is compelled to defend without counsel. Contrariwise, a myopic insistence upon expeditiousness in the face of a justified request for delay can render the right to defend with counsel an empty formality. There are no mechanical tests for deciding when a denial a continuance is so arbitrary as to violate due process. The answer must be found in the circumstances present in every case, particularly in the reasons presented to the trial judge at the time the request is denied. Id., at 1229-30. Further, when the denial of a continuance is alleged to infringe on the Sixth Amendment’s right to effective assistance of counsel, a defendant must generally show specific prejudice. “That is, in the absence of circumstances giving rise to a presumption that the defendant’s case was prejudiced, the defendant must point to specific errors made by defense counsel that undermine confidence in the
outcome of the trial.” United States v. LaRouche, 896 F.2d 815, 823 (4th Cir.1990) (citing United States v. Cronic, 466 U.S. 648, 660-61, 666, 104 S.Ct. 2039, 2047-48, 2050, 80 L.Ed.2d 657 (1984)(“only when surrounding circumstances justify a presumption of ineffectiveness can a Sixth Amendment claim be sufficient without inquiry into counsel’s actual performance at trial.” Id., at 662, 104 S.Ct. at 2048)). First, unlike in LaRouche and Badwan, counsel for Mr. Farkas did object at arraignment to the initial trial date, advocating that it was too soon. Nor can it be claimed that Mr. Farkas was dilatory in making his request(s) for a continuance. Second, the monumental crush of the discovery in this case and the practical realities necessitated thereby are circumstances which give rise to the presumption of prejudice, as “the likelihood that any lawyer, even a fully competent one, could provide effective assistance [given the short time frame] is so small that a presumption of prejudice is appropriate without inquiry into the actual conduct of the trial.” United States v. Cronic, supra., at 659-60, 104 S.Ct. at 2047. For illustrative purposes, there were two hundred and thirteen (213) days between the time the defense first had access to the government’s OMEGA database, September 3, 2010, and the date trial commenced, April 4, 2011. To review 59.5 million pages of documents in that period of time would necessitate reviewing two-hundred seventy nine thousand, three hundred forty three (279,343) pages every day!
Compare, United States v. Mincoff, 574 F.3d 1186, 1199 (9th Cir. 2009) upholding extending and excluding almost a year, from August 16, 2006 through August 3, 2007, from Speedy Trial Act computation where the trial court found, inter alia, that the discovery included 48,000 pages of written material, 130 compact disks (containing 30,000 intercepted telephone calls and approximately 31,400 pages of line sheets corresponding thereto), 4 digital video disks, 17 video tape recordings and 15 audio cassette tapes. Clearly, the discovery production herein dwarfed that at issue in Mincoff. Finally, although the record on this issue is not fully developed, see e.g. Massaro v. United States, 538 U.S. 500, 504-06,123 S.Ct. 1690, 1694, 155 L.Ed.2d 714 (2003), actual prejudice and specific errors by defense counsel can be shown. For example, the defense early on requested access to TBW’s accounting system and records9 (R.72, Transcript of September 10, 2010 Motions Hearing [14]; J.A. 179), and the government agreed these would be provided (R.65, Transcript of August 30, 2010 Motions Hearing, [12]; J.A. 101). However, this vital information was either not produced or was so buried in the other documentary production that counsel was
These records contained TBW’s fee and interest statements would show Colonial was charging interest on the entire outstanding balance and treating all of the various facilities there as one large warehouse line. Colonial and the MWLD were financing mortgage loans, not buying and selling trades.
unable to locate it in order to buttress the defense theory of the case. Compare and contrast United States v. Skilling, 554 F.3d 529, 576- 77 (5th Cir. 2009) aff'd in part and vacated on other grounds, __U.S. __, 130 S.Ct. 2896, 177 L.Ed.2d 619 (2010)), and its progeny, e.g. United States v. Warshak, 631 F.3d 266, 295-299 (6th Cir. 2010). While these cases have routinely rejected Brady challenges [Brady v. Maryland, 373 U.S. 83, 83 S.Ct. 1194, 10 L.Ed.2d 215 (1963] related to the size and format of voluminous open-file criminal discovery, the facts, and more importantly, the discovery time lines, in these cases are clearly distinguishable. For example, although Skilling involved “several hundred million pages of documents,” 554 F.3d at 576, there was almost two years between the date of the Superseding Indictment and the beginning of trial Id. at 542; whereas in Warshak involving approximately 17.5 million pages of discovery, 631 F.3d at 295 (less than one-third of the discovery herein), the Court found that “the entirety of the discovery material . . . was in the defendant’s hands . . . more than six months in advance of the trial,” Id. at 299. Herein, however, the defense first had access to the discovery only seven months before trial, and as noted, the discovery production continued to grow right up until trial. Also, unlike in Skilling and its progeny Mr. Farkas, upon his indictment, was enjoined and prohibited from contacting most of TBW’s employees who had access to the corporate information (R.72; J.A. 178-79).
Despite the trial court’s original concerns regarding the extent of the documentary discovery production that “too much information is no information,” and admonition that the government would eventually have to “cut it off,” the trial court not only provided “a much shorter trial date,” with the expectation that the parties would “just need to perhaps cut some corners,” it never deviated from its insistence that the case be tried rapidly. However, “cutting corners” is inapposite of the ends of justice, and the trial court’s myopic focus on the speedy trial aspect of the Sixth Amendment violated the remaining protections inherent therein, including Mr. Farkas’s right to have counsel of his choice in his representation. C. The Trial Court’s Rush to Judgment Deprived Mr. Farkas of Counsel of His Choice. It is axiomatic that implicit in the Sixth Amendment “is the right of a defendant who does not require appointed counsel to choose who will represent him,” United States v. Gonzalez-Lopez, 548 U.S. 140, 144, 126 S.Ct. 2557, 2561, 165 L.Ed.2d 409 (2006), and that “a defendant should be afforded a fair opportunity to secure counsel of his own choice,” Id., quoting Powell v. Alabama, 287 U.S. 45, 53, 53 S.Ct. 55, 77 L.Ed. 158 (1932). See also United States v. Gallop, 838 F.2d 105, 107-08 (4th Cir. 1988): An essential element of the Sixth Amendment’s protection of right to counsel is that a defendant must be afforded a reasonable opportunity to
secure counsel of his own choosing. . . . However, the right to counsel of defendant's choosing is not absolute. . . . Such right must not obstruct orderly judicial procedure and deprive courts of the exercise of their inherent power to control the administration of justice. (Internal citations omitted). A trial court maintains “wide latitude in balancing the right to counsel of choice against the needs of fairness . . . and against the demands of its calendar.” Gonzalez-Lopez, supra., 548 U.S. at 152, 126 S.Ct. at 2565-66 (internal citations omitted). While it’s true that Mr. Farkas was eventually able to obtain coverage under the D&O policy and had additional, retained, counsel assist at trial, the question is whether he was provided a reasonable opportunity to do so, especially in light of the pre-trial seizure of his assets,10 or whether the trial court properly balanced his right to counsel of his choosing against the needs of fairness and the demands of its calendar. Mr. Farkas was indicted and arrested on June 15, 2010 and his assets were Under the authority of Caplin & Drysdale v. United States, 491 U.S. 617, 109 S.Ct. 2646, 105 L.Ed.2d 528 (1989), and United States v. Monsanto, 491 U.S. 600, 109 S.Ct. 2657, 105 L.Ed.2d 512 (1989), Mr. Farkas does not challenge the District Court’s pre-trial restraining order per se. However, after he himself raised the issue [see (R.65, Transcript of Motions Hearing [17-18]; J.A. 106-07)] the court should have provided him the hearing required under United States v. Farmer, 274 F.3d 800 (4th Cir. 2001)(holding that a criminal defendant has a due process right to a hearing to challenge probable cause as to untainted assets seized pursuant to civil forfeiture when those assets are needed to hire counsel in his criminal case).
frozen the following day. Following initial proceedings in Florida, Mr. Farkas was arraigned on July 2, 2010. At that time Mr. Farkas’s preferred counsel indicated that, due to the pretrial restraining order and that the coverage under the D&O policy was being negotiated, they were not able to enter a formal appearance at that time [see (R.64, Transcript of Arraignment [3-6]; J.A. 48-51)]. The trial court instructed prospective defense counsel to report as to the status of this by the middle of July and they did so, advising that the Bankruptcy hearing concerning the D&O policy was passed to July 16, 2010 and thereafter taken under submission (R.23&24; J.A. 66&69). As of August 4, 2010, the government was still negotiating with prospective defense counsel the possibility of a “carve out” from the restraining order to allow Mr. Farkas to retain counsel of his choice (R.26, Motion for Status Hearing; J.A. 72).11 However, rather than allow the issue of the D&O policy to be resolved in the Bankruptcy court, and despite finding at arraignment that Messrs. Houlihan and Harris had prior background and that continuity of representation was preferable to appointing counsel, (R.64 at [6-7]; J.A. 51-52) the trial court appointed Mr.
The government implied that the negotiations were not complete as Mr. Farkas had yet to “provide a complete and thorough accounting of assets available to him and his inability to pay for representation without such a carve out.” (Id.; J.A. at 75). While it is doubtful that this burden shifting would comport to the due process requirements had a hearing under Farmer, supra., FN 10, been held, this issue was inexplicably not raised before the trial court.
Cummings on August 10, 2010. The D&O issue was ultimately resolved, however Mr. Farkas and the insurer’s agreement was not executed until December 6, 2010. While the trial court had no way to know, in advance, that it would only take 143 calendar days from the date the D&O policy was taken under advisement by the Bankruptcy Court until the coverage was finalized, in hindsight this delay pales in comparison to the 316 days the government had from the execution of the search warrants to the date of the indictment. Of course a trial court “has the right to control its own docket to require that cases proceed in an orderly and timely fashion,” United States v. Inman, 483 F.2d 738, 740 (4th Cir. 1973) (noting, however, that the facts therein, where the defendant could not secure private counsel until the case was set for trial and witnesses and jurors had already been summoned represented “the outermost reach of [the court’s] discretion” in denying the requested continuance. Id.) See also and compare: United States v. Fisher, 477 F.2d 300 (4th Cir. 1973); and, United States v. Bragan, 499 F.2d 1376 (4th Cir. 1974). Fundamental fairness and Mr. Farkas’s Sixth Amendment right to counsel of his choice far outweighed the trial court’s insistence on moving the case along at the pace it did. Not only did the trial court err in its handling of these pre-trial matters, it erred during the trial as well. However, given the length of the trial, the size of the record
and the paucity of raised objections/preserved errors, Mr. Farkas limits his arguments on appeal to the most glaring examples. II. THE TRIAL COURT’S INSTRUCTION THAT THE JURY’S “SOLE INTEREST IS TO SEEK THE TRUTH FROM THE EVIDENCE RECEIVED,” WITHOUT ALLOWING FURTHER DEFINITION OR EXPLANATION OF “REASONABLE DOUBT” UNCONSTITUTIONALLY DILUTED THE GOVERNMENT’S BURDEN OF PROOF Standard of Review Typically, a trial court’s decision to give (or not to give) a jury instruction and the content thereof are reviewed for abuse of discretion. United States v. Bostian, 59 F.3d 474, 480 (4th Cir. 1995)(citing and quoting United States v. Russell, 971 F.2d 1098, 1107 (4th Cir.1992)). However, where an ambiguity affecting constitutional rights is concerned, the instructions, as a whole, are reviewed to determine “‘whether there is a reasonable likelihood that the jury has applied the challenged instruction in a way’ that violates the Constitution.” Estelle v. McGuire, 502 U.S. 62, 72,112 S.Ct. 475, 482, 116 L.Ed.2d 385 (1991); and Boyde v. California, 494 U.S. 370, 380, 110 S.Ct. 1190, 1198, 108 L.Ed.2d 316 (1990). The trial court instructed the jury: “Remember at all times that you are not partisans. You are judges – judges of the facts of this case. Your sole interest is to seek the truth from the evidence received during trial.” (R.262 (attachment 5), Jury Instructions, Instruction No. 63; J.A. 2042)(emphasis added). Pursuant to FED. R.
CRIM. P. 30 (d) the defense objected thereto preserving this error (R.323, Transcript of Jury Charge Conference [24-25]; J.A. 1874-75). This precise issue was litigated in United States v. Gonzalez-Balderas, 11 F.3d 1218, 1223 (5th Cir. 1994). Therein the trial court charged the jury: “Remember, at all times, you are judges-judges of the facts. Your sole interest is to seek the truth from the evidence in this case.” In analyzing and ruling on the issue, the Fifth Circuit found and held: As an abstract concept, “seeking the truth” suggests determining whose version of events is more likely true, the government’s or the defendant’s, and thereby intimates a preponderance of evidence standard. Such an instruction would be error if used in the explanation of the concept of proof beyond a reasonable doubt. [Citing Cage v. Louisiana, 498 U.S. 39, 111 S.Ct. 328, 112 L.Ed.2d 339 (1990), overruled on another ground, Estelle v. McGuire, supra.] The district court, however, did not use it in this way. Rather, the trial court began its instructions with a clear definition of the government’s burden of proof in which it repeatedly stated that the defendant could not be convicted unless the jury found that the government had proven him guilty beyond a reasonable doubt. It correctly defined proof beyond a reasonable doubt as “proof of such a convincing character that you would be willing to rely and act upon it without hesitation in the most important of your own affairs.” There is no reasonable likelihood that the jury inferred that the single reference at the end of the charge to “seeking the truth,” rendered as it was in the context of an admonition to “not give up your honest beliefs,” modified the reasonable doubt burden of proof. . . . Nevertheless, although the sentence is taken from the Fifth Circuit Pattern Jury Instructions, . . . trial courts, in an abundance of caution, may wish to delete it from their instructions.
Id. (emphasis added, internal footnotes omitted). Despite the Fifth Circuit Court of Appeals’s reliance upon the trial court’s mitigating definition of reasonable doubt in Gonzalez-Balderas, the decision was cited with approval by a panel of this Honorable Court in the unpublished opinion United States v. Forde, No. 09–4704, 407 Fed.Appx. 740, 2011 WL 63831 (4th Cir. 2011) cert. denied, 132 S.Ct. 232 (2011).12 However, in the Fourth Circuit the law is “well settled,” that “a district court should not attempt to define the term ‘reasonable doubt’ in a jury instruction absent a specific request for such a definition from the jury.” See e.g. United States v. Oriakhi, 57 F.3d 1290, 1300-01 (4th Cir.1995); United States v. Walton, 207 F.3d 694 (4th Cir. 2000)(en banc). In the case at bar, not only did Mr. Farkas object to the trial court’s “sole interest is to seek the truth” instruction, he requested a limited specific instruction as to reasonable doubt, which was rejected by the court (R.323, Transcript of Jury Charge Conference [9-10]; J.A. 1859-60). The defense also attempted to clarify the standard with reference to the concept of hesitation during its closing argument (R.260, Transcript of Closing Arguments [pp.43-44, 66 & 87]; J.A. 1925-26, 1948
Pursuant to FRAP 32.1(b) and Local Rule 32.1, a copy of this opinion is being simultaneously served and filed herewith.
& 1969).13 The trial court, however, rejected this and offered its own, tautological ‘curative instruction:’ “In fact, the standard of proof beyond a reasonable doubt means exactly what those words mean. It’s a doubt based upon reason, and the Court cannot define because it doesn’t need to define what “reasonable doubt” means. It means a doubt that is based upon reason.” (Id.,[93]; J.A. at 1975). See e.g. Murphy v. Holland, 776 F.2d 470, 476 (4th Cir. 1985)(“An instruction that a reasonable doubt is “a doubt for which a reason can be given” merely conveys what is already axiomatic from the plain meaning of those very words . . . [and] does nothing to advance the jury’s understanding) vacated on other grounds, 475 U.S. 1138 (1986). Mr. Farkas is aware of the well settled principal that a panel of this court cannot explicitly or implicitly overrule circuit precedent established by a prior panel, United States v. Lighty, 616 F.3d 321, 380 (4th Cir. 2010) (citing Scotts Co. v. United Indus. Corp., 315 F.3d 264, 272 n. 2 (4th Cir.2002)). However, when combined with the challenged instruction and the well reasoned analysis of the Fifth Circuit in Gonzalez-Balderas, submitting this charge to the jury without further instructing on and defining reasonable doubt distinguishes this case from existing Fourth Circuit precedent, and mandates a reconsideration of the issue. The defense’s proposed definition was therefore substantially the same as the trial court’s in Gonzalez-Balderas and that suggested by J. Wideners in his dissent in Walton, 207 F.3d at 700.
THE TRIAL COURT UNDULY RESTRICTED AND INHIBITED DEFENSE CROSS-EXAMINATION Standard of Review Typically, Court of Appeals reviews evidentiary decisions of a trial court for
abuse of discretion. O’Neill v. Windshire-Copeland Associates, 372 F.3d 281 (4th Cir. 2004). However, where an alleged constitutional violation is not brought to attention of the district court, it is reviewed for plain error. See e.g. United States v. Hughes, 401 F.3d 540, 547 (4th Cir.2005) and United States v. Gibbs, 739 F.2d 838, 846–50 (3rd Cir.1984) (reviewing for plain error a Confrontation Clause argument raised for the first time on appeal even where the defendant raised an admissibility argument below because separate rules govern each issue, and preserving the latter does not preserve the former). During it’s case in chief the government called Neil Luria, managing director of Navigant Consulting, Inc. (R.228, Transcript of Jury Trial Vol. 7 (p.m.) [1872]; J.A. 1667) and chief restructuring officer in TBW’s bankruptcy, and de facto CEO of TBW (Id., [1874 -75]; J.A. 1669-70). In general, Mr. Luria testified during his direct examination as to the overall assets and liabilities of TBW as it then existed, in bankruptcy. However, in practical effect, Mr. Luria and Navigant Consulting, Inc. represent Mr. Farkas’s successors in interest in and to TBW. Mr. Luria and Navigant
have billed and received fees for their services in TBW’s bankruptcy in the millions of dollars, and have asserted a priority claim to the majority of Mr. Farkas’s assets the government seeks via forfeiture. See e.g.: (R.311, TBW’s Verified Petition in Support of its Third Party Forfeiture Claims); (R. 346, TBW’s Motion for Discovery). However, when defense counsel attempted to cross-examine Mr. Luria as to the extent of his financial interest, the trial court sustained the government’s objection as to relevance (R.228, Transcript of Jury Trial Vol. 7 (p.m.) [1897-98]; J.A. 169293). The trial court also foreclosed defense efforts to obtain testimony from Mr. Luria which would “fill in the hole,” i.e. to show the government’s figures as to the amount of fraud and/or the loss associated therewith were highly exaggerated. The court interrupted cross-examination to opine that “it’s completely irrelevant to this case as to whether there’s a $50 million or a $5 billion hole. . . . you can have a fraud without a big loss.” (R.228, Transcript of Jury Trial Vol. 7 (p.m.) [1899-1900]; J.A. 169495). 14 See also (R.242, Transcript of Jury Trial Vol. 5 (a.m.), cross of Cathie Kissick [1141]; J.A. 1184), same. While the trial judge’s logic may be true as to legal theory, curtailing this line of questioning eviscerated Mr. Farkas’s efforts to establish reasonable doubt and present his theory of the case; that there was sufficient collateral and security for Colonial Bank to support its financing of TBW’s loans (see footnote 9, supra.) Further, although the trial court recognized the potential relevance as to forfeiture, it nonetheless did not wish to “waste the jury’s time.” (R.228, Transcript of Jury Trial Vol. 7 (p.m.) [1900]; J.A. 1695). However, the amount of loss involved effected not only reasonable doubt and
Inexplicably, Mr. Farkas’s defense counsel did not raise the Constitutional Confrontation Clause issue, nor offer a proffer as to the extent of Mr. Luria and Navigant’s substantial pecuniary interests, thereby giving rise to a plain-error review. See Hughes, supra. The first two prongs of the Hughes analysis - - an error, which is obvious - cannot seriously be questioned. The Confrontation Clause of the Sixth Amendment guarantees a criminal defendant the right to confront the witnesses against him. “The main and essential purpose of confrontation is to secure for the opponent the opportunity of cross-examination.” Davis v. Alaska, 415 U.S. 308, 315-16, 94 S.Ct. 1105, 1110, 39 L.Ed.2d 347 (1973) “Cross-examination is the principal means by which the believability of a witness and the truth of his testimony are tested. Subject always to the broad discretion of a trial judge to preclude repetitive and unduly harassing interrogation, the cross-examiner is not only permitted to delve into the witness’s story to test the witness’s perceptions and memory, but the cross-examiner has traditionally been allowed to impeach, i.e., discredit the witness.” Id. at 316. The right of cross-examination, however, is not absolute. “[T]rial judges retain wide latitude insofar as the Confrontation Clause is concerned to impose reasonable limits on such cross-examination based on concerns about, among other things, forfeiture, but restitution and sentencing as well.
harassment, prejudice, confusion of the issues, the witness’ safety, or interrogation that is repetitive or only marginally relevant.” Delaware v. VanArsdall, 475 U.S. 673, 679, 106 S.Ct. 1431, 1435, 89 L.Ed.2d 674 (1986). In VanArsdall the Supreme Court held, a criminal defendant states a violation of the Confrontation Clause by showing that he was prohibited from engaging in otherwise appropriate cross-examination designed to show a prototypical form of bias on the part of the witness, and thereby “to expose to the jury the facts from which jurors ... could appropriately draw inferences relating to the reliability of the witness .” Id., at 680, 106 S.Ct. at 1436 (quoting Davis, supra., 415 U.S. at 318, 94 S.Ct. at 1111). See also, Olden v. Kentucky, 488 U.S. 227, 231, 109 S.Ct. 480, 483, 102 L.Ed.2d 513 (1988)(citing VanArdsdall and Davis for the proposition that the exclusion of impeachment evidence related to motive to fabricate charges violates the Confrontation Clause.) There is a distinction between attacks on general credibility and establishing bias, where the latter may be limited by various evidentiary rules, there is no such limit on the former. Quinn v. Haynes, 234 F.3d 837, 845 (4th Cir. 2000). “Since bias of a witness is always significant in assessing credibility, the trier of fact must be sufficiently informed of the underlying relationships, circumstances, and influences operating on the witness to determine whether a modification of testimony reasonably
could be expected as a probable human reaction.” Id., quoting 4 Jack B. Weinstein et al., Weinstein's Federal Evidence § 607.04[1] (2d ed. 2000). Of course, a witness’ financial or pecuniary interest is a prototypical form of bias, see e.g.: Wheeler v. United States, 351 F.2d 946, 947 (1st Cir.1965) (finding it is “clear that inquiry into the possible financial stake of a witness in a particular outcome of a case in which the witness is testifying is a proper subject for cross-examination”); United States v. Leja, 568 F.2d 493, 499 (6th Cir. 1977)(“surely the evidence of how much [government informer] was receiving from the government for past services and might therefore expect in the future was highly relevant to the question of his potential bias and interest”); Harris v. United States, 371 F.2d 365 (9th Cir. 1967)(same); and Tights v. Acme McCrary Corp., 541 F.2d 1047, 1061-62 (4th Cir. 1976)(“While it is true that a witness may ordinarily be cross-examined as to his financial interest in a transaction, it is also recognized that the trial judge has broad powers to regulate the nature and extent of such cross-examination”)(citing Alford v. United States, 282 U.S. 687, 694, 51 S.Ct. 218, 75 L.Ed. 624 (1931)). However, it has also been observed that: But all issues concerning cross-examination do not melt away upon invocation of the trial judge’s discretion: It is only after the right of cross-examination has been substantially and thoroughly exercised that allowance of further cross-examination becomes discretionary with the
trial court. . . . In concrete terms, then, the trial judge's discretion insulates only his decision that an area of cross-examination has been sufficiently explored and that further inquiry would be pointless. United States v. Jordan, 466 F.2d 99, 104-05 (4th Cir. 1972)(Sobeloff, J., dissenting)(emphasis in original, internal citations omitted). The third and fourth Hughes prongs, requiring a showing of prejudice and a miscarriage of justice are virtually impossible to establish on the record, especially given trial counsel’s failure to further develop this issue.15 However,“as it is almost always the case when cross examination directed to its main objective- destruction of credibility- is unduly restricted, the record, of necessity, does not, cannot, reflect what would have been developed.” Beaudine v. United States, 368 F.2d 417, 423 (9th Cir. 1966). As there, here, Mr. Farkas should have been allowed to explore the witness’ ample motives to favor the government “fully and with vigor.” IV. THE TRIAL COURT’S FINDING THAT TBW WOULD HAVE FAILED “BUT FOR” THE FRAUD IS CLEARLY ERRONEOUS
Similarly, when an issue arose as to another witness, Paul Allen’s personal notebooks, the defense requested an opportunity to examine the same before his cross examination. However, the trial court, pursuant to United States v. Boyd, 53 F.3d 631, 634 (4th Cir. 1995), required the defense to establish an appropriate foundation through cross-examination before reviewing the issue further (R.225, Transcript of Jury Trial Vol. 6 (a.m.) [1353-55]; J.A. 1285-1287). Except for a passing reference during cross examination (R.243, Transcript of Jury Trial Vol. 6 (p.m.) [1510]; J.A. at 1442) the defense, again inexplicably, failed to pursue this issue.
Standard of Review “The burden is on the government to establish, by a preponderance of the evidence, that the property at issue is subject to forfeiture,” and that there is a “substantial connection between the property to be forfeited and the offense.” In reviewing a trial court’s decision as to forfeiture, its findings of fact are reviewed for clear error while its conclusions of law are reviewed de novo. United States v. Herder, 594 F.3d 352, 363-64 (4th Cir. 2010) cert. denied, 130 S.Ct. 3440 (2010). In finding that the government met its burden under 18 U.S.C. §§ 981(a)(1)(C) & 982, the trial court relied upon the “but for” nexus test (R.355, Memorandum Opinion; J.A. 2265- 67). This test was first established in United States v. Horak, 833 F.2d 1235, 1243 (7th Cir. 1987)(“[I]n order to win a forfeiture order, the government must show . . . that [a defendant’s criminal] activities were a cause in fact of the acquisition or maintenance of [the] interests or some portion of them”). However, in so finding, the trial court accepted whole-cloth the government’s theory that TBW “would have been insolvent but for the fraud,” (R.355; J.A. at 2265) “would not have been in existence without the benefit of the fraud” (Id., at 2266); “TBW would not have remained in business in the absence of the bank and wire fraud scheme. The evidence produced at trial amply demonstrates that TBW was only able to continue its business activities due to the ongoing fraud. See Gov’t’s Reply
[R.291; J.A. 2087] at 7-8 [J.A. 2093-94] (summarizing trial evidence).” (Id., at [14]; J.A. at 2274). However, this evidence cited by the trial court and the government was directly controverted not only by other trial testimony,16 but by the averments in the Indictment,17 and the actual financial documentary evidence at trial - - as admitted by the government.18 In short, although a number of lay witnesses opined their
subjective and informal beliefs as to the financial health of TBW at various times, the company’s actual financial records told a very different story. The trial court’s findings that TBW would have failed “but for” the schemes is clearly erroneous.
See e.g.: R.214,Transcript of Jury Trial Vol. 4 (p.m.), cross-examination of Cathy Kissick, TBW had been profitable every year she had been dealing with them [984]; J.A. at 1027; and, R.243, Transcript of Jury Trial Vol. 6 (p.m.), crossexamination of Paul Allen, TBW had been profitable every year since 1995 [1534]; J.A. at 1466.
See R.1, Indictment at ¶ 7, TBW was the MWLD’s largest customer, and the MWLD was Colonial’s most profitable divisions accounting for at least twenty percent of Colonial Bank’s pre-tax income from 2005 through 2009.
In their reply, the government acknowledged that TBW’s audited financial statements, reflected that TBW had net profits of “$26.2 million and $42.2 million for fiscal years ending April 30, 2007 and 2008 respectively.” (R.291, U.S. Reply to Defendant’s Opposition, at 8; J.A. 2094, citing Government’s Trial Exhibit 1-412). The government contends that this supports its position, because the sums misappropriated from Ocala and advanced on the AOT line were not reflected in accountings. However, and conversely, they likewise do not, and cannot evidence that TBW would have failed but for the fraud and/or that the fraud was a “cause in fact” of TBW’s profitability.
CONCLUSION For the foregoing reasons, Mr. Farkas’s conviction should be reversed, and this case should be remanded to the District Court for retrial. Respectfully submitted, /s David M. Coorssen David M. Coorssen 539 West Market Street 4th Floor, Old Portland Building Louisville, Kentucky 40202 (502) 568-8901 STATEMENT IN SUPPORT OF ORAL ARGUMENT Due to the extent, length, and complexity of the underlying litigation as well as the issues presented on appeal, Appellant submits that oral argument would significantly aid the decisional process, would be useful, and is warranted in this case. The Court should hear oral argument in this case. CERTIFICATE OF COMPLIANCE It is hereby certified pursuant to Fed. R. App. P. 32 (A)(7)(B) and (C) and Local Fourth Circuit Rule 32 (b), that the foregoing Brief complies with the typevolume limitation, in that it is in a proportionally spaced font, being Times New Roman 14, and exclusive of the exempted portions in FRAP 32(a)(7)(B)(iii), contains 10,616 words of text.
CERTIFICATE OF SERVICE Pursuant to Local Rule 3 it is hereby certified that, in addition to the electronic filing hereof to be served via the CM/ECF system, eight (8) paper copies of the foregoing and following and six (6) copies of the Appendix were filed with the Court and a copy of the Appendix was served upon Paul Nathanson, Esq., and Charles Connolly Esq., and Kirby A. Heller, counsel for Plaintiff-Appellee, United States of America, 2100 Jamieson Avenue, Alexandria, VA 22314, by first-class mail, on this the10th day of January, 2012.
/s David M. Coorssen DAVID M. COORSSEN
ADDENDUM United States v. Forde, No. 09–4704, 407 Fed.Appx. 740, 2011 WL 63831 (4th Cir. 2011) cert. denied, 132 S.Ct. 232 (2011), provided pursuant to FRAP 32.1(b) and Local Rule 32.1.
Page 1 407 Fed.Appx. 740, 2011 WL 63831 (C.A.4 (Va.)) (Not Selected for publication in the Federal Reporter) (Cite as: 407 Fed.Appx. 740, 2011 WL 63831 (C.A.4 (Va.)))
West Headnotes This case was not selected for publication in the Federal Reporter. Not for Publication in West's Federal Reporter See Fed. Rule of Appellate Procedure 32.1 generally governing citation of judicial decisions issued on or after Jan. 1, 2007. See also Fourth Circuit Rule 32.1 (Find CTA4 Rule 32.1) United States Court of Appeals, Fourth Circuit. UNITED STATES of America, Plaintiff–Appellee, v. Richard Adolphus FORDE, a/k/a Euburn Richard A. Forde, Defendant–Appellant. No. 09–4704. Argued: Oct. 27, 2010. Decided: Jan. 10, 2011. Background: Defendant was convicted in the United States District Court for the Eastern District of Virginia, Anthony J. Trenga, J., of bankruptcy fraud, conspiracy to commit bankruptcy fraud, and bank fraud. Defendant appealed. Holdings: The Court of Appeals held that: (1) evidence supported bank fraud conviction; (2) district court's definition of “materiality” fairly stated the controlling law; (3) district court's statement to jury that its sole function “is to seek the truth from the evidence received during the trial” did not negate or undermine otherwise proper reasonable-doubt instructions; (4) any error in admitting testimony of a bankruptcy trustee mentioning a consent judgment obligating defendant to pay $800,000 was harmless; and (5) defendant was not entitled to an evidentiary hearing to investigate his post-verdict claims of juror misconduct. Affirmed. [1] Banks and Banking 52 509.25
52 Banks and Banking 52XI Federal Deposit Insurance Corporation 52k509 Offenses and Penalties 52k509.25 k. Prosecutions. Most Cited Cases Evidence supported bank fraud conviction, despite claim that it was a mortgage broker who concocted and executed the scheme to defraud, and that defendant, personally, did not make any false statements to the bank, because it was the broker who provided the false information and documents; defendant made false representations in documents that he knew would be provided to the bank, and in any event, evidence was established that defendant was at least as involved as the broker in hatching and executing the scheme to defraud. 18 U.S.C.A. § 1344(1, 2). [2] Banks and Banking 52 509.25
52 Banks and Banking 52XI Federal Deposit Insurance Corporation 52k509 Offenses and Penalties 52k509.25 k. Prosecutions. Most Cited Cases District court's definition of “materiality,” for purposes of a bank fraud charge, as “a fact that would be of importance to a reasonable person in making a decision about a particular matter or transaction” fairly stated the controlling law, despite claim that it should have included language from a Supreme Court decision defining a material statement as one that “has a natural tendency to influence, or is capable of influencing, the decision of the decisionmaking body to which it was addressed”; there was no significant difference between the instruction sought and the instruction given. 18 U.S.C.A. § 1344. [3] Criminal Law 110 798(.5)
407 Fed.Appx. 740, 2011 WL 63831 (C.A.4 (Va.)) (Not Selected for publication in the Federal Reporter) (Cite as: 407 Fed.Appx. 740, 2011 WL 63831 (C.A.4 (Va.)))
110 Criminal Law 110XX Trial 110XX(G) Instructions: Necessity, Requisites, and Sufficiency 110k798 Manner of Arriving at Verdict 110k798(.5) k. In general; unanimity. Most Cited Cases District court's statement, at the end of the instructions to the jury, that the jury's sole function “is to seek the truth from the evidence received during the trial,” made in the course of admonishing individual jurors not to surrender their honest convictions, did not negate or undermine otherwise proper reasonable-doubt instructions, despite claim that the statement permitting jurors to convict simply because they believed defendant to be guilty, even if the jurors also thought that the government had not actually proved defendant's guilt beyond a reasonable doubt. [4] Criminal Law 110 1169.12
110 Criminal Law 110XX Trial 110XX(J) Issues Relating to Jury Trial 110k868 k. Objections and disposition thereof. Most Cited Cases Defendant was not entitled to an evidentiary hearing to investigate his post-verdict claims of juror misconduct in connection with an online posting by a friend of the husband of the jury foreperson regarding the difference between “assume” and “presume”; defendant's proposed string of possibilities about the origin the posting, that the foreperson possibly talked to her husband, who possibly talked to his friend, who possibly went online in response to what the husband possibly told him, was nothing but speculation and thus fell far short of establishing reasonable grounds for investigation. *741 Appeal from the United States District Court for the Eastern District of Virginia, at Alexandria. Anthony J. Trenga, District Judge. (1:08–cr–00401–AJT–1).ARGUED: Elita C. Amato, Arlington, Virginia, for Appellant. Thomas Higgins McQuillan, Office of the United States Attorney, Alexandria, Virginia, for Appellee. ON BRIEF: Neil H. MacBride, United States Attorney, Alexandria, Virginia, for Appellee. Before TRAXLER, Chief Judge, DAVIS, Circuit Judge, and DAMON J. KEITH, Senior Circuit Judge of the United States Court of Appeals for the Sixth Circuit, sitting by designation. Affirmed by unpublished PER CURIAM opinion. Unpublished opinions are not binding precedent in this circuit. PER CURIAM: **1 Richard Adolphus Forde was convicted of bankruptcy fraud, see 18 U.S.C.A. § 157 (West Supp.2010); conspiracy to commit bankruptcy fraud, see 18 U.S.C.A. § 371 (West 2000); and bank fraud, see 18 U.S.C.A. § 1344 (West 2000). Forde appeals, raising various challenges to his
110 Criminal Law 110XXIV Review 110XXIV(Q) Harmless and Reversible Error 110k1169 Admission of Evidence 110k1169.12 k. Acts, admissions, declarations, and confessions of accused. Most Cited Cases Any error in admitting testimony of a bankruptcy trustee mentioning a consent judgment obligating defendant to pay $800,000, which defendant claimed was too prejudicial and violated the rule conditionally prohibiting evidence of compromise or offers to compromise, was harmless in a bankruptcy fraud prosecution; government's evidence of bankruptcy fraud was exceptionally strong, the testimony about the consent judgment was minimal, and counsel for defendant during crossexamination established that the bankruptcy proceedings were civil and governed by a lesser burden of proof. Fed.Rules Evid.Rules 403, 408, 28 U.S.C.A. [5] Criminal Law 110 868
convictions. Finding no reversible error, we affirm. I. Viewed in the light most favorable to the government, the evidence presented at trial established the following. In the fall of 2001, Forde was facing substantial financial problems and was on the verge of losing his multi-million-dollar home through foreclosure. Forde and his wife filed a Chapter 11 bankruptcy petition, and Forde also began working with mortgage broker David Freelander to try to refinance his mortgage. When it became clear that refinancing would not be possible, Forde began seeking a buyer for his house. Forde contacted Allodean Allobaidy, a real estate broker who had previously expressed interest in buying the house. When Allobaidy told Forde that he could not afford the house (which Forde said was worth more than $2 million), Forde responded, “Don't worry about it. I do have someone who could help you out with that.” J.A. 525. Forde, Allobaidy, and *742 Freelander thereafter began discussions about Allobaidy buying the house. During the course of the negotiations, Allobaidy made it clear to Forde and Freelander that he would not qualify for a mortgage loan, that he would not make a down payment, that he would not make any mortgage payments, and that he should receive a commission for the sale of the house. The parties ultimately came up with a deal, and Allobaidy and Forde signed a contract for the sale of the property. The contract, which was drafted by Leslie Lickstein, Forde's bankruptcy attorney, listed the sales price as $5,495,000, and required from Allobaidy a down payment of $450,000; a conventional loan in the amount of $3,846,500, to be secured by a first mortgage; and a promissory note payable to Forde in the amount of $1,099,000, to be secured by a second mortgage. An addendum to the contract established what can only be described as a “slush fund,” providing that approximately $700,000 of funds that Forde would receive at closing would be placed in a separate account as a “move-in and fixup allowance” for Allobaidy. J.A. 1326. Allobaidy
testified, however, that the real purpose of the slush fund was to provide funds with which the firstmortgage payments would be made. Allobaidy also testified that, despite the terms of the contract, everyone involved in the transaction knew and agreed that he would not be making any down payment, mortgage payments, or payments on the promissory note. Lickstein submitted the sales contract to the bankruptcy court and obtained approval for the sale of Forde's house. Lickstein testified that the downpayment and the seller-held promissory note were very important terms of the contract from the bankruptcy perspective because the down-payment and the payments to be made under the note would be available to Forde's creditors. **2 Freelander worked to obtain the first mortgage through Lehman Brothers Bank. Allobaidy testified that he and Freelander, with Forde's knowledge, provided Lehman with false documents and false information to make Allobaidy appear qualified for the loan. Among the documents that Freelander submitted to Lehman was the sales contract. Before submitting the contract to Lehman, however, Freelander removed the addendum that established the slush fund, telling Forde and Allobaidy that Lehman probably would not approve the loan if it knew about the slush fund. Lehman approved the loan to Allobaidy, and the sale closed on June 28, 2002, in Lickstein's office. The terms of the contract had changed by the time of closing, calling for a sales price of $5,995,000; a down payment of $550,000; a first mortgage in the amount of $3,896,750; and a promissory note from Allobaidy in the amount of $1,498,750. The slush fund provided for in the addendum was reduced from the original $700,000 to just over $477,000. The HUD–1 closing statement, which was signed by Forde, Forde's wife, and Allobaidy, showed a down payment of $550,000, even though no down payment was in fact made. The HUD–1
statement also showed that a portion of the mortgage proceeds ($539,000) was used to satisfy a lien filed against the property by Isaac Archibald in connection with a loan Archibald made to Forde. The government's evidence, however, established that there had never been a loan from Archibald to Forde and that the Archibald lien had actually been filed against the property by Lickstein at Forde's direction. After closing, Lickstein wired the $539,000 into an account controlled by Freelander, who in turn paid out some of the funds in accordance with Forde's directions and used some of the funds for his own benefit. *743 The money for the slush fund was initially maintained in Lickstein's escrow account. At Forde's direction, Lickstein later transferred the funds to a brokerage account in Forde's name. Forde and his wife remained in the house after the sale. Allobaidy never took possession of the house, and Forde never paid him rent. Payments on the Lehman first mortgage were made from the slush fund for a period of time, but the slush fund eventually ran out and the mortgage went into default. In November 2002, the bankruptcy court converted Forde's Chapter 11 proceeding to a Chapter 7 proceeding. The Chapter 7 trustee began looking into the sale of Forde's house and ultimately filed a civil action against Forde to recover for the benefit of Forde's creditors the monies Forde received from the sale of the house. Counsel for the trustee sought to depose Forde, Freelander, and Allobaidy (among others), and the three men met to discuss how the depositions should be handled. Freelander asked Allobaidy to lie and say that he had made the down payment. Allobaidy in fact did testify at his deposition that he had made the down payment. Forde later brought Barton Gold, who had solicited investors for Forde's online business Tutornet.com, into the scheme, convincing Gold to sign back-dated, false documents showing that the $539,000 Archibald loan had actually been made by Gold and only guaranteed by Archibald. At the de-
position conducted on behalf of the bankruptcy trustee, Forde offered up the Gold/Archibald story and documents to explain the $539,000 distribution made at closing. Gold later gave similar false testimony in his own deposition. **3 The bankruptcy trustee's investigation into the sale of Forde's house ultimately led to the filing of criminal charges against Forde, Freelander, Lickstein, and Allobaidy. Freelander pleaded guilty to charges of bank fraud and bankruptcy fraud; Lickstein and Allobaidy pleaded guilty to conspiracy to commit bank fraud. Forde proceeded to trial, and Freelander, Lickstein, and Allobaidy all testified against him. The jury convicted Forde of bank fraud, bankruptcy fraud, and conspiracy to commit bankruptcy fraud. The district court sentenced Forde to 42 months' imprisonment. This appeal followed. II. [1] Forde first contends that the evidence was insufficient to support the conviction for bank fraud. “A defendant challenging the sufficiency of the evidence faces a heavy burden, because the jury's verdict must be upheld on appeal if there is substantial evidence in the record to support it.” United States v. Young, 609 F.3d 348, 355 (4th Cir.2010) (citation and internal quotation marks omitted). “Our review is thus limited to determining whether, viewing the evidence and the reasonable inferences to be drawn therefrom in the light most favorable to the government, the evidence adduced at trial could support any rational determination of guilty beyond a reasonable doubt.” Id. (internal quotation marks and alteration omitted). Section 1344 imposes criminal penalties on anyone who “knowingly executes, or attempts to execute, a scheme or artifice” in order to “defraud a financial institution,” 18 U.S.C.A. § 1344(1), or to “obtain any of the moneys, funds, credits, assets, securities, or other property owned by, or under the custody or control of, a financial institution, by means of false or fraudulent pretenses, representations, or promises,” id. § 1344(2). As to § 1344(1),
Forde contends that it was Freelander who concocted and executed the scheme to defraud Lehman. According to Forde, “[i]t was Freelander who dealt with the bank, knew *744 what they required and made decisions of how to conform with the bank's requirements.” Brief of Appellant at 15. With regard to § 1344(2), Forde contends that he, personally, did not make any false statements to Lehman, because it was Freelander, not Forde, who provided the false information and documents to Lehman. While Forde acknowledges that Freelander told him about the problems that the slush fund addendum could cause if the bank knew about it, Forde insists that it was Freelander, “not Mr. Forde [,] who either made the decisions that something should be handled a certain way or that documents should not be provided to the bank or information not revealed.” Id. We find these arguments unpersuasive. Preliminarily, we note that while Forde may not have personally submitted any documents to Lehman, he certainly made false representations in documents that he knew would be provided to Lehman—Forde signed the sales contract, which called for a down payment by Allobaidy and payments by Allobaidy under a promissory note that the parties to the contract knew would never be made; and Forde signed the HUD–1 statement, which, among other things, showed the down payment as having been made. Even assuming that this conduct somehow does not amount to the making of false representations within the meaning of § 1344(2), the government's evidence was more than enough to support Forde's conviction under § 1344(1). **4 “The government need not offer evidence of misrepresentations or a disclosure duty to prove a violation of § 1344.” United States v. Colton, 231 F.3d 890, 907 (4th Cir.2000); see United States v. Celesia, 945 F.2d 756, 758 (4th Cir.1991) (“[O]ne may commit a bank fraud under Section 1344(1) by defrauding a financial institution, without making the false or fraudulent promises required by Section 1344(2).”). “What is essential is proof of a ‘scheme
or artifice to defraud,’ which can be shown by deceptive acts or contrivances intended to hide information, mislead, avoid suspicion, or avert further inquiry into a material matter.” Colton, 231 F.3d at 901. The government's evidence was certainly sufficient to establish the existence of a scheme to defraud Lehman—the parties induced Lehman to make the loan by lying about a down payment and by concealing the existence of the slush fund, facts that a Lehman employee testified were material to Lehman's decision to make the loan. See id. at 901 (“[A]ctive or elaborate steps to conceal information can constitute” a scheme to defraud. (internal quotation marks omitted)). The government's evidence was likewise sufficient to establish that Forde was at least as involved as Freelander in hatching and executing that scheme to defraud. Although Forde insists that Freelander came up with the scheme to defraud Lehman, Allobaidy's testimony alone would have been enough for the jury to conclude that Forde was responsible for the scheme. Moreover, the government's evidence established that Forde and Freelander controlled the mortgage proceeds that were used to “satisfy” the fictitious Archibald lien. At Forde's direction, the Archibald proceeds were wired to a bank account controlled by Freelander, a portion of which were later wired to a bank account belonging to Forde's then brother-in-law, to keep the money out of Forde's bankruptcy estate and thus out of the reach of his creditors. The slush fund proceeds were similarly transferred to a brokerage account belonging to Forde. Because the evidence showed that Forde and Freelander both controlled and received the benefit of these misappropriated mortgage funds, the jury reasonably could have concluded that Forde and Freelander both conceived and *745 executed the scheme to defraud Lehman. We therefore conclude that the evidence was more than sufficient to supFN1 port Forde's conviction for bank fraud. FN1. Given our disposition of this claim, it is unnecessary for us to consider the gov-
ernment's alternate argument that Forde's bank fraud conviction can be sustained because Forde caused Freelander to commit bank fraud. See 18 U.S.C.A. § 2(b) (West 2000) (“Whoever willfully causes an act to be done which if directly performed by him or another would be an offense against the United States, is punishable as a principal.”). III. [2] Materiality is an element of bank fraud. See Neder v. United States, 527 U.S. 1, 25, 119 S.Ct. 1827, 144 L.Ed.2d 35 (1999); Colton, 231 F.3d at 903 n. 5. The district court instructed the jury that the government was required to prove the materiality of the representations made to Lehman or the information concealed from Lehman, defining “material fact” as “a fact that would be of importance to a reasonable person in making a decision about a particular matter or transaction.” J.A. 1225–26. Forde argues on appeal, however, that the district court's definition of materiality was insufficient because it did not include language from the Supreme Court's decision in Neder generally defining a material statement as one that “has a natural tendency to influence, or is capable of influencing, the decision of the decisionmaking body to which it was addressed.” Neder, 527 U.S. at 16, 119 S.Ct. 1827 (internal quotation marks and alteration omitted). Forde further argues that the instruction as given “in essence took away the element of materiality,” and that he was therefore deprived of his Sixth Amendment right to a jury determination of each element of the bank fraud charge. Brief of Appellant at 25. Because Forde did not object to the jury instruction below, we review his claims for plain error only. **5 We see no significant difference between the instruction sought by Forde and the instruction given, because a fact that would be important when making a decision would likewise be capable of influencing a decision. See Preston v. United States, 312 F.3d 959, 961 & n. 3 (8th Cir.2002) (per curi-
am) (concluding that instructions defining “material fact” as “a fact that would be important to a reasonable person in deciding whether to engage or not to engage in a particular transaction” were “consistent with those reaffirmed by the Supreme Court in Neder ” (internal quotation marks omitted)). Because the instructions as given “fairly state[d] the controlling law,” United States v. McQueen, 445 F.3d 757, 759 (4th Cir.2006) (internal quotation marks and alterations omitted), there was no error, plain or otherwise, in the court's instructions on materiality. See United States v. Heppner, 519 F.3d 744, 749 (8th Cir.2008) (finding no error in jury instruction defining “material fact” as “a fact which would be of importance to a reasonable person making a decision about a particular matter or transaction” (internal quotation marks omitted)). IV. [3] Forde next argues that the district court erred when it stated, at the end of the instructions to the jury, that the jury's sole function “is to seek the truth from the evidence received during the trial.” J.A. 1233. According to Forde, the seek-the-truth statement negated the otherwise proper reasonabledoubt instructions by permitting jurors to convict simply because they believed him to be guilty, even if the jurors also thought that the government had not actually proved Forde's guilt beyond a reasonable doubt. *746 Because the seek-the-truth language was included in the jury charges that Forde himself sought, see J.A. 72, Forde arguably has waived the right to even seek review of the issue. See United States v. Quinn, 359 F.3d 666, 674–75 (4th Cir.2004) (“[T]he record shows ... that the district court's instruction on this issue was precisely the instruction that they requested.... [A]ny error committed by the district court in giving this instruction was invited error and is not subject to review.”). In any event, the district court repeatedly informed the jury that Forde was presumed innocent, and the court mentioned the requirement that the government must prove Forde's guilt beyond a reasonable
doubt more than twenty times during its instructions. Under these circumstances, we cannot conclude that the single seek-the-truth reference, which the court made in the course of admonishing individual jurors not to surrender their honest convictions, negated or undermined the otherwise proper reasonable-doubt instructions or otherwise amounted to error. See United States v. Gonzalez–Balderas, 11 F.3d 1218, 1223 (5th Cir.1994) (“There is no reasonable likelihood that the jury inferred that the single reference at the end of the charge to ‘seeking the truth,’ rendered as it was in the context of an admonition to ‘not give up your honest beliefs,’ modified the reasonable doubt burden of proof.”). V. **6 [4] As previously mentioned, the Chapter 7 bankruptcy trustee investigated the sale of Forde's house and brought a civil action against Forde to recover funds associated with the sale of the house. That action ended with Forde signing a consent judgment obligating him to pay $800,000. The attorney who represented the bankruptcy trustee testified at Forde's criminal trial and briefly mentioned the $800,000 consent judgment in his testimony. On appeal, Forde claims the testimony about the consent decree violated Rule 408 of the Federal Rules of Evidence. See Fed.R.Evid. 408(a) (prohibiting evidence of compromise or offers to compromise “when offered to prove liability for, invalidity of, or amount of a claim that was disputed as to validity or amount, or to impeach through a prior inconsistent statement or contradiction”). Forde also claims that even if testimony about the consent judgment was proper under Rule 408, the testimony was too prejudicial and therefore should have been excluded under Rule 403. See Fed.R.Evid. 403 (“Although relevant, evidence may be excluded if its probative value is substantially outweighed by the danger of unfair prejudice, confusion of the issues, or misleading the jury, or by considerations of undue delay, waste of time, or needless presentation of cumulative evidence.”).
We disagree. Assuming, without deciding, that the admission of the testimony amounted to error under Rule 403 or Rule 408, any such error would be harmless. The government's evidence of bankruptcy fraud was exceptionally strong, and the testimony about the consent judgment was minimal. Moreover, counsel for Forde during crossexamination established that the bankruptcy proceedings were civil and governed by a lesser burden of proof. Under these circumstances, we think it clear that the jury's verdict was not “substantially swayed” by any error in admitting the evidence of the consent judgment. United States v. Heater, 63 F.3d 311, 325 (4th Cir.1995) (“[I]n order to find a district court's error harmless, we need only be able to say with fair assurance, after pondering all that happened without stripping the erroneous action from the whole, that the judgment was not substantially swayed by the error.” (internal quotation marks omitted)). *747 VI. [5] Finally, Forde contends that the district court erred by rejecting his post-verdict claims of juror misconduct. In a post-trial motion, Forde informed the district court that while the trial was proceeding, a friend of the husband of the jury foreperson posted on Twitter an explanation of the FN2 difference between “assume” and “presume.” Ford contended that, since the posting occurred during trial, it was possible that the jury foreperson had talked to her husband about the case, her husband then talked to his friend about the case, the friend then posted the statement on Twitter, and the foreperson saw the Twitter posting. Forde thus requested that the district court hold a hearing to investigate the potential misconduct. The district court denied the request. FN2. The posting stated, “assume: suppose to be the case, without proof; presume: suppose that something is the case on the basis of probability.” J.A. 1423. **7 On appeal, Forde contends that the district court erred by denying the requested hearing. We
disagree. A district court is obligated to investigate colorable claims of juror misconduct. See, e.g., Smith v. Phillips, 455 U.S. 209, 215, 102 S.Ct. 940, 71 L.Ed.2d 78 (1982) (“This Court has long held that the remedy for allegations of juror partiality is a hearing in which the defendant has the opportunity to prove actual bias.”); id. at 217, 102 S.Ct. 940 (“Due process means a jury capable and willing to decide the case solely on the evidence before it, and a trial judge ever watchful to prevent prejudicial occurrences and to determine the effect of such occurrences when they happen. Such determinations may properly be made at a [post-trial] hearing ....”). However, “[t]he duty to investigate arises only when the party alleging misconduct makes an adequate showing of extrinsic influence to overcome the presumption of jury impartiality. In other words, there must be something more than mere speculation.” United States v. Barshov, 733 F.2d 842, 851 (11th Cir.1984) (citation omitted); accord United States v. Vitale, 459 F.3d 190, 197 (2d Cir.2006) (“[A] trial court is required to hold a post-trial jury hearing when reasonable grounds for investigation exist. Reasonable grounds are present when there is clear, strong, substantial and incontrovertible evidence, that a specific, nonspeculative impropriety has occurred which could have prejudiced the trial of a defendant.” (citation and internal quotation marks omitted)). Forde's string of possibilities about the origin of the Twitter posting—that the foreperson possibly talked to her husband, who possibly talked to his friend, who possibly took to Twitter in response to what the husband possibly told him—is nothing but speculation and thus falls far short of establishing reasonable grounds for investigation. The district court therefore did not err by denying Forde's request for an evidentiary hearing to investigate his claim. Forde also contends that the district court erred by denying his post-verdict request for the issuance of subpoenas directed to various internet service providers. Forde claims that his business websites were viewed during the trial, and that the subpoenas were necessary “to assess whether any of the
twelve jurors were the ones who had accessed the sites and searched his name.” Brief of Appellant at 40. This argument is utterly without merit, as it is even more speculative and less grounded in fact than his other claim of juror misconduct. The district court committed no error by refusing to issue the subpoenas necessary for Forde's fishing expedition. *748 VII. Because we find no reversible error, we hereby affirm Forde's convictions and sentence. AFFIRMED. C.A.4 (Va.),2011. U.S. v. Forde 407 Fed.Appx. 740, 2011 WL 63831 (C.A.4 (Va.)) END OF DOCUMENT
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