Opinion
18 CR 48-1, 2
2021-02-24
UNITED STATES of America, Plaintiff, v. Edward BASES and John Pacilio, Defendants.
AUSA, Assistant US Attorney, United States Attorney's Office, Chicago, IL, Anne W. Stukes, Pro Hac Vice, U.S. Commodity Futures Trading Commission, Avi Perry, Assistant US Attorney, John James Liolos, Scott Armstrong, United States Department of Justice, Criminal Division, Washington, DC, Pretrial Services, Probation Department, for Plaintiff. Alfred U. Pavlis, Daniel S. Noble, Pro Hac Vice, David Robert Allen, Pro Hac Vice, Michael Q. English, Andrew M. Calamari, Pro Hac Vice, Elias Laris, Pro Hac Vice, Finn Dixon & Herling LLP, Stamford, CT, Gregory Thomas Fouts, Kenneth Michael Kliebard, Morgan, Lewis & Bockius LLP, Chicago, IL, Julie B. Porter, Salvatore Prescott Porter & Porter PLLC, Evanston, IL, for Defendant Edward Bases. David Harrison McGill, Jonathan David Cogan, Matthew Ivan Menchel, Sean Stephen Buckley, George Stamatopoulos, Pro Hac Vice, Kobre & Kim LLP, New York, NY, Erika Lynn Berman, Pro Hac Vice, Leanne A. Bortner, Pro Hac Vice, Sydney P. Sgambato, Pro Hac Vice, Kobre & Kim LLP, Washington, DC, Gregory Thomas Fouts, Kenneth Michael Kliebard, Morgan, Lewis & Bockius LLP, Chicago, IL, for Defendant John Pacilio.
AUSA, Assistant US Attorney, United States Attorney's Office, Chicago, IL, Anne W. Stukes, Pro Hac Vice, U.S. Commodity Futures Trading Commission, Avi Perry, Assistant US Attorney, John James Liolos, Scott Armstrong, United States Department of Justice, Criminal Division, Washington, DC, Pretrial Services, Probation Department, for Plaintiff.
Alfred U. Pavlis, Daniel S. Noble, Pro Hac Vice, David Robert Allen, Pro Hac Vice, Michael Q. English, Andrew M. Calamari, Pro Hac Vice, Elias Laris, Pro Hac Vice, Finn Dixon & Herling LLP, Stamford, CT, Gregory Thomas Fouts, Kenneth Michael Kliebard, Morgan, Lewis & Bockius LLP, Chicago, IL, Julie B. Porter, Salvatore Prescott Porter & Porter PLLC, Evanston, IL, for Defendant Edward Bases.
David Harrison McGill, Jonathan David Cogan, Matthew Ivan Menchel, Sean Stephen Buckley, George Stamatopoulos, Pro Hac Vice, Kobre & Kim LLP, New York, NY, Erika Lynn Berman, Pro Hac Vice, Leanne A. Bortner, Pro Hac Vice, Sydney P. Sgambato, Pro Hac Vice, Kobre & Kim LLP, Washington, DC, Gregory Thomas Fouts, Kenneth Michael Kliebard, Morgan, Lewis & Bockius LLP, Chicago, IL, for Defendant John Pacilio.
ORDER
JOHN Z. LEE, United States District Judge
Defendants Edward Bases and John Pacilio move to compel the government to produce any information and materials discoverable under Fed. R. Crim. P. 16 and Brady v. Maryland , 373 U.S. 83, 83 S.Ct. 1194, 10 L.Ed.2d 215 (1963), that are in the possession of the Commodity Futures Trading Commission ("CFTC") on the grounds that the Department of Justice ("DOJ") and the CFTC had engaged in a joint investigation of Defendants leading to the charges at issue. For the reasons provided below, the motion is granted. STATEMENT
I. Procedural Background
Defendants previously had requested that the DOJ retain and produce materials in possession of the CFTC as part of the government's obligations under Rule 16 and Brady. In response, the DOJ took the position that it had not engaged in a joint investigation with the CFTC and, therefore, had no obligation to review such materials in the possession of the CFTC or to produce such information as part of its discovery responsibilities.
Rather than filing a motion under Rule 16 and Brady to compel the DOJ to produce the information at issue, Defendants served a Rule 17 subpoena on the CFTC. The CFTC moved to quash the subpoena, and, in response, Defendants argued that the CFTC had engaged in a joint investigation with the DOJ, which required the DOJ to produce any discoverable material that was in the CFTC's possession. However, given that the subpoena was directed at the CFTC, and the primary issue (i.e. , whether the DOJ and CFTC had participated in a joint investigation) was insufficiently addressed in the briefs, the Court invited Defendants to file a motion to compel under Rule 16 and Brady against the DOJ. Defendants did so, and the DOJ and the CFTC oppose.
For example, Defendants’ response brief dedicated five pages to the joint investigation issue, and the DOJ and the CFTC allot five and six pages, respectively, to the issue. See Defs.’ Opp'n CFTC's Mot. Quash Pretrial Rule 17 Subpoena Duces Tecum, at 5–9, ECF No. 321; Gov't’s Reply Defs.’ Opp'n CFTC's Mot. Quash, at 2–5, ECF No. 326; Non-Party CFTC's Reply Supp. Mot. Quash, at 3–8, ECF No. 327.
II. Legal Standards
A. Federal Rule of Criminal Procedure 16
Federal Rule of Criminal Procedure 16 requires the government to allow the defendant "to inspect and to copy or photograph books, papers, documents, data, photographs, tangible objects, buildings or places, or copies or portions of any of these items, if the item is within the government's possession, custody, or control and ... the item is material to preparing the defense." Fed. R. Crim. P. 16(a)(1)(E) ; see also Fed. R. Crim. P. 16(a)(1)(F). "Courts have typically required the prosecution to disclose under Rule 16 documents material to the defense that (1) it has actually reviewed, or (2) are in the possession, custody, or control of a government agency so closely aligned with the prosecution so as to be considered part of the prosecution team." United States v. Finnerty , 411 F. Supp. 2d 428, 432 (S.D.N.Y. 2006) ; see, e.g., United States v. Mullins , No. 12 CR 596, 2013 WL 3506547, at *1 (N.D. Ill. July 11, 2013) (where the FBI conducted a joint investigation with the Cook County Office of the Independent Inspector General ("OIIG"), and the Cook County State's Attorney's Office, the government produced materials from the FBI, OIIG, and State's Attorney investigators). "Certainly the prosecutor would not be allowed to avoid disclosure of evidence by the simple expedient of leaving relevant evidence to repose in the hands of another agency while utilizing his access to it in preparing his case for trial; such evidence is plainly within his Rule 16 ‘control.’ " United States v. Trevino , 556 F.2d 1265, 1272 (5th Cir. 1977).
B. Brady
Under Brady , the government has an affirmative duty to disclose evidence favorable to the defendant. See Kyles v. Whitley , 514 U.S. 419, 432, 115 S.Ct. 1555, 131 L.Ed.2d 490 (1995) ("The prosecution's affirmative duty to disclose evidence favorable to a defendant can trace its origins to early 20th-century strictures against misrepresentation and is of course most prominently associated with th[e Supreme] Court's decision in Brady v. Maryland , 373 U.S. 83, 83 S.Ct. 1194, 10 L.Ed.2d 215 (1963)."). In that case, the Supreme Court held that "the suppression by the prosecution of evidence favorable to an accused ... violates due process where the evidence is material either to guilt or to punishment, irrespective of the good faith or bad faith of the prosecution." Brady , 373 U.S. at 87, 83 S.Ct. 1194.
Subsequently, the Supreme Court clarified that the prosecution has a duty under Brady to disclose impeachment evidence. See Giglio v. United States , 405 U.S. 150, 154–55, 92 S.Ct. 763, 31 L.Ed.2d 104 (1972) ; see also United States v. Bagley , 473 U.S. 667, 676, 105 S.Ct. 3375, 87 L.Ed.2d 481 (1985). In addition, prosecutors have an affirmative duty "to learn of any favorable evidence known to the others acting on the government's behalf in [a] case." Strickler v. Greene , 527 U.S. 263, 280–81, 119 S.Ct. 1936, 144 L.Ed.2d 286 (1999) (quoting Kyles , 514 U.S. at 437–38, 115 S.Ct. 1555 ); United States v. Walker , 746 F.3d 300, 306 (7th Cir. 2014) ("The government's duty to disclose favorable evidence extends beyond evidence in its immediate possession to evidence in the possession of other actors assisting the government in its investigation."). As such, "[a] prosecutor's duty to review documents in the possession, custody, or control of another agency arises where the Government conducts a ‘joint investigation’ with another agency." United States v. Collins , 409 F. Supp. 3d 228, 239 (S.D.N.Y. 2019) ; United States v. Rigas , No. 02 Cr. 1236 (LBS), 2008 WL 144824, at *2 (S.D.N.Y. Jan. 15, 2008), aff'd, United States v. Rigas , 583 F.3d 108 (2d Cir. 2009) ; see United States v. Middendorf , No. 18-CR-36 (JPO), 2018 WL 3956494, at *4 (S.D.N.Y. Aug. 17, 2018) ("[W]here the prosecution ‘conducts a joint investigation with another state or federal agency, courts in this Circuit have held that the prosecutor's duty extends to reviewing the materials in the possession of that other agency for Brady evidence.’ " (cleaned up) (quoting United States v. Gupta , 848 F. Supp. 2d 491, 493 (S.D.N.Y. 2012) )).
To determine whether a joint investigation has occurred, courts engage in "a case-by-case analysis of the extent of interaction and cooperation between the two government[al] [agencies]." United States v. Antone , 603 F.2d 566, 570 (5th Cir. 1979) ; Avila v. Quarterman , 560 F.3d 299, 308 (9th Cir. 2009). One main factor to consider is whether there has been cooperation between the investigative agencies. See Antone , 603 F.2d at 570. An example of cooperation is the "coordination in conducting witness interviews and otherwise investigating the facts of the case." United States v. Martoma , 990 F. Supp. 2d 458, 461 (S.D.N.Y. 2014). Another factor is whether the other agency "reviewed documents gathered by or shared documents with the prosecution[.]" Middendorf , 2018 WL 3956494, at *4 (citing United States v. Blaszczak , 308 F. Supp. 3d 736, 741–42 (S.D.N.Y. 2018) ).
III. Analysis
In support of their motion to compel, Defendants argue that the CFTC's participation in the government's investigation obligates the DOJ to search the CFTC's files for information that is material to the preparation of the defense or is exculpatory. In Defendants’ view, the DOJ and CFTC's joint investigation focused on spoofing activities at Deutsche Bank, Bank of America, and Morgan Stanley, and it uncovered facts that led directly to the charges in the indictment. In making this argument, Defendants primarily rely on Gupta , 848 F. Supp. 2d at 494, and Martoma , 990 F. Supp. 2d at 461. In Gupta , the U.S. Attorney's Office ("USAO") and the Securities and Exchange Commission ("SEC") argued that they had conducted parallel, not joint, investigations, prompting the court to hold that "whether parallel investigations are also ‘joint’ investigations must be evaluated in light of the disclosures being requested, and when it comes to Brady disclosures, the relevant context is one of fact-gathering, not charging determinations or otherwise." 848 F. Supp. 2d at 494. The court explained that "[f]or Brady purposes, it is enough that the agencies are engaged in joint fact-gathering, even if they are making separate investigatory or charging decisions, because the purpose of Brady is to apprise the defendant of exculpatory evidence obtained during the fact-gathering that might not otherwise be available to the defendant." Id. And because the agencies jointly interviewed forty-four witnesses, the court directed the USAO to review the SEC's memoranda relating to those interviews for any additional Brady material and to disclose any such material to the defense. Id. at 495.
In Martoma , the USAO and the SEC jointly conducted and coordinated twenty interviews of twelve witnesses, and the SEC provided the USAO with documents obtained during its insider trading investigation. 990 F. Supp. 2d at 461. The district court had little trouble finding that the agencies had engaged in joint fact-gathering, even if they made separate investigatory or charging decisions. Id. at 461–62.
The government's investigation in this case proceeded as follows. Starting in 2015 and continuing through 2018, the DOJ and the CFTC investigated various financial institutions, including Deutsche Bank, Merrill Lynch Commodities, Inc. (a subsidiary of Bank of America Corp. ("BOA")), Morgan Stanley Capital Group Inc. ("Morgan Stanley"), as well as their traders in connection with possible spoofing, manipulation, and attempted manipulation in certain precious metals futures markets. The CFTC concedes that, during the investigations, the CFTC and DOJ shared information and jointly participated in interviews, meetings, and calls. CFTC's Ex., Randolph Decl. ("Randolph Decl.") ¶ 9, ECF No. 388-2. Specifically, the CFTC and the DOJ participated in twenty-five joint meetings and phone conferences with Defendants’ former employer Deutsche Bank and twelve joint meetings or phone conferences with Defendants’ other former employer Bank of America, during which the participants discussed document collection and trading data. Defs.’ Reply Ex. A, Pavlis Decl. ("Pavlis Dec.") ¶ 6, ECF No. 391-2.
Defs.’ Ex. B, 4/27/20 Request to DOJ, at 2–3, nn.3, 6, ECF No. 384-2 (citing CFTC Nov. 21, 2017 Production Cover Letter; DOJ Production 01 Index, Control Number 107-09; DOJ Aug. 21, 2018 Production 01 Cover Letter; Press Release, U.S. Dep't of Justice, Eight Individuals Charged with Deceptive Trading Practices Executed on U.S. Commodities Markets (Jan. 29, 2018), https://www.justice.gov/opa/pr/eight-individuals-charged-deceptive-trading-practices-executed-us-commodities-markets; Press Release, U.S. Commodity Futures Trading Comm'n, CFTC Orders Merrill Lynch Commodities, Inc. to Pay Approximately $25 Million for Spoofing, Manipulation, and Attempted Manipulation in Precious Metals Futures (June 25, 2019), https://www.cftc.gov/PressRoom/PressReleases/7946-19; Press Release, U.S. Commodity Futures Trading Comm'n, CFTC Orders Deutsche Bank to Pay $30 Million Penalty for Manipulation, Attempted Manipulation, and Spoofing in the Precious Metals Futures Markets (Jan. 29, 2018)); see Press Release, U.S. Commodity Futures Trading Comm'n, CFTC Orders Morgan Stanley Capital Group Inc. to Pay $1.5 Million for Spoofing in the Precious Metals Futures Markets (Oct. 1, 2019), https://www.cftc.gov/PressRoom/PressReleases/8044-19.
In addition, the CFTC and DOJ jointly conducted interviews of at least seventeen individuals, including Defendants’ former colleagues. See Gov't’s Opp'n at 3. Two of those individuals will be called by the government in its case-in-chief. Id. at 9.
During these interviews, an FBI agent typically would have served as the designated note-taker. Randolph Decl. ¶ 15. And although, as a general rule, the CFTC staff did not draft formal witness statements from these interviews, they may have taken notes. Id. Any such notes would be handwritten and stored in the CFTC's New York City office's files. Id. The CFTC has not yet reviewed these files. Id.
Furthermore, as part of its case-in-chief, the government will rely on over three years’ worth of trading data that the CFTC had provided to the DOJ one month before the DOJ filed criminal charges against Defendants. See Defs.’ Ex. C, 12/5/17 Letter from CFTC to DOJ, ECF No. 384-3; Defs.’ Reply Ex. B, 12/20/17 Letter From CFTC to DOJ, ECF No. 391-2; Compl., ECF No. 1 (filed 1/25/18). This data, which includes data on specific order entries, executions, and cancellations, as well as market-wide price and volume data, was obtained by the CFTC from the Commodities Mercantile Exchange. See Defs.’ Mem. at 10; Gov't’s Opp'n at 3.
It is true that "[t]he mere fact that the Government may have requested and received documents from [another agency] in the course of its investigation does not convert the investigation into a joint one[.]" Finnerty , 411 F. Supp. 2d at 433. In Finnerty , the court rejected the argument that the New York Stock Exchange ("NYSE") had engaged in a joint investigation with the DOJ where the NYSE had provided the DOJ access to some documents but had denied access to others. Id. By contrast, here, there is nothing in the record to suggest that the CFTC had denied any of the DOJ's requests for information.
What is more, there are other indications in the record that the DOJ and the CFTC had coordinated their efforts while investigating the activities at issue in this case. For example, both agencies sought the production of documents from Morgan Stanley relating to Pacilio within days of each other. See Defs.’ Ex. D, Letter from Morgan Stanley to CFTC Responding to 3/6/18 Requests for Production, ECF No. 384-4; Defs.’ Ex. E, 3/8/18 Grand Jury Subpoena, ECF No. 384-5. In addition, in responding to the DOJ's information requests for dates on which Morgan Stanley precious metals trades were flagged, Morgan Stanley made sure to include dates provided by the CFTC. See Ex. G, 8/9/18 Email from C. Slavik to A. Khardori, ECF No. 384-7. The DOJ also reviewed the use of the CFTC's search parameters for Morgan Stanley's communications and trading episodes. Id. ; Defs.’ Ex. H, Morgan Stanley–Precious Metals Investigation Summary of Proposed CFTC Data Screening Parameters ("Screening Parameters"), ECF No. 384-8. All of these facts tend to show a substantial degree of coordination between the DOJ and the CFTC regarding information they sought from Morgan Stanley.
Additionally, Jeffrey Le Riche, a Chief Trial Attorney for the CFTC, states that he temporarily worked on "detail" for the DOJ from August 2017 to November 2018, to develop his attorney skills as he served on the prosecution team in this case. Id. ¶¶ 2–3; Defs.’ Ex. A, Le Riche Resume, ECF No. 384-1. And although Le Riche asserts that the DOJ and the CFTC had separate investigations and that he was assigned to work on the DOJ's investigation, not the CFTC's, he admits (without further elaboration) that he had multiple contacts and calls with the CFTC as part of the DOJ's prosecution team. CFTC's Reply Supp. Mot. Quash Ex. A, Le Riche Decl. ("Le Riche Decl.") ¶¶ 4–5, 7–8, ECF No. 327-1.
In the end, the CFTC's and the DOJ's efforts culminated in a joint announcement by CFTC and DOJ officials of criminal charges against eight individuals, including the Defendants, on January 29, 2018. Defs.’ Mem. at 4 (citing Press Release, U.S. Dep't of Justice, Eight Individuals Charged with Deceptive Trading Practices Executed on U.S. Commodities Markets (Jan. 29, 2018), https://www.justice.gov/opa/pr/eight-individuals-charged-deceptive-trading-practices-executed-us-commodities-markets). The DOJ's press release emphasized that the CFTC "is committed to identifying individuals responsible for unlawful activity and holding them accountable" and that the DOJ received "invaluable assistance from" the CFTC. Id.
When considered in totality, the above-described facts illustrate extensive cooperation, joint participation, and sharing of resources between the CFTC and DOJ related to the investigation of this case. And given that Defendants are the only two of the eight individuals investigated, who were charged by the DOJ and not by the CFTC, see Gov't’s Opp'n at 13, it is not unreasonable to believe that the CFTC might hold some exculpatory information as to them.
For its part, the DOJ argues that, at most, the CFTC's involvement was limited to participating in some witness interviews with the DOJ and providing the DOJ with trading data pursuant to an access request. See Gov't’s Opp'n at 4. But the extensive record of cooperation and coordination between the two agencies belies this assertion.
The DOJ also contends that it conducted an independent investigation by virtue of the facts that it interviewed and re-interviewed witnesses outside of the presence of the CFTC, secured its own cooperating witness, and hired its own data analysis expert. But simply because the DOJ conducted some parts of the investigation on its own does not erase its joint and coordinated activities with the CFTC in others. See Gupta , 848 F. Supp. 2d at 494 (noting that, even there, the USAO "conducted much of its investigation without the SEC's involvement").
In much the same way, the CFTC maintains that it and the DOJ conducted separate, parallel investigations. See CFTC's Opp'n Defs.’ Mot. Compel at 3, ECF No. 388-1. But as Defendants correctly point out, whether the agencies engaged in joint fact-gathering and whether they conducted separate, parallel investigations are not mutually exclusive. See Martoma , 990 F. Supp. 2d at 461–62.
Both the DOJ and the CFTC rely on two cases, Blaszczak , 308 F. Supp. 3d 736, and Middendorf , 2018 WL 3956494. In Blaszczak , the SEC initiated an inquiry into the trading activities of the defendants and later referred the matter to the USAO for criminal investigation. 308 F. Supp. 3d at 738. During the criminal investigation, the USAO and SEC conducted a number of witness interviews together, and the SEC provided some documents to the USAO. Id. At the conclusion of the investigation, the USAO and the SEC did not coordinate its prosecution strategies, and the SEC decided to bring a civil enforcement action against everyone other than the defendant. Id. at 742. Based upon these facts, the court declined to find a joint investigation. Id. at 742–43. Middendorf piggybacked on Blaszczak , finding that jointly attending witness interviews was insufficient to create a joint investigation, where coordinated prosecutorial strategy was lacking. 2018 WL 3956494, at *5. But the Court believes that the Blaszczak and Middendorf courts placed too much focus on whether the two agencies correlated their prosecutorial strategies as compared to the agencies’ extensive cooperation in investigating the facts that led to their respective charging decisions. In this way, this Court agrees with the court in Gupta that joint fact-finding is sufficient to trigger the government's obligations under Brady "because the purpose of Brady is to apprise the defendant of exculpatory evidence obtained during the fact-gathering that might not otherwise be available to the defendant." Gupta , 848 F. Supp. 2d at 494
Lastly, the DOJ and the CFTC posit that, even if the Court were to find that a joint investigation occurred, it is unlikely that any new Brady material exists. But, in carrying out its Brady obligations, the government must do more than assume; it must use reasonable diligence to ensure that this is the case. Gupta , 848 F. Supp. 2d at 495 (" Brady , however, requires more than assuming that no new exculpatory information will be found").
For these reasons, the Court finds that the DOJ and the CFTC did carry out a joint investigation into Defendants’ trading activities. As such, the DOJ has an affirmative obligation to review materials in the CFTC's possession, custody, or control that were part of the agencies’ joint fact-gathering activities and to produce any Brady and Rule 16 material not protected by the attorney-client, work-product, or deliberative process privilege. The DOJ's review shall be limited to:
(1) The CFTC's notes, memoranda, or other documentation from joint interviews conducted with the DOJ;
(2) Presentations, memoranda, communications, and notes relating to joint calls or meetings between Defendants’ former employers, on the one hand, and the CFTC and DOJ, on the other, regarding the subject matter of this case;
(3) Documents or memoranda reflecting statements from any jointly interviewed individual concerning Defendants; and
(4) Any exculpatory analyses of trading activity by Defendants or the DOJ's cooperating witness to the extent that such analyses and related data were shared or discussed with the DOJ.
CONCLUSION
For the above reasons, the Court grants the Defendants’ motion to compel the government to produce Brady and Rule 16 material in the CFTC's possession, custody, or control as specified herein.