New York Federal Criminal Practice Blog
April 27, 2008

Second Circuit Affirms Securities Fraud Conviction, Though Criticizing Government for its Joinder Decision and Late Disclosure of Brady Material

Limiting instructions are the opium of judges, but of little solace to a defendant, like Douglas Brandon, charged with securities fraud in an indictment that also charged an entirely separate securities fraud scheme against some of his co-defendants.  A substantial portion of the trial, therefore, involved evidence of wrongdoing that had nothing to do with him, leading to the possibility of substantial spillover prejudice and dilution of an important exculpatory statement from a cooperating witness that Brandon was not a knowing participant in the fraud scheme charged against him.

At issue in his appeal and that of one of his co-defendants was the district court’s denial of their misjoinder/severance motions under Rules 8(b) and 14.  Affirming in United States v. Rittweger, 05-3600-cr, 2008 WL 1808260 (2d Cir. April 23, 2008), the Court found that the indictment satisfied Rule 8(b)’s joinder requirements – either a “common plan or scheme” or a “substantial identity of facts and participants” – where it charged that both fraud schemes involved efforts to induce customers of a certain investment entity to invest in a particular investment program, and involved an overlap of two other defendants.

Significantly, the Court rejected the defendants’ argument that they should only have been joined in the same trial where their separate and distinct conspiracies could have been charged as a single conspiracy.  “Provided that the defendants are ‘alleged to have participated in the same act or transaction, or in the same series of acts or transactions, constituting an offense or offenses,’ Fed.R.Crim.P. 8(b), members of two or more conspiracies may be joined as defendants even where the members have not been charged as participating in one overarching conspiracy.” 

In addition, the Court rejected the defendants’ efforts to broaden appellate review of the Rule 8 joinder question to encompass an analysis of the evidence adduced at trial.  “Under the plain language of Rule 8(b), the decision to join parties turns on what is ‘alleged’ in the ‘indictment.’ Fed.R.Crim.P. 8(b).  Events that transpire at trial are thus not relevant to the Rule 8(b) inquiry.” And in a footnote, the Court observes, without deciding, that “the plain language of Rule 8(b) does not appear to allow for consideration of pre-trial representations not contained in the indictment, just as the language of the Rule does not allow for the consideration of evidence at trial.” 

The defendants were then left with arguing the uphill battle that the court should have exercised its discretion to sever under Rule 14, a burden that requires a showing of “prejudice so severe that [their] conviction[s] constituted a miscarriage of justice.”  The Court dispatched this claim quickly, finding that the evidence was “straightforward” as to each defendant, and – you guessed it – the Court gave limiting instructions throughout the trial.

This is a very unfortunate ruling, since it effectively insulates the government’s joinder decision from appellate review – and indeed, in light of the Court’s footnote, greatly stymies the district court’s analysis of the issue – as long as the government manages to make sufficient, however tenuous, allegations in the indictment to satisfy Rule 8(b).  At  least, the court recognized itself the carte blanche it is granting prosecutors with this decision, since it “question[s] the government’s decision to try the two conspiracies together,” given the lack of connection between the two conspiracies and the two defendant-appellants, the improbability that evidence of one conspiracy would have been admissible as background in the trial of the other had the defendants been tried separately, and the dangers of “lumping together” minor participants with discrete roles with the more prominent members of overlapping conspiracies.  The Court goes on, in language worth quoting in all severance motions: “Rule 8(b) does not provide the government with limitless discretion to join defendants and does not absolve the government from an independent obligation to consider the unfairness that may result from joinder.”

The Court’s Brady analysis in this decision – although of little consolation to Brandon – is also worth quoting in future Brady motions.  A cooperating witness had corroborated Brandon’s defense – that he had been kept in the dark as to the fraudulent nature of the investment scheme.  The government waited until a week before trial to turn over the grand jury testimony of this cooperating witness, and moments before an agent testified before turning over the witness’s proffer notes – notes which included the witness’s statement that she had been instructed: “Don’t tell Brandon anything” because he was “there for marketing purposes.”  (Imagine what fabulous fodder for an opening statement that would have been . . .)  The court quite rightly rejected the government’s justification for the late disclosure, that it had concluded from other circumstantial evidence that Brandon had gleaned knowledge of the fraudulent nature of the scheme from other sources.  The Court pointed out: “[f]requently, the government comes into possession of evidence by witnesses who identify another perpetrator or who attempt to exculpate another defendant. The fact that the government may have some evidence that a particular defendant is guilty does not negate the exculpatory nature of the testimony of a witness with knowledge that a defendant did not commit the crime as charged.”

A trial is primarily a theatrical event, and theatre depends on drama, narrative, development of expectation, choreography and timing.   As psychological research of juries has established, jurors seek narratives about guilt and innocence as the trial unfolds.  Mid-trial, if they have already constructed that narrative, they may not be as motivated to deconstruct the pieces and put them back together again.  When key exculpatory evidence is withheld until mid-trial, the defendant’s theatrical capabilities – and thus, ability to influence the jurors’ conception of the narrative – are severely handicapped.  But an appellate court does not address ephemeral and intangible matters like theatricality and story-construction.  In this case, not surprisingly given the scope of its review, the Court found that there was no “reasonable probability” that the late disclosure resulted in a different outcome.  The Court notes dryly, “[f]irst and foremost, the district court admitted into evidence Allen’s grand jury testimony and Agent Lubman’s debriefing notes.”  Yes, eventually.  But trial lawyers know better.  Mid-trial disclosure is no-where near as useful to the defendant, since it denies effective use of the information throughout the trial, and in particular, in opening statements, when jurors have not yet constructed any particular narrative.
At least, in demands for cooperating witness’s grand jury testimony and proffer notes, defense practitioners should make sure to quote the Court’s conclusion that “the government should have acted in favor of disclosing the Brady material earlier, particularly when earlier discovery would not have had the potential to harm the witness. . . . After all, the government produced 200 boxes of materials in the fall of 2002 to defense counsel, but withheld until May 1, 2003 (the eve of trial) the evidence that the government counsel surely should have known defense counsel was most interested in.”

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