New York Federal Criminal Practice Blog

Recently in the Evidence category:


The NYSACDL has published its latest edition of Atticus, focusing on the organization’s often unsung and unknown efforts to influence the legislative process.  It includes my article addressing three recent Second Circuit decisions, including Capers (setting up some serious hurdles to the admission of statements obtained through a “two-step”– question first, Mirandize later – interrogation procedure), Cossey (“a sentencing decision that relies on factual findings that were unsupported in the record . . . seriously affects the fairness, integrity, and public reputation of judicial proceedings”), and Brown (“when a claim of ineffective assistance of counsel is first raised in the district court prior to the judgment of conviction, the district court may, and at times should, consider the claim at that point in the proceeding.”) 
Guest blogger Valerie A. Gotlib of Sher LLP writes:

Buried in the impressive reversal of the fraud conviction of Mark Kaiser, an executive at U.S. Food Services (“USF”) in United States v. Kaiser, 609 F.3d 556 (2d. Cir. 2010), issued last summer, is a quotable acknowledgement that insider trading is a very different and unique kind of securities fraud, deserving of a heightened level of scienter.  As the Court notes, “[u]nlike securities fraud, insider trading does not necessarily involve deception, and it is easy to imagine an insider trader who receives a tip and is unaware that his conduct was illegal and therefore wrongful.  The same cannot be said of one who deliberately misleads investors about a security.”  

In addition to that notable dictum, the court held that the district court committed two independent errors.  First, the district court instructed the jury with respect to conscious avoidance without informing the jury that it could find that Kaiser had knowledge of the fraud if he was aware of a “high probability” of its existence unless he “actually believed” that it did not exist.  Second, the district court admitted double hearsay when it allowed a USF employee, Tim Lee, to testify that USF’s CEO had told Lee that USF’s general counsel wanted to go to the SEC to expose Kaiser’s improper accounting entries.  The Second Circuit found that both errors were grounds for reversal.


As one of the largest food distributors in the United States, USF was in the business of purchasing food products from manufacturers and selling them to restaurants.  Between 1994 and 2001, Kaiser managed the company’s dealings with its food vendors.  An important source of revenue for USF was derived from “promotional allowances,” or “PAs,” a type of rebate paid to USF by vendors upon satisfaction of certain purchasing targets.  Part of Mr. Kaiser’s job included negotiating PAs with vendors.  Early in 2001, Mr. Kaiser was named Chief Marketing Officer of USF, but he continued to be involved in negotiating PAs.

The indictment alleged that Mr. Kaiser fraudulently inflated USF’s PA income for the years 2001 and 2002, hid the inflated numbers from outside auditors, and made various misrepresentations to the auditors concerning the PA agreements with vendors.  The scheme included recording prepayments from vendors as income and, thereby, artificially inflating the amount of revenue earned from PA payments to ensure that USF met its earnings and other budgetary targets.  USF’s executives, including Mr. Kaiser, received bonuses only if USF met these targets.  

At trial, the government presented a case based primarily on the testimony of three alleged coconspirators, including Tim Lee, who cooperated with the government and testified pursuant to plea agreements.  Kaiser argued in his defense that he had been setup by the three USF employees and had been unaware of the fraud.  Kaiser was convicted of securities fraud, making false filings with the SEC, conspiracy to commit those crimes, and conspiracy to falsify books and records.  Kaiser appealed.

Conscious Avoidance Jury Instruction

On appeal, Kaiser argued that the district court’s jury instructions with respect to conscious avoidance omitted two necessary elements: “that knowledge of the existence of a particular fact is established 1) if a person is aware of a high probability of its existence, 2) unless he actually believes that it does not exist.” United States v. Schultz, 333 F.3d 393, 413 (2d Cir. 2003) (internal quotations marks omitted) (emphasis added). The court reviewed Kaiser’s conscious avoidance argument for plain error because he had failed to raise an objection to the instruction at trial.

The court held (and the government conceded) that the district court erred in instructing the jury on conscious avoidance because it “did not contain either the ‘high probability’ or the ‘actual belief’ language,” which the court had “long held is essential for an accurate conscious avoidance instruction.”  609 F.3d at 566.  The government argued nonetheless that there was no prejudice from the instruction in light of the overwhelming evidence that Kaiser had actual knowledge of the fraudulent scheme.  The court disagreed and found that there was a risk that the jury convicted Kaiser based on its conclusion that he was merely negligent and could have convicted him even if it found that Kaiser actually believed the PA numbers were correct.  Because there was ample evidence for the jury to question the credibility of the government’s witnesses, the court concluded that there was a reasonable probability that the jury convicted Kaiser based on a conscious avoidance theory and would not have done so but for the instructional error. The court further held that the error seriously affected the fairness, integrity or public reputation of judicial proceedings and thus met all of the requisite elements for a finding of plain error.
Admission of Hearsay Statement of USF’s General Counsel

Kaiser also argued on appeal that the district court erred in admitting certain testimony.  Lee testified that the CEO of USF told him that USF’s general counsel had discovered that Kaiser improperly had booked $18.5 million in prepayments as income and that the general counsel wanted to report this to the SEC.  Kaiser objected at trial on the ground that it was double hearsay.  The government countered that the testimony was admissible as a statement of an unindicted coconspirator under FRE 801(d)(2)(E) and that the statement was in furtherance of the conspiracy.  The district court held that the statement was admissible for the limited purpose of explaining why Lee and the CEO engaged in certain subsequent acts. 

On appeal, the Court held that the statement constituted hearsay and did not fall into any of the hearsay exceptions.  The court observed that even if the government could have overcome the hearsay objection, the statement would have been inadmissible under FRE 403 because its prejudicial effect outweighed its probative value.  Indeed, because of the highly prejudicial nature of the testimony and the risk that the jury could have given it more credence since it came from USF’s general counsel, who was not a co-conspirator, the court concluded that the error was not harmless.

Willfulness Instruction

The Court, however, rejected the defense challenge to the district court’s instruction on willfulness.  Acknowledging that insider trading is different (as noted earlier), the Court concluded that securities fraud charges like those at issue in Kaiser required merely that the defendant “had an awareness of the general wrongfulness of his conduct” and “do not require a showing that a defendant had awareness of the general unlawfulness of his conduct.”  Here, the jury was charged that they had to find that Kaiser knew the statements were “false and fraudulent” and that he made those statements “with intent to create a deception,” and the government had to prove “the contrary of the idea of mistake or good faith.”  If the jury found that Kaiser possessed such an intent, as it did, “it follows necessarily that it also concluded that there was “a realization on the defendant’s part that he was doing a wrongful act.”

Alexandra Shapiro (Macht, Shapiro, Arato & Isseries, LLP) and Richard Morvillo, Andrew Frey, Peter White, Charles Rothfeld, Daniel Brown and Michael Passaportis (Mayer Brown LLP) for defendant; AUSAs Daniel Chung, Daniel Braun. 
The NYSACDL has published its fall issue of Atticus.  Judge Bellacosa has contributed an eloquent piece in support of open-file discovery, relevant both to state and federal prosecutorial practices, highlighting the success of a project in the Brooklyn DA's office, and advocating a state-wide statutory authorization, with uniform standards of application and accountability.  Mark Hosken of the WDNY Federal Defender has contributed a notable piece on the Ex Post Facto Clause in a post-Booker world, and I have contributed a piece on some recent decisions from the Second Circuit, including the Rajaratnam and Amanuel cases on wiretaps, the Martinez case on Batson, and Ortiz on sentencing. 
The NYSACDL has published the second edition of its excellent revitalized Atticus.  It's well worth checking out - Donna Newman gives a fascinating fly-on-the-wall account of the Russian spy case, and Donald Thompson has a moving essay on a wrongful conviction.  I have also contributed a piece highlighting some recent Second Circuit cases, including three cases not previously mentioned in this blog:  United States v. Julius (suppression); United States v. Sabhnani (liability for omissions, and also interesting on the issue of venue transfer and psychological evaluations of government witnesses); and United States v. Oluwanisola (proffer statements). 
As Judge Gleeson pointed out recently in United States v. Mahaffy, 2010 WL 2925952 (E.D.N.Y. July 21, 2010), if a defendant’s interest in a fair trial is not reason enough, “one would think that the government’s selfish interest in the integrity and durability of the convictions it obtains would induce it to . . . err on the side of over-disclosure.”  But when it comes to pretrial disclosure, prosecutors often act less like advocates for justice and more like adversaries in a chess game.  It is an approach that is oddly counterproductive – leading to delayed dispositions and even appellate reversal.  

In Mahaffy, the six defendants who went to trial in the case and were found guilty by the jury moved for a dismissal of the indictment, or, in the alternative, for a new trial, on the ground that the government failed to disclose the transcripts of 12 depositions taken by the Securities and Exchange Commission (“SEC”), which the defendants claim violated the government's disclosure obligations.  Judge Gleeson denied the motion, finding that the depositions themselves did not contain sufficient favorable or exculpatory information as to have had a material effect on the verdict.  He ends his decision, however, with this admonition to the government:

Notwithstanding the foregoing, I remain mystified by the government's failure to disclose the testimony of these various witnesses. I see no legitimate interest served by an approach that has the parties and the Court sifting through the transcripts of testimony taken by the SEC after the trial has already occurred-especially when the testimony was taken as part of the investigation that resulted in this very case. Nor do I see a justification for the decision by the government's trial team (which did not include any members of the team that handled the original trial) not to reconsider the disclosure decisions made by their predecessors. The disclosure obligations imposed by the federal rules, federal statutes and the Constitution are too important, and too easily complied with, to justify such an approach. Even if the prosecutors are not sufficiently motivated, as they should be, by the defendants' interest in a fair trial, one would think the government's selfish interest in the integrity and durability of the convictions it obtains would induce it to consider its disclosure obligations on an ongoing basis, and to err on the side of over-disclosure unless well-grounded concerns about particular witnesses or other investigations counsel otherwise. My only concern in denying the pending motion is that it might have the effect of diminishing that selfish incentive. The government has assured me otherwise, and that changes have been made in the United States Attorney's office to ensure that similar failures do not occur in the future. Time will tell in that regard, but I note here that those procedures ought to include a requirement that the prosecutors in the case make contemporaneous records of their actions and decisions regarding disclosure in a manner that makes them accessible later on.  . . .Whatever else the United States Attorney does in response to the disclosure guidance recently provided by then-Deputy Attorney General David W. Ogden, it should make sure that it can provide a complete accounting of its actions in future cases.
(emphasis added).

Of course, leaving this issue to the prosecutor’s sound judgment and good faith is like leaving the fox in charge of the henhouse, as the Second Circuit observed in Rodriguez.  That’s why, to the extent possible, defense lawyers should try to identify and request specific Brady material in pretrial motion practice and request in camera review by the court if the government concedes the existence of the material but refuses to turn it over (as happened in Nogbou).

Prejudicial hearsay is hardly ever introduced simply for its mere “context,” and the Second Circuit called out the government on a particularly egregious example of that in United States v. Gomez, No. 08-3829-cr (2d Cir., August 4, 2010).  

The defendant was charged with ecstasy distribution.  At his trial, the government elicited key testimony from a Detective Ryan, who had arrested Gomez’ co-conspirator Rivas, that Rivas had identified Gomez as his supplier.  The communication was by inference:  Ryan testified that he directed Rivas to call his supplier and Rivas called Gomez.  Rivas did not testify.  The government had argued that “the evidence was admissible for the proper, non-hearsay purpose of showing context, in that it explained how Ryan came to place a call to Gomez.”  Gomez countered that the government had elicited from Detective Ryan inadmissible prejudicial hearsay testimony, which communicated to the jury that Rivas identified Gomez as his supplier.

The Circuit agreed, and did not find the error harmless, in part because the error also implicated the Confrontation Clause “the very concerns [of which] … are part and parcel of our harmless error analysis.”

The government continued insistence at the appellate level that the evidence was elicited for a contextual rather than prejudicial purpose so “puzzled and dismayed” the Court, that it added in a footnote:

[It bears repeating that:] The United States Attorney is the representative not of an ordinary party to a controversy, but of a sovereignty whose obligation to govern impartially is as compelling as its obligation to govern at all; and whose interest, therefore, in a criminal prosecution is not that it shall win a case, but that justice shall be done.  As such, he is in a peculiar and very definite sense the servant of the law, the twofold aim of which is that guilt shall not escape or innocence suffer. He may prosecute with earnestness and vigor—indeed, he should do so. But, while he
may strike hard blows, he is not at liberty to strike foul ones. It is as much his duty to refrain from improper methods calculated to produce a wrongful conviction as it is to use every legitimate means to bring about a just one.

(quoting Berger v. United States, 295 U.S. 78, 88 (1935)).
United States v. Torres, 2010 WL 1790220 (2d Cir .May 5, 2010), is one of those rare cases in which the Court has reversed the defendant’s drug conspiracy conviction on the grounds of insufficient evidence.  While there was evidence that Torres knew or should have suspected that he was participating in something illicit – “especially the facts that Torres undertook to receive heavy and bulky packages on the street, which were addressed to him at a building with which he had no apparent connection” – the record was lacking “any evidence that Torres knew the Packages contained narcotics.”

There was, for example, no cooperating witness testifying at trial. There was no evidence of any drug records implicating him. The cocaine was well concealed and not visible. There was no proof of any narcotics-related conversation to which Torres was a party . . . [T]he government presented no evidence as to the nature of Torres's associations with the persons who shipped the cocaine or with the persons who expected to distribute it. There was no evidence of a sizeable payment to Torres that might reflect an expectation related to the million-dollar street value of the cocaine . . . Nor was there evidence that Torres was placed in a position of trust . . . Torres was never in a position to be alone with the Packages until the driver of the minivan fled the mall upon spotting the police surveillance. This record does not lend itself to an inference that Torres was so trusted that he must have known that he was dealing with narcotics.

Lawyers:  Edward Zas (Federal Defenders, Inc.); AUSAs Nicholas L. McQuaid, Michael D. Maimin

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