The Second Circuit on "willfulness."

Mark P. Kaiser, once the marketing chief for U.S. Foodservice, received a seven year sentence in 2007 for his role in a securities fraud that, according to the prosecution, overstated earnings by $800 million between 2000 and 2003.

Here's an AP report on the sentence at the time.

Kaiser appealed his conviction on several grounds, one of which was that under 32(a) of the 1934 Exchange Act, contrary to the usual bromide, ignorance of the law is an excuse. Section 32(a) of the Act criminalizes only "willful" violations of most of that Act's provisions. See p. 264 of that PDF.

The good news for Kaiser is that he won his appeal and his conviction has been vacated.

But he did not win on the willfulness theory. He won because the trial judge failed to give a crucial instruction on another issue.

The court -- a panel of the 2d circuit Court of Appeals -- was unimpressed with the defendant's contentions on the statutory meaning of willfulness -- and indeed apparently unimpressed with its own precedents on this point. Solomon Wisenberg at the White Collar Crime blog explains it well, here.

Something that must worry a few lawyers

After a lengthy sentencing hearing on Thursday, January 14, Joseph Collins was consigned to seven years in prison in a connection with a scheme to help executives at the defunct commodities broker Refco conceal its financial troubles. He had been convicted of his part in that scheme in July.

After the eight week trial, a mistrial was declared on some of the counts, but the jury did convict on conspiracy, two counts of securities fraud, and two counts of wire fraud.

The federal district court judge involved, Robert P. Paterson, sentenced Collins, formerly of Mayer Brown LLP partner, to the seven-year term to be followed by three years of supervised release, saying, "I think this is a case of excessive loyalty to his client," the judge said. Collins' lawyer, William J. Schwartz, vowed an appeal.

The jury deliberations appear to have been quite contentious (hence the partial mistrial). In particular, a male juror identified as "Kevin" told that court that a female juror "Abigail," had threatened to cut off his finger and to have her husband come after him (to cut off other bits?). Separately, security personnel reported having heard jurors screaming at each other.

All this passion, even to the point of threats, may have somethig to do with the idea and idealof a lawyer as a zealous advocate -- a notion deeply engrained in the culture in the U.S. Perhaps so deeply engrained that the idea that a lawyer could be too zealous in Collins' situation itself offended either Kevin or Abigail -- I don't know which.

Cioffi and Tannin on trial

The trial of Cioffi and Tannin on charges of securities fraud, while managing hedge funds operated under the brand of the late Bear Stearns broker-dealer, has begun.

As I have indicated before in this blog, I believe that this prosecution is misguided and hope for a defense victory. But the usual conflict is playing itself out here. I believe I owe this considerable attention, but I just do not have the time to pay it that attention right now. What to do? When all else fails ... link farm.

Here's an account that appeared in the New York Times more than a year ago, of the prominent role e-mails play in the prosecution's case.

The wonderful blog "Houston's Clear Thinkers" was on the case in those days (though its presiding genius, Tom Kirkendall, seems to have been distracted since): here's what you can find there.

For more recent news, here is a discussion of a crucial evidentiary hearing.

Bess Levin has used the case as a vehicle for some humor at the expense of the defendants' former bosses, Cayne and Schwartz at Dealbreaker.

And then there is jury selection, which hasn't gone all that smoothly.

And let us not forget the Wall Street Law Blog.

Gee, I hope some of these guys link to this blog some day. Is that so much to ask?

The Bear Stearns Securities Fraud Case Revisited

Let us revisit the Cioffi and Tannin matter. These two men, former Bear Stearns executives, were arrested June 2008 in connection with the collapse of two hedge funds under Bear sponsorship the preceding summer.

Both defendants are charged with securities fraud in that they made false and misleading statements to the investors about the health of these funds beginning in March. On the prosecution theory, they both understood by March that the funds were "toast" but continued to put on a happy face to the outside world.

The trial date is September 28 of this year.

I bring it up because there has been some motion practice in recent days. For example, Matthew Tannin's attorneys at Brune & Richards have filed a motion for a bill of particulars.

The indictment, as they paraphrase it in the memorandum supporting this motion, quotes selectively from certain e-mails, "apparently in an attempt to give an example of the alleged misstatements and ommissions falling into the categories it identifies."

But the indictment doesn't contain the phrase "to wit". When a bill of indictment says, "John Smith committed offense X, to wit he met in a room on March 10th with five accomplices and...." the phrase "to wit" means that the meeting in that room and what transpired there constitutes the offense X.

The indictment doesn't contain that phrase. The specifics offered are only meant, it appears, as examples of the misstatements, not as a complete account.

Tannin's lawyers understandably don't want to go into trial against an open-ended indictment. They want the government to be specific about each and every act that on its theory constitutes part of the offense. It has been a long long time since I took a Crim Pro course, and I'll be curious to see how this pans out.

There's also the question of Brady material. This relates to a rule announced by SCOTUS in 1963, that the government must disclose all exculpatory material in its possession, including such material as may assist defense counsel in impeaching prosecution witnesses. Apparently as part of the discovery process thus far the government has produced notes of its interviews with Raymond McGarrigal, one of the portfolio managers of the funds, a man who worked side by side with the two defendants during the crucial period and thus at least potentially a crucial witness.

Most of the McGarrigal material provided to the defendats, though, is blacked out. "Redacted," in the fancier term. Defense counsel says there is enough there to indicate McGarrigal made a series of highly exculpatory statements, and it wants to know what they were.

I'm sure the government has offered some justification for the redacting. I haven't done enough searchuing through the PACER materials yet to discover what it is, though.

It sounds as if the judge is going to have to navigate a minefield even to get this case to trial.

Cioffi and Tannin trial date

I see from the wire services that the US district court, eastern district of New York, has set a trial date for two securities-fraud defendants who once worked for Bear Stearns: Ralph Cioffi and Matthew Tannin.

Jury selection begins September 28, 2009.

Cioffi and Tannin ran two hedge funds within Bear Stearns that made big bets on subprime mortgages. The quick collapse of these funds in the summer of 2007 was one of the first claps of thunder in the storm that continues to this day.

So are Cioffi and Tannin mere scapegoats? They were wrong about the subprime market and those who invested in their ability to be right consequently lost a lot of money. But their investors were grownups (and well heeled grown-ups too -- nobody got evicted from his/her garrett because Tannin and Cioffi lost the rent money).

Both men have pleaded not guilty.

One question you might ask yourself: why is this case going to trial in the eastern district of New York? That district consists of Long Island, Staten Island, the Queens, and Brooklyn. Didn't Tannin and Cioffi work in Manhattan? Manhattan, along ith the Bronx, constitutes the SOUTHERN DISTRICT of New York. Yes, they did.

And there have been times when the US Attorney for the southern district was the big cheese in such matters, the sheriff of Wall Street (that's how Rudi Giuliani first became a national figure after all, back in the 1980s).

Some commentators, like Peter Lattman have read the ED attorney's involvement as an incident in an ongoing rivalry between SDNY and EDNY.

Furthermore, the bill of indictment says little more about the reason for the involvement of the U.S. Attorney for the eastern district than this, beyond, "Some of the fund's investors resided within the eastern district of New York." There's surely more to it than that.

I'm hoping for an embarrassment for the prosecution. I hope Cioffi and Tannn's attorneys can make the ED guys wish they had left Wall Street alone. Leave it to the SD forever after, I imagine them telling one another when this is all done.

I'm sure I'll have more to say about this at some point in the nine months between now and trial.