Originally published in Westlaw Journal Volume 26, Issue 8 / May 2012
Federal prosecutors have learned to live with the fact that they will have to produce notes of witness interviews as a consequence of their obligation to disclose exculpatory witness statements. But what about civil lawyers and regulators working alongside the prosecutors? A central organizing principle of parallel investigations has required that civil lawyers and regulators delicately observe certain limits on their interactions with prosecutors. As a result, they have mostly succeeded in walling themselves off from the broader reach of criminal disclosure rules.
However, there is now an important chink in the wall. In a March 26 decision, U.S. District Judge Jed Rakoff granted a discovery motion filed by former Goldman Sachs director Rajat K. Gupta mandating that criminal prosecutors review memoranda written by lawyers for the U.S. Securities and Exchange Commission in order to discharge their dis-closure obligations under Brady v. Maryland, 373 U.S. 83 (1963), and its progeny. See United States v. Gupta, No. 11 Civ. 7566 (JSR), 2012 WL 990830 (S.D.N.Y.). Judge Rakoff's decision is likely to shake up the usual relationship between the Securities and Exchange Commission and the Department of Justice, and it raises tantalizing possibilities for broader discovery in a range of parallel proceedings.
In October 2011 both the U.S. attorney's office for the Southern District of New York and the SEC brought parallel charges against Gupta stemming from a broad insider-trading investigation. In the criminal case, Gupta moved for an order requiring the government to disclose exculpatory material contained in SEC files, effectively extending the federal prosecutor's obligation to disclose exculpatory information to include a review of materials maintained by the SEC.
Federal prosecutors argued that the SEC is not part of the group of lawyers and investigators charged with the criminal prosecution — that is, the Justice Department investigative team — and therefore, the U.S. attorney's office has no obligation to discover SEC-held exculpatory materials. This argument has usually been met with success.
Judge Rakoff rejected the government's position, at least as to notes from joint witness interviews, and ordered the U.S. attorney's office to review SEC attorney memoranda of these interviews for the purpose of disclosing any exculpatory witness statements. Ruling on a similar motion that Gupta filed in the civil case, Judge Rakoff held that Brady material contained in the SEC attorney memoranda must be disclosed, although the work-product doctrine protected the memoranda from any broader disclosure sought by Gupta.
Judge Rakoff upset the traditional refusal by federal prosecutors to obtain and produce SEC attorney work product containing exculpatory witness statements. The persuasive analysis supporting his conclusion also opens up important opportunities for defendants who are caught in the vice grip of parallel civil and criminal cases.
The FBI arrested Gupta Oct. 26, 2011, for feeding inside information about Goldman Sachs and Procter & Gamble transactions to Raj Rajaratnam, founder and former head of Galleon Group. A jury sitting in the Southern District of New York had already convicted Rajaratnam of substantially similar criminal charges in May 2011, and Rajaratnam is now serving an 11-year sentence at a federal facility. See United States v. Rajaratnam, No. 09 Cr. 1184 (RJH), 2011 WL 1796430, verdict form filed (S.D.N.Y. May 11, 2012).
In connection with Gupta's arrest, the U.S. attorney's office unsealed a six-count indictment, charging him with conspiring to commit securities fraud and multiple counts of securities fraud. That day, in a federal complaint filed in the Southern District of New York, the SEC charged Gupta with insider trading. Not surprisingly, the SEC and the U.S. attorney's office charges tracked one another in important aspects, including the nature of the illegal conduct, the time frame of the illegal activity and even some particulars of the charged transactions.
The dispute over the disclosure of SEC notes erupted into full view in a series of letters to the district court Feb. 1. Gupta argued that the U.S. attorney's office should be compelled to acquire Brady material from the SEC and disclose it to the defense because "the degree of interaction and cooperation between agencies, fairly viewed, amounted to a 'joint investigation.'"
The U.S. attorney's office responded that it only has the obligation to review and produce materials that are "in its possession," that it never possessed or reviewed the SEC memoranda, and that the U.S. attorney's office could independently fulfill its Brady obligation with respect to any jointly attended interviews based on its own firsthand knowledge of what witnesses said during those interviews. The U.S. attorney's office's argument resonates in a context in which courts have typically confined the Justice Department investigative team to a specific prosecutor's office and the investigative agencies, such as the FBI, that worked on the investigation under the direction of the prosecutors.
Interestingly, no one disputed that Gupta would receive any exculpatory information contained in the SEC memoranda. The crux of the dispute involved who exactly should discharge that obligation. The U.S. attorney's office and the SEC contended that the SEC should conduct its own review. Indeed, notwithstanding the SEC's initial assertion that its memoranda were protected from disclosure as attorney work products, the U.S. attorney's office and SEC proposed that the SEC review the materials and produce any exculpatory statements.
Gupta countered that only the assistant U.S. attorneys had the nuanced understanding of the criminal charges necessary to discharge the government's Brady obligations.
Gupta added that the SEC had demonstrated its failings in this regard, and pointed out that the U.S. attorney's office has disclosed Brady witness statements from joint interviews even though the SEC had previously claimed in a prior administrative proceeding that it had no Brady materials from those same interviews. (The SEC dropped the administrative proceeding in August 2011 in favor of its subsequent filing of a federal lawsuit). In a pointed comment, the defendant noted that allowing the U.S. attorney's office to rely on the SEC to complete a review of witness statements would permit the prosecutors to escape accountability were the SEC to "overlook" any exculpatory comments.
DECISION ON THE BRADY MOTION
In explaining why he sided with the defense, Judge Rakoff began with the well-established principle that a prosecutor has an affirmative duty to learn of any exculpatory evidence known to others acting on the government's behalf. In cases in which the DOJ undertakes a joint investigation with another state or federal agency, a prosecutor's disclosure obligation cannot be set aside based on the "hypertechnical" distinction that information created or obtained as part of the joint investigation is not in the actual possession of the DOJ. The question, therefore, is whether the U.S. attorney's office investigated the Gupta matter jointly with the SEC.
In reviewing this dispute, Judge Rakoff noted that the assistant U.S. attorneys and a lawyer from the SEC had jointly interviewed 44 witnesses, whereas the SEC had conducted just two interviews on its own. During the joint interviews, only an FBI agent working with the U.S. attorney's office took contemporaneous notes. Within a day or two after the interview, however, the SEC lawyer composed interview memoranda setting forth selected portions of the interviews he deemed most relevant.
Judge Rakoff had little trouble concluding that the Gupta investigation was "joint" and not simply "parallel" as the U.S. attorney's office had argued. He primarily relied on the fact that 44 of the 46 witness interviews were performed jointly and that both the assistant U.S. attorneys and the SEC attorney questioned the witnesses at those interviews.
The judge set aside the many factors cited by the U.S. attorney's office for its argument that the SEC did not act as part of the "same prosecutorial team," such as the independence of the two agencies' charging decisions and the U.S. attorney's office's failure to share grand jury materials and wiretap evidence with the SEC. Judge Rakoff reasoned that those facts may rebut the contention that this was a "joint prosecution" but not that it was a "joint investigation."
In light of the fact that Gupta had demanded Brady materials contained in witness memoranda, Judge Rakoff concluded that the "relevant context is one of fact-gathering, not charging determinations or otherwise." For the purposes of Brady, the question of how the SEC and U.S. attorney's office used the jointly gathered facts is irrelevant. Accordingly, the U.S. attorney's office had a Brady obligation to review materials collected or obtained through its joint investigative efforts with the SEC, even if charging decisions remained totally separate.
Judge Rakoff was similarly unpersuaded by the U.S. attorney's office's remaining arguments:
- First, in response to the U.S. attorney's office's contention that the investigations were not joint because the SEC had begun its administrative investigation well before the U.S. attorney's office began its criminal probe, Judge Rakoff noted the investigations need not be coterminous because an investigation may be "joint for some purposes; it may be independent for others."
- Second, he dismissed as irrelevant the U.S. attorney's office's arguments that the SEC was "merely 'invited'" to the interview and did not control who would be invited.
- Third, he rejected the U.S. attorney's office's argument that the SEC memoranda could be ignored because the U.S. attorney's office attended the interviews and could meet its Brady obligations based on its own first-hand knowledge.
Judge Rakoff worried that the SEC attorney may have emphasized aspects of the interviews that did not make it into the FBI agents' notes, a concern he noted would exist so long as witness interviews are not fully transcribed.
The judge articulated an important limiting principle to his ruling. For the purposes of the order, he defined the joint effort narrowly to encompass the joint witness interviews, so the U.S. attorney's office did not have to review all of the materials collected by the SEC in its investigation of Gupta. Judge Rakoff concluded the court must look to what the SEC did jointly with the U.S. attorney's office rather than to whether the SEC happened to consider those joint efforts part of a larger investigation that otherwise did not involve the U.S. attorney's office.
SEC'S WORK PRODUCT CLAIM
Judge Rakoff also established an alternative basis for disclosure in resolving Gupta's motion in the civil case. Along with his request in the criminal case, Gupta made a broader motion in the civil case for the production of all SEC witness-interview notes and memoranda, at least to the extent that the notes and memoranda relate witness statements rather than attorney opinions.
The judge agreed with the SEC that these notes and memoranda qualify as "classic work products" that the SEC attorney unquestionably prepared in anticipation of litigation or for trial. Therefore, he might require the disclosure of such materials only in a case in which the defendant demonstrates a substantial need and unavailability of the information from an alternative source.
Judge Rakoff concluded that Gupta's interest in receiving Brady materials so that he might defend himself in the criminal case meets a substantial-need threshold. And because the defendant and his lawyers were not present at the witness interviews and do not even know precisely who was interviewed, it was not possible for Gupta to obtain any Brady information from the SEC through an alternative source.
The judge did not compel broader disclosure of SEC work products because he concluded Gupta could not otherwise show a substantial need to obtain the materials.
WHAT THE DECISION PORTENDS
At first glance, little seems to rest on Judge Rakoff's discovery decision. At best, one might argue, it is a small victory for the defense. All parties agreed that Gupta would receive any Brady materials from the joint U.S. attorney's office-SEC interviews. The U.S. attorney's office had already reviewed and produced excerpts of its own interview memoranda. And the SEC had represented that its own review of memoranda from those same interviews contained no additional Brady materials. The nub of the controversy centered on whether the assistant U.S. attorneys or the SEC lawyers would conduct the Brady review of the SEC materials.
The government's steadfast opposition to the motion betrays that more is at stake. First, it is a near certainty that Judge Rakoff's admittedly narrow ruling here will lead to even broader disclosures of SEC interview memoranda beyond Brady materials. As trial approaches, the assistant U.S. attorneys will be required to produce a broader category of witness statements required immediately prior to trial as pursuant to the Jencks Act, 18 U.S.C. § 3500, and Giglio v. United States, 92 S. Ct. 763 (1972).
Assistant U.S. attorneys customarily include all agent interview notes and memoranda among those materials, in part because it is hard to anticipate what a witness might say that could be construed as inconsistent with, and therefore impeachable by, a witness's prior statements. Because the assistant U.S. attorneys will be reviewing the SEC materials for Brady information in this case, and presumably at a minimum will consider doing so in future cases, SEC interview memoranda will rank among the written records that assistant U.S. attorneys maintain about witness interviews. An assistant U.S. attorney who fails to disclose the SEC memoranda in their entirety runs the risk of violating the government's pretrial disclosure obligations.
Second, government-disclosure require-ments will inevitably expand to include other categories of documents and information beyond interview memoranda. This expan-sion is a direct result of Judge Rakoff's conclusion that the U.S. attorney's office must itself review and produce a category of the SEC's own materials because they were developed as part of joint investigative activities. For example, prosecution teams now routinely search their own emails for Brady materials. Agents are trained that pretrial disclosures must include not only formal agent memoranda, but also more informal records such as emails. In fact, emails between attorneys and agents have featured prominently in recent disclosure cases, including attorney emails about witness performance in the botched prosecution of former Sen. Theodore "Ted" Stevens in the District of Columbia. See United States v. Stevens, No. 08 Cr. 231 (D.D.C.).
Similarly, the current Brady doctrine requires that prosecutors go beyond the small team that investigated the case at issue and instead regard their entire U.S. attorney's office as part of the DOJ investigative team. In order to gather disclosable impeachment information, prosecutors in the Southern District of New York must learn about other pending investigations in that district, even if they do not have to seek out information about the existence of investigations in other districts.
Given these broader legal developments regarding disclosure obligations as well as Judge Rakoff's analysis about SEC work product claims, it is difficult to see what justification an SEC attorney could offer for failing to produce emails and other documents related to his or her recollections of witness interviews. Nor is it hard to imagine that a judge might conclude that a particular SEC office should have informed the U.S. attorney's office of ongoing investigations known to that SEC office which might impeach government witnesses.
Of course, this is only one decision by one judge, and an iconoclastic judge at that. But Judge Rakoff's decision carries with it a persuasive rationale. Assuming for a moment that the SEC has Brady information from its joint activities with the DOJ, it is hard to think of a persuasive reason why another jurist would decide that it should not be produced. In such circumstances, the DOJ lawyers certainly know that the SEC might possess exculpatory materials, and they already have mechanisms to share information in the course of their investigations. Judge Rakoff's decision comports with the most basic commonsense understanding of how the SEC and DOJ work together in parallel investigations.
This decision puts assistant U.S. attorneys in a perilous position. In the future, assistant U.S. attorneys in parallel investigations will face difficult decisions about what to seek from their civil or regulatory counterparts. These cases include not only securities matters in which the SEC is involved, but also a host of other matters, such as health care fraud and financial-institution fraud, which have attracted the interest of prosecutors and civil-government lawyers.
In the Gupta matter, the government is fortunate, in a way, that Judge Rakoff has ordered the assistant U.S. attorneys to undertake the review of SEC memoranda before the trial, when there is still time to produce any improperly excluded Brady material. Disclosure issues typically arise retrospectively, when a court has already grown disenchanted with the efforts of the prosecutors and seeks to learn what information never made its way to the defense. Prosecutors who rely on the purported separation of their investigative team from civil investigators and lawyers acting in parallel have to worry about what a reviewing court will conclude about the proper scope of disclosures after the damage of nondisclosure has already been done. A long trail of botched prosecutions gives testament to what happens when prosecutors fail to take a broad view of their disclosure obligations.
For defense attorneys, this disclosure pre-sents an obvious opportunity to discover additional facts that may be helpful to the defense. And if the government refuses the defendant's demand for a broad range of materials held by the SEC or other noncriminal lawyers in any parallel investigation, it does so at its own risk.
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