As the volume of electronically stored information in financial crime cases grows, electronic evidence, or “e-discovery,” is playing an increasingly important role for the courts, investigative agencies, prosecutors and defense lawyers and their clients.
In the absence of clear, enforceable standards on e-discovery conduct, some recent financial crime cases have seen misuse or outright abuse of electronic evidence. In North Carolina, a US circuit court judge, while affirming the conviction of securities lawyer, Gregory Bartko, used his ruling to issue a scathing rebuke of the “defiant” federal prosecutors who withheld evidence in the 2010 fraud case. (USA v. Gregory Bartko).
In a 41-page opinion of August 23, Judge Henry F. Floyd, of the 4th US Circuit Court of Appeals, dressed down federal prosecutors in the Eastern District of North Carolina for behavior he said reflects “serious errors,” or even worse, a willful violation of law.
“Mistakes happen. Flawless trials are desirable but rarely attainable. Nevertheless, the frequency of the [discovery] ‘flubs’ committed by this office raises questions… whether the errors are fairly characterized as unintentional,” Judge Floyd wrote for a three-judge panel.
Betting on ‘reams of evidence’ to shield withheld materials
He called for implementation of improved electronic evidence policies in all judicial districts. He also instructed the district court in Raleigh to consider sanctioning prosecutors who “betting on the probability that reams of condemning evidence will shield… convictions on appeal such that at the trial stage, [they] can… withhold discoverable materials.”
The conduct included belated production of a thousand documents to defense counsel on the eve of trial and alleged concealment of a plea bargain prosecutors had struck with the defendant’s co-conspirators in three recent cases.
“Discovery abuses violate constitutional guarantees and misrepresentations erode faith that justice is achievable,” Floyd wrote. “Something must be done.”
Defendant sought retrial for fraud, money laundering conviction
Floyd’s biting comments arise from an initial case against Bartko, who was sentenced in 2010 to 23 years in prison after a jury found him guilty of fraud and money laundering. Bartko was also ordered to pay $886,000 in restitution.
Bartko devised a scheme in 2004 and 2005 to illicitly funnel $2.7 million of investor funds into his two private equity funds, Caledonia and Capstone. He told investors their principal and interest were guaranteed.
Bartko and his co-conspirators allegedly gave the scheme an appearance of legitimacy by mailing and emailing correspondence to each other and conducting the bank transactions.
He sought to show at trial that he believed his fund-raising activities were legitimate. After conviction, he argued that the jury’s verdict resulted from prosecutorial misconduct.
In a decision of August 21, 2012, the US Securities and Exchange Commission called Bartko’s conduct “egregious ” and asked that he be permanently barred from employment in the financial services industry. In a 120-page order of April 2013, a federal judge in Raleigh denied Bartko’s motions for a new trial.
Intent of concealment is irrelevant, says lawyer
In his appeal, Bartko accused prosecutors of not correcting testimony by a government witness that they knew to be false and of withholding crucial documents. Prosecutors admitted they withheld information that would have allowed Bartko to impeach the testimony of a person who testified against him.
“The government routinely failed to produce documents the trial prosecutor himself actually authored, and [the government] absolutely acknowledges that,” Donald Samuel, attorney for Bartko at Garland, Samuel & Loeb, in Atlanta, told ACFCS. “The question the court seems to be raising is whether it was intentional or not.”
“Oddly enough,” he continued, “that’s irrelevant. If the government had documents [they were required to produce] and didn’t turn them over, it is a violation.”
Bartko petitioned the appellate court for a rehearing on September 6 arguing that it had underestimated the value to his defense of the concealed discovery.
Judge says withholding of electronic evidence ‘must stop’
The three-judge panel ruled there “was no reasonable probability” disclosure of withheld evidence would have produced a different outcome. It said the more disturbing issue is a pattern of discovery misconduct by the US Attorney’s Office in Raleigh and a “disinterest in placating concern about its practices.”
“Make no mistake,” the opinion states, “We may find such practices ‘harmless’ as to the… defendant’s verdict, but as to litigants in the Eastern District of North Carolina and our justice system at large, they are anything but harmless.”
“Whatever it takes,” the three-judge panel continued, “this behavior must stop.”
Don Connelly, a spokesperson for the US Attorney’s Office in Raleigh, did not respond to a request for comment.
Recent history shows discovery failures in FCPA and fraud cases
In November 2011, US district Judge Howard Matz, of the Central District of California, in Los Angeles, dismissed charges under the Foreign Corrupt Practices Act against executives of Lindsey Manufacturing Co. because prosecutors “recklessly failed to comply with… discovery obligations” and inappropriately obtained emails from the defendants.
Six months later, US district Judge Richard Leon, in Washington, DC, sternly rebuked prosecutors for improper discovery practices, which included deleting allegedly exculpatory text messages between FBI agents and a government informant in a case known as the FCPA “Africa Sting” case.
In May 2012, a Brooklyn federal judge, Dora Irizarry, ordered the suppression of 65 hard drives and email evidence against alleged fraudster, Michael Metter, because prosecutors waited 15 months before starting their review of the potentially discoverable material.
In October 2012, US district Judge Linda Reade, in Dubuque, Iowa, dismissed with prejudice 10 felony counts against alleged fraudster Armando Angulo after federal prosecutors told her two terabytes of electronic evidence they had amassed had become too “difficult and expensive to maintain” and had been deleted.
These cases illustrate not only the increasingly common incursion of voluminous e-discovery in financial crime cases, but the challenges it presents to government prosecutors and their client-agencies who are impaired by limited resources, data policy restrictions and a dearth of e-discovery skill and knowledge.
E-discovery poses growing challenges for prosecutors
“Generally speaking, prosecutors are not equipped to handle voluminous discovery,” Geoff Black, who is principal at the consulting firm, Light Box Technologies, and former lead computer forensics examiner at the Louisiana Department of Justice, told ACFCS.
“It is a matter of experience and exposure,” he continued. “Most prosecutors are used to working very specific, targeted cases and don’t know how to manage large amounts of documents and data.”
Black added that budget constraints prevent some federal and state prosecutors from outsourcing discovery tasks to specialized vendors, as their civil and corporate counterparts are accustomed to doing.
US Justice Department promoted adoption of e-discovery ‘Protocol’
Since financial crimes, particularly fraud schemes, usually generate huge volumes of electronically stored information (ESI), the need for e-discovery standards is a vital issue for financial crime specialists. The US Justice Department has attempted to address that need.
In February 2012, together with the Administrative Office of the US Courts, and the Federal Defender Organizations, the Justice Department issued a 21-page protocol for “ESI discovery production” in federal criminal cases. The protocol seeks to enhance the predictability, efficiency and cost-savings in an area traditionally lacking in all three. The Protocol (read here) underscores the pressing need for financial crime professionals to learn and understand e-discovery best practices that were ignored in the Bartko case.
Samuel, the Bartko defense attorney, told ACFCS, “E-discovery has taken a toll on prosecutors and I have a lot of sympathy for them. There are cases where prosecutors have a heck of a time finding evidence because the [electronic] haystacks are so large,” he continued.
“Ours was not one of those cases.”
Floyd Opinion in USA v. Bartko – August 23, 2013