(Reuters) - Is the U.S. attorney’s office in Manhattan manipulating the indictment process to get insider-trading cases before judges it considers friendly?
Defendants in an insider trading case against employees of the healthcare hedge fund Deerfield Management seem to believe they are. Their lawyers from Kramer Levin Naftalis & Frankel and Allen & Overy claimed in a letter last month to U.S. District Court Judges Colleen McMahon and Denise Cote of Manhattan that instead of filing a new indictment in the Deerfield case, the government brought a superseding indictment to its already-filed case against a cooperating witness who pleaded guilty. The point of that strategy, the letter suggested, was to allow the government to keep the new case in front of Judge Cote, who will preside over the informant’s sentencing, instead of forcing prosecutors to take their chances with a new, randomly assigned judge.
“Even putting aside whatever advantage the government may see in prosecuting a case before a certain judge as opposed to having it randomly assigned through the criminal wheel, the mere fact that the government has been able to effectively choose its judge in this manner is improper under the rules, unconstitutional and fundamentally unfair to the indicted defendants,” the letter said. “At minimum, it creates a strong appearance of impropriety and unfairness.”
Last week, the Manhattan federal court’s assignment committee, headed by Chief Judge McMahon, unanimously agreed that the Deerfield case should not have been filed as a superseding indictment. The committee ordered that the case be refiled as a new criminal action to be randomly assigned to a new judge.
This isn’t the first time Manhattan federal prosecutors have been accused of gaming the judicial assignment system through the strategic use of superseding indictments. In fact, one of the lawyers for the Deerfield defendants, Barry Berke of Kramer Levin, raised the same allegations a few years back when he defended onetime SAC Capital trader Michael Steinberg. In that case, Berke asserted that the U.S. attorney’s office filed Steinberg’s case as a superseding indictment, even though the other defendants had already pleaded guilty or been convicted, in order to proceed before U.S. District Judge Richard Sullivan. Judge Sullivan had delivered pro-government jury instructions in a prior insider trading case.
Berke’s letter on behalf the Deerfield defendants, who are accused of trading based on inside tips from a federal healthcare agency, cited an admonition the 2nd U.S. Circuit Court of Appeals delivered to federal prosecutors about the Steinberg case. During oral arguments in the infamous U.S. v. Newman appeal, which involved two insder-trading defendants tried before Judge Sullivan, 2nd Circuit Judge Barrington Parker asked whether the government charged some defendants in its broad insider trading campaign via superseding indictments and others by new indictments to “get their main case before their preferred venue.”
In follow-up questions specifically about the superseding indictment against Steinberg, Judge Parker said it seemed to him that prosecutors were using the superseding indictment to obtain “a tactical benefit.” A footnote in the 2nd Circuit’s 2014 ruling in U.S. v. Newman, which vacated insider trading convictions of two hedge fund executives because of Judge Sullivan’s jury instructions, noted the government’s procedural maneuvering in the Steinberg case. Steinberg’s conviction was subsequently reversed as well.
The Deerfield defendants’ letter said that a non-exhaustive search turned up three white-collar cases in which prosecutors charged defendants via superseding indictments to cases against cooperating witnesses and seven in which defendants were charged in new indictments, despite existing cases against informants. According to a follow-up letter from defense lawyers, there’s no obvious rationale for the inconsistency.
An amicus letter from the New York Council of Defense Lawyers explained the issue succinctly. “It appears that, in cases where it has discretion to choose among different procedural options, the United States Attorney's Office relies on superseding indictments when it prefers to have what amounts to a new case remain with a particular judge, and relies on new or original indictments when it prefers to have a case assigned to a different judge,” the letter said. “There appears to be no policy, no articulated rationale and no consistency governing such choices. A reasonable observer might well conclude that the government is simply picking and choosing among judges.”
Prosecutors in the Deerfield case said in their letter to Judges McMahon and Cote that the government has all kinds of perfectly legitimate reasons to choose to bring a superseding indictment instead of filing an entirely new case, including factual overlap, the likelihood a cooperator will be called to testify and judicial efficiency. “In this case, these factors weighed in favor of superseding this case into the recently-filed case before Judge Cote,” the letter said.
And despite the defendants’ “speculation that inconsistencies in the government’s charging practices amounts to improper conduct fueled by illicit motives,” prosecutors said, the government can’t be accused of angling to get its case before Judge Cote to take advantage of her prior rulings for the simple reason that she hasn’t issued any. “There are no contested legal issues as to which Judge Cote has already ruled in the government’s favor in the matter,” the letter said.
The June 8 order calling for the case to be refiled as a new indictment does not explain the assignment committee’s reasoning but does say the members of the committee – Judges William Pauley, Vincent Briccetti and Valerie Caproni, in addition to Chief Judge McMahon – considered both sides’ submissions.
Assistant U.S. Attorney Damian Williams, who is handling the Deerfield case, did not respond to a phone message. A spokesman for the U.S. attorney’s office declined to comment.
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