United States v. Ferguson, et al.

08-6211-cr(L) United States v. Ferguson 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 UNITED STATES COURT OF APPEALS FOR THE SECOND CIRCUIT August Term, 2010 (Argued: November 17, 2010 Decided: August 1, 2011) Docket Nos. 08-6211-cr(L), 09-0121-cr(Con), 09-0313-cr(XAP), 09-0507-cr(Con), 09-0881-cr(XAP), 09-1072-cr(Con), 09-1120-cr(XAP), 09-1677-cr(Con), 09-1723-cr(XAP), 09-2127-cr(Con), 09-2141-cr(XAP) - - - - - - - - - - - - - - - - - - - - -x UNITED STATES OF AMERICA, Appellee, - v.RONALD E. FERGUSON, CHRISTOPHER P. GARAND, ELIZABETH A. MONRAD, ROBERT D. GRAHAM, CHRISTIAN M. MILTON, Defendants-Appellants.* - - - - - - - - - - - - - - - - - - - -x Before: JACOBS, Chief Judge, KEARSE and STRAUB, Circuit Judges. The defendants, four executives of General Reinsurance 34 Corporation (“Gen Re”) and one of American International 35 Group, Inc. (“AIG”), appeal from judgments of the United 36 States District Court for the District of Connecticut * The Clerk of the Court is directed to amend the official caption to conform to the names listed above. 1 (Droney, J.), convicting them of conspiracy, mail fraud, 2 securities fraud, and making false statements to the 3 Securities and Exchange Commission. 4 an allegedly fraudulent reinsurance transaction between AIG 5 and Gen Re that was intended to cure AIG’s ailing stock 6 price. 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 The charges arose from We vacate the defendants’ convictions and remand for a new trial. SETH P. WAXMAN (Jonathan E. Nuechterlein, Catherine M.A. Carroll, Washington, DC, and Paul A. Engelmayer, Daniel C. Richenthal, Julia M. Lipez, New York, NY, on the brief), Wilmer Cutler Pickering Hale and Dorr LLP, Washington, DC, for Defendant-Appellant Ronald E. Ferguson. ROBERT J. CLEARY (Anthony Pacheco, Keith Butler, Los Angeles, CA, and Mark D. Harris, William C. Komaroff, New York, NY, on the brief), Proskauer Rose LLP, New York, NY, for Defendant-Appellant Christopher P. Garand. IRA M. FEINBERG (Katie M. Lachter, New York, NY, and Dominic F. Perella, Washington, DC, on the brief), Hogan Lovells US LLP, New York, NY, for Defendant-Appellant Elizabeth A. Monrad. ALAN VINEGRAD (Jonathan L. Marcus and Pamela A. Carter, on the brief), Covington & Burling LLP, New York, NY, for Defendant-Appellant Robert D. Graham. FREDERICK P. HAFETZ (Victor J. Rocco, Tracy E. Sivitz, Hafetz Necheles & Rocco, 2 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 New York, NY, and Kannon K. Shanmugam, George W. Hicks, Jr., Williams & Connolly LLP, Washington, DC, on the brief), Hafetz & Necheles, New York, NY, for Defendant-Appellant Christian M. Milton. ERIC J. GLOVER and RAYMOND E. PATRICCO, JR. (William J. Nardini and David B. Goodhand, on the brief), Assistant United States Attorneys, for Nora R. Dannehy, Acting United States Attorney for the District of Connecticut, New Haven, CT, and Neil H. MacBride, United States Attorney for the Eastern District of Virginia, Alexandria, VA, for Appellee. TABLE OF CONTENTS BACKGROUND . . . . . . . . . . . . . . . . . . . . . . . I - All Defendants’ Claims . . . . . . . . . . A - Stock Price Data . . . . . . . . . . . B - Jury Charges . . . . . . . . . . . . . 1 - “Willfully Caused” Instruction . 2 - “Conscious Avoidance” Instruction 3 - “Specific Unanimity” Instruction 4 - “No Ultimate Harm” Instruction . C - Prosecutorial Misconduct . . . . . . . 1 - Napier’s Potential Perjury . . . 2 - Summation Remarks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . II - Ferguson’s Claims . . . . . . . . . . . . . . . . A - Sufficiency Challenge to Scienter Evidence . . B - Graham’s Email: “[Ferguson] et al[.] have been advised of, and have accepted, the potential reputational risk” . . . . . . . . . . . . . 1 - Double-Hearsay . . . . . . . . . . . . . 2 - Severance from Graham . . . . . . . . . . 3 - Summation . . . . . . . . . . . . . . . . C - Finding that Conspiracy Began with First Call . . . . . . . . . . 6 22 23 27 27 31 34 38 40 40 46 . 50 . 51 . . . . . 52 53 56 60 61 III - Graham’s Claims . . . . . . . . . . . . . . . . . . 63 A - Requested Jury Instructions . . . . . . . . . . 64 3 1 2 3 4 5 6 7 8 9 10 11 12 13 14 1 - Professional Responsibility Rules . . . . . 64 2 - Non-Contractual Understandings . . . . . . 66 B - Treatment of Graham’s Boss . . . . . . . . . . . 67 IV - Milton’s Claims . . . . . . . . . . . . . . . . . . 70 A - Admissibility of Recordings Denigrating AIG . . 70 B - Severance from Gen Re Defendants . . . . . . . . 73 V - Monrad’s Claims . . . . . . . . . . . . . . . . . . . 75 VI - Garand’s Claims CONCLUSION . . . . . . . . . . . . . . . . . . 78 . . . . . . . . . . . . . . . . . . . . . . . 78 15 16 17 18 DENNIS JACOBS, Chief Judge: This criminal appeal arose from a “finite reinsurance” 19 transaction between American International Group, Inc. 20 (“AIG”) and General Reinsurance Corporation (“Gen Re”). 21 That transaction (the “Loss Portfolio Transfer,” or “LPT”) 22 reallocated risk in a way that shored up AIG’s flagging loss 23 reserves, which were feared to be dragging down its stock 24 price. 25 (usually low) risk, are acceptable accounting measures in 26 the insurance industry, and have their uses; but in this 27 instance it is charged that the transaction entailed no risk 28 at all, and was a fraud. 29 Gen Re and one of AIG, appeal from judgments entered in 2008 Finite reinsurance transactions, which entail some The defendants, four executives of 4 1 and 2009 by the United States District Court for the 2 District of Connecticut (Droney, J.), convicting them of 3 conspiracy, mail fraud, securities fraud, and false 4 statements made to the Securities and Exchange Commission 5 (“SEC”). 6 ranging from one to four years, and are free on bail pending 7 this appeal. They were sentenced principally to prison terms 8 The government’s case depended heavily on testimony 9 from two cooperating witnesses--Richard Napier, a senior 10 executive of Gen Re; and John Houldsworth, a senior 11 executive of Cologne Re Dublin (“CRD”), an Irish subsidiary 12 of Gen Re--who had pled guilty to similar charges. 13 testimony was bolstered by contemporaneous recordings of 14 calls involving Houldsworth (a normal business practice in 15 Ireland for derivatives traders). 16 introduced AIG stock-price data to show the LPT’s material 17 effect on investors: The price declined steeply as details 18 about regulatory scrutiny of the deal were released. 19 a six-week trial, the jury convicted the defendants on all 20 counts. 21 22 Their The government also After The defendants appeal on a variety of grounds, some in common and others specific to each defendant, ranging from 5 1 evidentiary challenges to serious allegations of widespread 2 prosecutorial misconduct. 3 merit, but the defendants’ convictions must be vacated 4 because the district court (1) abused its discretion by 5 admitting the stock-price data, and (2) issued a jury 6 instruction that directed the verdict on causation. Most of the arguments are without 7 8 9 BACKGROUND AIG’s announcement of its 3Q earnings in 2000 met 10 analysts’ expectations, but the stock price dropped 11 significantly nevertheless. 12 $59 million decline in loss reserves that quarter. 13 The cause was thought to be a Loss reserves are liabilities on an insurer’s balance 14 sheet that approximate expected claims on insurance 15 contracts. 16 reserves in conjunction with new policies: If loss reserves 17 do not rise when new policies are written (or worse, if they 18 fall), the insurer’s stock may drop notwithstanding better- 19 than-expected income because a contract of insurance that is 20 not covered by sufficient loss reserves inflates present 21 income at the expense of future income. 22 counterintuitively, a net decrease in a balance sheet Stock analysts and investors evaluate loss 6 Thus, 1 2 liability may cause a stock price to drop. Loss reserves can be transferred between companies 3 through reinsurance arrangements. 4 reinsurance transaction, an insurer purchases coverage from 5 a reinsurer for potential losses on policies it has issued, 6 thus ceding substantial or unlimited risk to the reinsurer. 7 In finite reinsurance, however, a company cedes a smaller, 8 circumscribed (hence, finite) amount of risk to the 9 reinsurer. In an ordinary To over-simplify, traditional reinsurance is 10 primarily used by an insurer to lay off risk, whereas finite 11 reinsurance lends itself to accounting goals because it can 12 be strategically designed but also carefully bounded. 13 An insurer’s creativity with finite reinsurance 14 transactions is not unconstrained: Accounting rules require 15 that each transaction transfer a threshold of risk. 16 Financial Accounting Standards (“FAS”) 113,1 a reinsurance 17 transaction must have “significant insurance risk,” so that 18 it is “reasonably possible” that the reinsurer may realize a 19 “significant loss” from the deal. 20 industry rule of thumb provides clearer guidance: A The rules that Principles filings in 1 See FAS 113 ¶ 9. Under An Financial Accounting Standards are accounting help define Generally Accepted Accounting (“GAAP”), which companies must use for public the United States. 7 1 transaction with more than a 10% chance of incurring more 2 than a 10% loss (of the contractual limit) satisfies FAS 3 113, and can be booked as reinsurance. 4 Transactions that fall short of the risk threshold in 5 FAS 113 cannot be treated as reinsurance; any premium paid 6 must be deposit accounted, which has no effect on loss 7 reserves. 8 whether a transaction has risk sufficient to qualify as 9 reinsurance. Each party makes its own determination as to Since risk can be hard to quantify, 10 counterparties’ good-faith determinations may conflict, with 11 one booking the transaction as reinsurance and the other, as 12 a deposit. 13 attention of regulators, but is not a violation per se. 14 FAS 113 ¶ 47 (rejecting symmetrical-accounting requirement). Such asymmetric accounting may draw the See 15 16 17 A In view of the defendants’ convictions, we summarize 18 the facts in the light most favorable to the government. 19 United States v. Riggi, 541 F.3d 94, 96 (2d Cir. 2008). 20 Maurice “Hank” Greenberg, CEO of AIG, was convinced 21 that AIG’s decreased loss reserves were depressing the 22 stock. On October 31, 2000, he called Ronald Ferguson, the 8 1 CEO of Gen Re, to discuss ways to shore up AIG’s reserves. 2 AIG was Gen Re’s largest client, so Ferguson was eager to 3 assist. 4 conspirator; Ferguson is a defendant.) 5 (Greenberg was named as an unindicted co- Greenberg requested a particular deal: AIG wished to 6 “borrow” a specific range of loss reserves ($200 million to 7 $500 million) over a six- to nine-month time period. 8 was unusual in several respects. 9 Napier, who had worked on hundreds of reinsurance deals, had This Cooperating witness 10 never encountered a deal premised on a request for a 11 specific amount of loss reserves. 12 reserves are typically calculated through a detailed 13 actuarial analysis, after a deal has been negotiated. 14 was also uncommon for AIG to act as the reinsurer; it 15 typically sought reinsurance from Gen Re. 16 be largely funds-withheld, meaning that the ceding party 17 would retain a large percentage of the premium it owes and 18 only claim such losses as exceed the premium. 19 withheld arrangement may not be irregular, but the 20 insistence upon it is suggestive: AIG could register a 21 substantial change in loss reserves without Gen Re remitting 22 a comparably large payment. 9 To the contrary, loss It The deal was to A funds- 1 An important question for this case is whether the call 2 between Ferguson and Greenberg initiated a conspiracy. 3 may have been a high-level brainstorming session about using 4 accounting rules aggressively--but lawfully--to achieve an 5 accounting objective; but it may (instead or also) have been 6 an unlawful agreement to deceive AIG stockholders by booking 7 a no-risk transaction (which by definition would not satisfy 8 FAS 113) as reinsurance. It 9 10 11 B Shortly after the call from Greenberg, Ferguson created 12 a deal team at Gen Re. 13 the manager of Gen Re’s relationship with AIG, and asked him 14 to spearhead the effort. 15 contact: (1) Christian Milton, the VP of reinsurance at AIG, 16 to discuss specific requirements of the deal; and (2) Joe 17 Brandon, the president of Gen Re. 18 Brandon was named as an unindicted co-conspirator.) 19 He briefed Napier, a senior VP and Ferguson suggested that Napier (Milton is a defendant; Napier spoke with Brandon the same day, and Milton the 20 next. 21 to address criticism from stock analysts, and he and Napier 22 began preliminary discussions about the particulars of the Milton confirmed that AIG only wanted reserve impact 10 1 deal. 2 senior VP and Chief Underwriter of Gen Re’s finite 3 reinsurance operations, would be a good resource. Brandon suggested that defendant Chris Garand, a 4 It is unclear when Napier first contacted Garand. 5 Emails reflect that within a week, defendant Elizabeth 6 Monrad, the Chief Financial Officer of Gen Re, became 7 involved. 8 week, and that Garand pitched a “no risk” transaction in a 9 November 13 meeting with Monrad and him. 10 11 Napier claims that he contacted Garand that same For convenience, the role and affiliation of each player referenced in this opinion are listed in the margin.2 2 Defendants: • Ronald Ferguson: CEO of Gen Re • Christopher Garand: Senior VP and the Head and Chief Underwriter of Gen Re’s finite reinsurance operations • Robert Graham: Legal counsel and Senior VP at Gen Re • Christian Milton: VP of Reinsurance at AIG • Elizabeth Monrad: CFO of Gen Re Co-operating Witnesses: • Richard Napier: Senior VP at Gen Re, who managed its relationship with AIG • John Houldsworth: CEO of Cologne Re Dublin, a Gen Re subsidiary Unindicted Co-Conspirators: • Maurice “Hank” Greenberg: CEO of AIG • Timothy McCaffrey: General Counsel of Gen Re • Joseph Brandon: President of North American Operations at Gen Re 11 1 Napier’s testimony concerning Garand is suspicious. 2 Garand was added as a defendant in a superseding indictment, 3 filed more than seven months after the other defendants were 4 charged. 5 filed, Napier confidently named Garand as the source of the 6 no-risk idea. 7 previous identifications (recanted at trial) of Milton and 8 Ferguson as the source. 9 Milton while he was looking at the same undated page of On the same day the superseding indictment was This identification contradicted Napier’s He made that identification of 10 notes that he later attributed to a meeting with Garand and 11 Monrad (which he does not contend that Milton attended). 12 Garand calls this allegation a perjurious attempt to curry 13 favor with the government, and argues that the government 14 was complicit in the perjury, or complacent. 15 The documentary evidence bearing on the November 13 16 meeting does not show what happened. 17 November 13, Monrad emailed a warning to Ferguson about 18 asymmetric accounting, which suggests that the no-risk idea 19 had been hatched. 20 cooperating witness Houldsworth,3 the CEO of CRD, to solicit Late in the morning on Later that day, defendant Monrad called 3 Houldsworth was not in his office when he fielded this after-business-hours call. It therefore was not recorded like most of his other calls. The description of 12 1 his help with the transaction. 2 not be charged any losses on the deal, and that Ferguson 3 requested strict confidentiality. 4 called Garand about the transaction, broaching the subject 5 delicately because of the confidentiality warning. 6 Garand showed no familiarity with it, presuming instead that 7 Houldsworth was referring to another AIG deal: 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 She cautioned that AIG would The next day, Houldsworth But HOULDSWORTH: AIG, uh, you may have heard about this, I, I presume it’s highly confidential well, it’s definitely high - [Monrad] told me not to tell anyone. . . . Do you know anything about this - or not? GARAND: No, only to the extent that Milan mentioned it and -HOULDSWORTH: Okay. GARAND: -- Tad had a meeting with AIG. HOULDSWORTH: Okay. Well, it’s nothing to do with [your other AIG deal]. GARAND: Okay. HOULDSWORTH: Um, the - the issue is, and I, for I, don’t know why you don’t know in that case. I mean, maybe it’s, - I don’t know how these things work. Anyway, I’m gonna tell you anyway. If I get in trouble, heigh ho, uh, we have to work together, so it’s stupid otherwise. 26 Joint Appendix at 1959-60. 27 November 14 was the first he heard of the LPT. Garand claims that this call on 28 29 C the call comes from Houldsworth’s testimony. confirm that the call was made, however.) 13 (Phone records 1 The Gen Re team continued designing the transaction. 2 On November 15, Houldsworth circulated a draft slip contract 3 of the LPT to Monrad, Garand, Napier, and two others. 4 (Ferguson did not receive the email, but he reviewed a hard 5 copy of the email and slip. 6 Gen Re paying AIG $10 million for assuming $100 million of 7 risk. 8 basis, meaning that Gen Re would pay only $10 million but 9 could charge AIG only for losses beyond the $500 million The draft contract contemplated The premium was $500 million on a 98% funds-withheld 10 premium (up to a $600 million cap on losses, yielding $100 11 million of risk). 12 13 14 The slip omitted two key terms of the transaction, however, which were discussed frankly in the cover email: First, in selecting contracts for AIG to reinsure, 15 Houldsworth designated over $300 million in contracts that 16 had already been reinsured, leaving “no possibility” (or 17 making it “virtually impossible”) for the remaining 18 contracts to have claimable losses (i.e., over the $500 19 million premium). 20 AIG’s request, which Houldsworth characterized as seeking 21 loss reserves “with the intention that no real risk is 22 transferred.” Trial Tr. at 2286. Joint Appendix at 1978. 14 This accommodated 1 Second, Gen Re was to receive a fee for the deal as 2 well as reimbursement for the portion of the premium it 3 would pay: 4 5 6 7 8 9 Contract we provide must give A[IG] a potential upside in entering the transaction. Given that we will not transfer any losses under this deal it will be necessary for A[IG] to repay any fee plus the margin they give us for entering this deal. Joint Appendix at 1978 (emphasis added) (Houldsworth’s cover 10 email). 11 of these fees from the slip was intentional, because AIG 12 wanted a piece of paper that would allow the contract to be 13 booked as a reinsurance deal. 14 suggested that fees be written into the contract. 15 Houldsworth replied: 16 17 18 19 20 21 Houldsworth confirmed at trial that the exclusion At one point, Napier clumsily But I think to give them a deal with no risk in it, and just charge them a fee, I, you know, I mean, you can assume their auditors are, you know, are being, you know, pushed in one direction, but I think that’s just going too far. . . . I’d be staggered if they would get away with that. 22 Joint Appendix at 2003. 23 of memorializing the fees in a separate written agreement: 24 “Those always get a little tricky because sometimes 25 firms . . . feel obliged to show their auditors them.” Similarly, Monrad rejected the idea 15 1 Joint Appendix at 2015.4 2 By November 17, Ferguson had secured Hank Greenberg’s 3 agreement to the rough contours of the deal, including the 4 no-risk aspect, the repayment of the $10 million premium, 5 and Gen Re’s $5 million net fee. 6 a point person for the transaction at AIG. 7 forwarded the slip contract to Milton, describing in his 8 cover email the fee and premium repayment (which remained 9 conspicuously absent from the contract). Greenberg tapped Milton as Napier then 10 11 D 12 With a preliminary agreement in place, Gen Re began 13 internal discussions about the accounting treatment of the 14 deal. 15 Robert Graham, an in-house lawyer at Gen Re, joined the 16 team. 17 the transaction as reinsurance to invigorate its loss 18 reserves. 19 necessary risk, they wanted to protect Gen Re by booking the At some point during these discussions, defendant The Gen Re side understood that AIG wished to book But recognizing that the deal lacked the 4 Houldsworth also rejected the idea of treating the fee as a non-contractual “handshake.” We discuss handshake deals below in connection with Graham’s argument that a jury instruction on handshakes should have been given. 16 1 2 transaction using deposit accounting. Ferguson asked his team to alert AIG that Gen Re was 3 contemplating asymmetric accounting. 4 defendants Monrad, Graham, and Garand (and co-conspirator 5 Napier) of Gen Re called defendant Milton of AIG to advise 6 that Gen Re would be booking the LPT as a deposit 7 transaction. 8 accounting would not be an issue for AIG. 9 the good news to Ferguson. On November 20, Milton confirmed that Gen Re’s deposit Napier relayed 10 11 12 E Milton accepted the deal on AIG’s behalf on December 7, 13 but he asked Gen Re to create a paper trail to disguise the 14 transaction’s origin. 15 circulated an offer letter to AIG suggesting that the deal 16 had first been solicited by Gen Re. 17 circulated the offer letter and draft contract to AIG 18 accountants and informed them that it would be booked as 19 reinsurance, thus ensuring that the usual underwriting and 20 actuarial due diligence on such a large transaction would 21 not be performed. 22 On December 18, Houldsworth Milton at AIG Gen Re’s in-house counsel Graham drafted the final 17 1 contracts for the deal. 2 $10 million premium repayment. 3 expressed some discomfort with the accounting of the deal to 4 his boss, Tim McCaffrey, the General Counsel of Gen Re: They omitted the $5 million fee and As he drafted, Graham 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 Tim - 20 Joint Appendix at 2192. 21 fleeting, however, because the contracts were shortly 22 thereafter finished and sent off to Milton. 23 The AIG project continues. . . . Our group will book the transaction as a deposit. How AIG books it is between them, their accountants and God; there is no undertaking by them to have the transaction reviewed by their regulators. [Ferguson] et al[.] have been advised of, and have accepted, the potential reputational risk that US regulators (insurance and securities) may attack the transaction and our part in it. Rob The discomfort must have been In January 2000, the offer letter (annotated with 24 written instructions from Milton) and draft slip contract 25 were routed to Lawrence Golodner, an assistant comptroller 26 at AIG. 27 Blumenstock, but their route from Milton to Blumenstock is 28 not entirely clear.) 29 instructions, booking $250 million in loss reserves for each (The documents were sent by Golodner’s boss, John Golodner followed Blumenstock’s 18 1 of 4Q 2000 and 1Q 2001.5 2 3 4 F The deal worked, up to a point. AIG announced 5 increased loss reserves in 4Q 2000 and 1Q 2001 that, without 6 the LPT, would have been declines. 7 Meanwhile, Gen Re sought to enforce the unwritten fee 8 agreements. 9 (that it was contractually obliged to pay) until it had It refused to deliver the $10 million premium 10 collected the $15 million that it was owed under the secret 11 side deal. 12 payment without directly transferring funds (which could 13 have attracted regulatory scrutiny).6 14 December 28, the final steps of Garand’s scheme were 15 executed; the same day, Gen Re wired the $10 million premium 16 to an AIG subsidiary. 17 18 Garand orchestrated a scheme to effect the Milton agreed. The matter was dormant for several years. On In a typical reinsurance arrangement, the ceding company files claims 5 The parties decided to split the deal into two $250 million tranches. 6 The scheme entailed (1) offsetting $15 million from the $30 million that a Gen Re subsidiary held for an AIG entity under an existing contract, and (2) concealing the offset with a sham reinsurance contract. 19 1 with the reinsurer, which pays the claims and, over time, 2 reduces loss reserves commensurately. 3 claims, AIG paid no claims, and there were no adjustments to 4 AIG’s loss reserves (excluding a $250 million reduction in 5 AIG’s loss reserves in late 2004, when the parties commuted 6 half of the deal). 7 But Gen Re made no Beginning in February 2005, the SEC and the Office of 8 the New York Attorney General began investigating the 9 transaction. News articles about the investigations 10 trickled out for several months, while AIG’s stock price 11 declined steadily. 12 LPT did not transfer sufficient risk for reinsurance 13 accounting, and restated its financials for the duration of 14 the LPT’s existence. On May 31, 2005, AIG concluded that the 15 16 G 17 The defendants were charged with conspiracy, mail 18 fraud, securities fraud, and making false statements to the 19 SEC.7 The trial began in January 2008. The government’s 7 Garand was first charged in the superseding indictment filed in September 2006; the rest of the defendants were indicted back in February 2006. All defendants were charged with one count of 20 1 two cooperating witnesses, Napier and Houldsworth, provided 2 critical testimony that narrated the events of the deal and 3 was used to argue the parties’ fraudulent intent. 4 particulars of much of their testimony were corroborated by 5 contemporaneous emails and Houldsworth’s recorded phone 6 conversations. 7 into evidence as co-conspirator statements, the court having 8 found that the conspiracy began with the Ferguson-Greenberg 9 call.8) The (Much of this corroboration was admitted The testimony was not uncontroverted, however. The 10 cross-examination of Napier was especially fierce: He 11 acknowledged some mistaken recollection, but refused to 12 recant his allegedly perjurious claim that Garand conceived 13 the idea of doing a no-risk deal. 14 After four days of deliberations, the jury convicted conspiracy under 18 U.S.C. § 371 and three counts of mail fraud under 18 U.S.C. § 1341. All defendants except Garand were also charged with seven counts of securities fraud, 15 U.S.C. §§ 78j(b) & 78ff, and five counts of making false statements to the SEC, 15 U.S.C. §§ 78m(a) & 78ff; Garand was also charged with three counts of securities fraud and three counts of making false statements. 8 Certain findings are necessary to admit coconspirator statements under Fed. R. Evid. 801(d)(2)(E). See United States v. Geaney, 417 F.2d 1116, 1120 (2d Cir. 1969). The court conditionally admitted co-conspirator statements during the government’s presentation of its case; after the government rested, the court made the necessary Geaney findings and admitted the statements. 21 1 the defendants of all charges. 2 defendants’ perfunctory Fed. R. Crim. P. 33 motions for a 3 new trial.9 4 The court denied the In hundreds of pages of briefing, the defendants raise 5 numerous issues on appeal, ranging from evidentiary 6 challenges to serious allegations of widespread 7 prosecutorial misconduct. 8 9 10 11 I Several arguments affect all five defendants. We consider each in turn. 12 Prior to submission to the jury, the defendants had moved for acquittal pursuant to Fed. R. Crim. P. 29(a) and renewed their motions for severance under Fed. R. Crim. P. 14(a). (Only Ferguson, joined by Garand, submitted motion papers.) The court reserved decision. 9 After the verdict, the defendants moved for a new trial under Rule 33 only if the court granted their Rule 29(a) motions for any of the counts. They submitted skeletal memos without substantive argument, declined to file Rule 29(c) motions, and declined oral argument despite the court’s request. (Ferguson initially requested oral argument on his motions, but then withdrew his request.) The district court denied the defendants’ pre-verdict motions for severance (Rule 14) and acquittal (Rule 29(a)), thus mooting their conditional motions for a new trial (Rule 33). United States v. Ferguson, 553 F. Supp. 2d 145, 163-64 (D. Conn. 2008). 22 1 2 A Materiality is an element of most of the charged 3 offenses. 4 that the LPT-related misstatements would be important to a 5 reasonable investor. 6 224, 231 (1988). 7 introduced (inter alia) articles about the LPT’s 8 impropriety, which it connected to contemporaneously 9 declining stock prices. There must have been a “substantial likelihood” See Basic Inc. v. Levinson, 485 U.S. As evidence of materiality, the government Excluded as overly prejudicial was 10 a line graph tracing AIG’s stock price from February to 11 March 2005 (as it declined by 12%). 12 permitted the government to show a functionally identical 13 chart to the jury during opening statements, and it admitted 14 into evidence three bar-charts showing single-day stock 15 prices for the days following each publication. 16 However, the court The charts were prejudicial because the LPT was one of 17 several problems besetting AIG at that time. 18 allegations of bid-rigging, improper self-dealing, earnings 19 manipulations, and more, had to be redacted from the 20 articles about the LPT, to avoid prejudicing the defendants. 21 The stock-price evidence presented the defendants with a 22 dilemma: [i] allow the jury to attribute the full stock- 23 Unrelated 1 price decline to the LPT, or [ii] introduce prejudicial 2 evidence of the other besetting scandals, wrongdoing, and 3 potentially illegal actions at AIG. 4 to sidestep by stipulating to materiality, but the 5 government refused. 6 The defendants sought We conclude that the district court abused its 7 discretion in admitting the three bar-charts and that the 8 defendants’ substantial rights were affected. 9 Reinauer Transp. Cos., 397 F.3d 120, 124 (2d Cir. 2005). 10 Marcic v. The district court’s rulings on the stock-price charts 11 were inconsistent. 12 stock price was excluded as overly prejudicial, but it was 13 functionally identical to the chart shown during the 14 government’s opening argument. 15 solution, to allow only isolated ranges of stock-price data, 16 did not mitigate the prejudice: Instead of a downward line, 17 there were three dropping sets of dots; it is inevitable 18 that jurors would connect them. 19 would attribute the full 12% decline to the LPT was unabated 20 by the court’s precaution. 21 22 The chart showing the full decline in In any event, the court’s So the risk that jurors The government may of course reject a proposed stipulation in order to present a “coherent narrative” of 24 1 its case. 2 (1997). 3 showing of loss causation (“a causal connection between the 4 material misrepresentation and the loss”). Dura Pharms., 5 Inc. v. Broudo, 544 U.S. 336, 342 (2005). The stock-price 6 evidence therefore fell “outside the natural sequence of 7 what the defendant[s] [were] charged with thinking and 8 doing.” 9 was admitted only to show materiality, the government Old Chief v. United States, 519 U.S. 172, 191-92 But the charged offenses here do not require a Old Chief, 519 U.S. at 191. Although the evidence 10 exploited it to emphasize the losses caused by the 11 transaction. 12 during rebuttal summation that: 13 14 15 16 17 18 For example, the government reminded the jury [B]ehind every share of [AIG] stock is a living and breathing person who plunked down his or her hard-earned money and bought a share of stock, maybe [to] put it in their retirement[] accounts, maybe to put it in their kids’ college funds, or maybe to make a little extra money for the family. 19 Trial Tr. at 4584. The prosecution’s use of the evidence, 20 while aggressive, was not “egregious misconduct” that “so 21 infect[ed] the trial with unfairness as to make the 22 resulting conviction a denial of due process.” 23 States v. Shareef, 190 F.3d 71, 78 (2d Cir. 1999) (internal 24 quotation marks omitted). 25 evidence to humanize its prosecution, not to complete the United Still, the government used this 25 1 narrative of its case. 2 If no offer to stipulate were forthcoming, the 3 government could have relied upon the sufficiency of its 4 other materiality evidence10 or offered expert testimony 5 about the LPT’s effect on the stock price.11 6 suggested that this transaction caused AIG’s shares to 7 plummet 12% during the relevant time period, which is 8 without foundation, and (given the role of AIG in the 9 financial panic) prejudicially cast the defendants as The charts 10 causing an economic downturn that has affected every family 11 in America. 12 13 14 15 B The defendants challenge the particulars of the “willfully caused” jury instruction, as well as the district 10 The government’s other materiality evidence was substantial: Two stock analysts and an AIG investorrelations manager testified about the importance of loss reserve information to investors and analysts. 11 If expert testimony were used, the probative value of the evidence would be reinforced because confounding factors could be excluded. Cf., e.g., United States v. Schiff, 538 F. Supp. 2d 818, 836 (D.N.J. 2008) (deeming stock-price data irrelevant for materiality in the absence of expert testimony). The expert could, for example, estimate the extent of the 12% drop attributable to the LPT. 26 1 court’s refusal to give certain instructions and insistence 2 upon giving others. 3 examining “the entire charge to see if the instructions as a 4 whole correctly comported with the law.” 5 Jones, 30 F.3d 276, 283 (2d Cir. 1994). 6 challenging jury instructions must show that he was 7 prejudiced by a charge that misstated the law. 8 States v. Goldstein, 442 F.3d 777, 781 (2d Cir. 2006). We review the jury charge de novo, United States v. A defendant See United 9 10 11 1 A defendant commits an offense if he “willfully causes 12 an act to be done which if directly performed by him or 13 another would be an offense against the United States.” 14 U.S.C. § 2(b). 15 phrasings offered by the various parties, the court ended up 16 with a charge that allowed the jury to convict without 17 finding causation. 18 “willfully causing” liability through a similar pair of 19 questions for each offense: 20 21 22 23 24 25 18 In seeking to accommodate the reasonable The court instructed the jury about The meaning of the term “willfully caused” can be found in the answers to the following questions: With regard to securities fraud: First, did the defendant act knowingly, willfully, and with an intent to defraud as I 27 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 defined those terms for you in my instructions about securities fraud? Second, did the defendant intend that this crime, as explained to you in my earlier instructions, would actually be committed by others? . . . If you are persuaded beyond a reasonable doubt that the answer to both of these questions is “yes,” then the defendant is guilty of the crime charged just as if he or she had actually committed it. Trial Tr. at 4760-61. It appears the judge was led into error. The original 18 instruction submitted by the government contained a proper 19 causation standard;12 the defendants challenged a vague 20 phrase (“take some action”) in the government’s instruction 21 and proposed a lengthier instruction that tracked the actual 22 elements of each offense (but that also properly charged on 12 The first question in the government’s proposed instruction enunciated the causation requirement: The meaning of the term “willfully caused” can be found in the answers to the following questions: First, did the defendant take some action without which the crime would not have occurred? Second, did the defendant intend that the crime would be actually committed by others? Joint Appendix at 300 (emphasis added). 28 1 causation).13 2 parties’ submissions, but neglected to include either side’s 3 causation instruction: The court’s first question instructs 4 about both the requisite act (“did the defendant act”) and 5 the requisite mental state (“knowingly, willfully, and with 6 an intent to defraud”); the second question merely refines 7 the mental state requirement (“did the defendant intend that 8 this crime . . . would actually be committed by others?”). 9 The court fashioned a compromise from the The instruction is not saved by the plain meaning of 10 “willfully caused,” which is the term the court undertook to 11 define. 12 requirement. The word “cause” should convey a causation But the jury was not invited or permitted to 13 The second question from the defendants’ proposed charge instructed on causation: Second, as to each count and each Defendant, did the Defendant (a) intentionally cause other people to use a deceptive device in connection with the purchase or sale of AIG stock, that is to say, did he or she, in connection with the purchase or sale of AIG stock, intentionally cause other people to make either a deliberate affirmative misstatement of material fact or a deliberate omission of material fact by one who had a legal duty to disclose that fact, and, (b) intentionally cause some other person to knowingly use, or cause to be used, an instrumentality of communication in interstate commerce (i.e., the mails) in furtherance of such fraudulent scheme or conduct? Joint Appendix at 556 (emphases added). 29 1 rely on the phrase’s plain meaning, given the superseding 2 definition provided in the charge: “The meaning of the term 3 ‘willfully caused’ can be found in the answers to the 4 following questions . . . .” 5 Trial Tr. at 4760. Although the defendants objected to the instruction, 6 they did not “specific[ally] object[]” about causation; the 7 objection on that ground was thus not preserved, and we 8 review for plain error. 9 the error is plain enough. See Fed. R. Crim. P. 30(d). But “Where an instruction defining 10 one of [multiple] alternative grounds is legally erroneous, 11 a court must reverse unless it can determine with absolute 12 certainty that the jury based its verdict on the ground on 13 which it was correctly instructed.” 14 Joseph, 542 F.3d 13, 18 (2d Cir. 2008). The government 15 argued for guilt on a causation theory. See, e.g., Trial 16 Tr. at 4203 (“[Did defendants] document a false 17 [transaction] in order to deceive AIG’s internal auditors 18 and their external auditors and accountants[?]”). 19 “willfully causing” was a likely theory of liability, given 20 that the AIG accountants who actually filed the false forms 21 were not named as co-conspirators. 22 warranted, because it is improbable, let alone “absolute[ly] 30 United States v. Moreover, Vacatur is thus 1 certain[],” that the jury based its verdict on a properly 2 instructed ground. 3 4 5 2 The district court instructed the jury that the 6 government could prove that a defendant acted knowingly if 7 he “was aware of a high probability that [a] statement was 8 false” but “deliberately and consciously avoided confirming 9 that fact, unless the evidence show[s] that [he] actually 10 believed the statement was true.” 11 a conscious avoidance instruction14 may be given only 12 13 14 15 16 17 18 19 Trial Tr. at 4730. Such (i) “when a defendant asserts the lack of some specific aspect of knowledge required for conviction,” and (ii) “the appropriate factual predicate for the charge exists, i.e., the evidence is such that a rational juror may reach the conclusion beyond a reasonable doubt that the defendant was aware of a 14 The Supreme Court appears to now prefer the appellation “willful blindness.” Global-Tech Appliances, Inc. v. SEB S.A., 131 S. Ct. 2060, 2070 & n.9 (2011) (citing United States v. Svoboda, 347 F.3d 471, 477-78 (2d Cir. 2003), which uses the term “conscious avoidance,” as an example of this Court’s “articulat[ion of] the doctrine of willful blindness”); see also United States v. Reyes, 302 F.3d 48, 54 (2d Cir. 2002) (“The doctrine of conscious avoidance, also known as deliberate ignorance or willful blindness . . . .”). We retain the designation “conscious avoidance” in order to conform to the briefs and the district court opinion. 31 1 2 high probability of the fact in dispute and consciously avoided confirming that fact.” 3 United States v. Quattrone, 441 F.3d 153, 181 (2d Cir. 2006) 4 (internal citations and quotation marks omitted). 5 government need not choose between an “actual knowledge” and 6 a “conscious avoidance” theory. 7 490 F.3d 110, 128 n.7 (2d Cir. 2007). 8 9 The United States v. Kaplan, The defendants claim not to have known (1) that the LPT contained insufficient risk transfer or (2) how AIG would 10 account for the LPT. 11 predicate for the charge is the same evidence that 12 establishes scienter. 13 November 20 call ordered by Ferguson in which Monrad, 14 Napier, Graham, and Garand told Milton that Gen Re would use 15 deposit accounting for the LPT.) The government argues that the factual (The government emphasizes the 16 Red flags about the legitimacy of a transaction can be 17 used to show both actual knowledge and conscious avoidance. 18 See United States v. Nektalov, 461 F.3d 309, 312, 317 (2d 19 Cir. 2006). 20 laundering for repeatedly selling gold to a government 21 informant posing as a narcotics dealer. 22 upheld a conscious avoidance instruction because the prior 23 dealings between the parties (cash payments using small In Nektalov, a jeweler was convicted of money 32 Id. at 312. We 1 bills) and the statements about the transactions (“moving 2 gold” to Colombia; money from selling “product” “in the 3 streets”) provided the factual predicate for the charge. 4 Id. at 317. 5 including: the secret side agreements, the fake offer 6 letter, the accounting pretext for the reinsurance 7 transaction, and the insistence on strict confidentiality. 8 9 Similarly, several red flags are waving here, The defendants claim they could not have consciously avoided present knowledge of how AIG would book the LPT on 10 some future date. 11 avoidance instructions are only appropriate where knowledge 12 of an existing fact, and not knowledge of the result of 13 defendant’s conduct, is in question.” 14 Gurary, 860 F.2d 521, 526 (2d Cir. 1988). 15 defendants sold fake invoices that were commonly used by 16 purchasers to fraudulently reduce taxable income. 17 523. 18 instruction on the ground that they could not know the 19 nefarious ends of the purchasers. 20 because the repeated (subsequent) frauds provided sufficient 21 “‘proof of notice of high probability’” of purchasers’ tax 22 fraud. It is true that, “in general, conscious United States v. In Gurary, the Id. at The defendants challenged the conscious avoidance Id. at 527. We upheld the instruction But we also noted that a “future 33 1 conduct” challenge to a conscious avoidance instruction 2 “might hold water if th[e] case involved the sale of 3 invoices on a single occasion.” Id. at 526. 4 Although the LPT was a single transaction, it is 5 dissimilar to the “single occasion” theory in Gurary. 6 parameters of the deal were developed over a number of 7 months, and there were numerous forward-looking meetings, 8 emails, and negotiations. 9 decisions informed Gen Re’s accounting decisions to some The Moreover, AIG’s accounting 10 extent, which brought AIG’s accounting into the 11 transaction’s purview (even if asymmetric accounting in 12 general is unobjectionable). 13 The conscious avoidance instruction was not error. 14 15 3 16 The jurors were presented with four theories of 17 liability: principal, aiding and abetting, willfully 18 causing, and Pinkerton.15 19 defendants’ request for a “specific unanimity” instruction, 20 which would have ensured that, as to each defendant, the The district court denied the 15 See Pinkerton v. United States, 328 U.S. 640, 646-48 (1946) (ruling that liability for reasonably foreseeable acts within the scope and in furtherance of a conspiracy is attributable to all conspirators). 34 1 jurors unanimously agreed on the theory for conviction. 2 general instruction on unanimity is sufficient to insure 3 that such a unanimous verdict is reached, except in cases 4 where the complexity of the evidence or other factors create 5 a genuine danger of jury confusion.” 6 Schiff, 801 F.2d 108, 114-15 (2d Cir. 1986) (internal 7 citations omitted). 8 9 “A United States v. In dicta, we have suggested that a jury is unanimous even if some jurors convicted on a theory of principal 10 liability and others on aiding and abetting. 11 v. Peterson, 768 F.2d 64, 67 (2d Cir. 1985); accord, e.g., 12 United States v. Garcia, 400 F.3d 816, 820 (9th Cir. 2005) 13 (“It does not matter whether some jurors found that [the 14 defendant] performed these acts himself, and others that he 15 intended to help someone else who did, because either way, 16 [his] liability is the same. . . .”). 17 general requirement that the jury reach agreement on the 18 preliminary factual issues which underlie the verdict,” 19 neither must it agree on “alternative mental states.” 20 v. Arizona, 501 U.S. 624, 631-32 (1991) (internal quotation 21 marks omitted) (holding that specific unanimity not required 22 for theories of Arizona first-degree murder--premeditated 35 United States Just as there is “no Schad 1 2 and felony murder). Nothing limits the Peterson analysis to principal 3 versus aiding-and-abetting liability. 4 compatible--they are zones on a continuum of awareness, all 5 of which support criminal liability.16 6 consistent with case law maintaining distinctions among 7 mental states where different mental states form elements of 8 different offenses. 9 31 (“[P]etitioner’s real challenge is to Arizona’s The four theories are This view is Compare, e.g., Schad, 501 U.S. at 630- 10 characterization of first-degree murder as a single crime” 11 that encompasses “premeditated murder and felony murder”), 16 The defendants argue that Peterson cannot be extended because the four theories of liability have “clearly different elements that the jury must find.” Garand Br. at 56 n.14. But even Pinkerton liability--which requires the jury to find certain facts such as participation in the conspiracy--is premised on a mental state. See Pinkerton, 328 U.S. at 647 (“The criminal intent to do the act is established by the formation of the conspiracy.”); United States v. Thirion, 813 F.2d 146, 153 (8th Cir. 1987) (“In the Pinkerton analysis . . . . [t]he mens rea necessary to transform the act into a criminal offense is evidenced by the defendant’s participation in the conspiracy.”). All four theories are thus various mental states in which the same crime may be committed; they may differ in “brute facts” underlying the mental state element, but none requires proof of other “factual elements” of the crime (which must be found unanimously by the jury). Richardson v. United States, 526 U.S. 813, 817 (1999); cf. United States v. Sanchez, 917 F.2d 607, 612 (1st Cir. 1990) (“As with the ‘aiding and abetting’ theory, vicarious co-conspirator liability under Pinkerton is not in the nature of a separate offense.”). 36 1 with, e.g., People v. Gonzalez, 1 N.Y.3d 464, 467 (2004) 2 (affirming the reversal of depraved indifference murder 3 conviction for defendant acquitted of intentional murder 4 count, because “only reasonable view of the evidence here 5 was that defendant intentionally killed the victim”). 6 Even assuming that the jury had to agree on the theory 7 of liability, the general unanimity instruction--“it is 8 necessary that each juror agrees to [the verdict],” Trial 9 Tr. at 4788--was sufficient to remove any genuine danger 10 that the jury would convict on disparate theories. 11 accounting and insurance concepts in the case may have been 12 complicated, but they did not add significant complexity to 13 the theories of liability. 14 of a just result would have been reinforced if the 15 instruction were given. The At the same time, the assurance 16 4 17 The court instructed the jury that “[n]o amount of 18 honest belief on the part of a defendant that the scheme 19 will ultimately make a profit for the investors, or not 20 cause anyone harm, will excuse fraudulent actions or false 21 representations by him or her.” 22 claims that this “no ultimate harm” instruction lacked a 37 Trial Tr. at 4730. Graham 1 factual basis and undermined his defense of good faith. 2 Our leading precedent on the “no ultimate harm” 3 instruction is United States v. Rossomando, 144 F.3d 197, 4 200-03 (2d Cir. 1998), which rejected the instruction in a 5 case in which a former firefighter underreported his post- 6 retirement income on pension forms. 7 that he was causing no harm to the pension fund, which 8 distinguished him from a person for whom the instruction is 9 proper: 10 11 12 13 14 15 16 17 18 Rossomando believed [W]here some immediate loss to the victim is contemplated by a defendant, the fact that the defendant believes (rightly or wrongly) that he will “ultimately” be able to work things out so that the victim suffers no loss is no excuse for the real and immediate loss contemplated to result from defendant’s fraudulent conduct. Id. at 201. Rossomando is “limited to the quite peculiar facts that 19 compelled [its] result,” United States v. Gole, 158 F.3d 20 166, 169 (2d Cir. 1998) (Jacobs, J., concurring), so 21 Graham’s analogy is not persuasive. 22 instruction given in the present case ensured that jurors 23 would not acquit if they found that the defendants knew the 24 LPT was a sham but thought it beneficial for the stock price 25 in the long run. The “no ultimate harm” It may well have been proven beneficial to 38 1 AIG stockholders, but the immediate harm in such a scenario 2 is the denial of an investor’s right “to control [her] 3 assets by depriving [her] of the information necessary to 4 make discretionary economic decisions.” 5 F.3d at 201 n.5 (citing United States v. DiNome, 86 F.3d 6 277, 280, 284 (2d Cir. 1996)). 7 given here could not have undermined Graham’s good-faith 8 defense; the instructions made clear that “[a] defendant who 9 acted in good faith cannot be found to have acted knowingly, Rossomando, 144 Moreover, the jury charge 10 willfully, and with the unlawful intent required for the 11 charge you are considering,” Trial Tr. at 4711, and that 12 “[h]owever misleading or deceptive a plan may be, it is not 13 fraudulent if it was devised or carried out in good faith,” 14 id. at 4729. 15 16 17 C The defendants argue that prosecutorial misconduct-- 18 ranging from intentional grammatical errors to eliciting 19 perjury--warrants reversal because the ensuing “substantial 20 prejudice” “so infect[ed] the trial with unfairness as to 21 make the resulting conviction a denial of due process.” 22 United States v. Shareef, 190 F.3d 71, 78 (2d Cir. 1999) 39 1 (internal quotation marks omitted). 2 inconsistencies in Napier’s testimony are sufficiently 3 obvious to raise an eyebrow, but most of the arguments are 4 meritless. Certain factual 5 6 7 1 Compelling inconsistencies suggest that Napier may well 8 have testified falsely. 9 (i) that he attended a meeting with Monrad at which AIG’s 10 CFO was warned that Gen Re would book the LPT on a deposit 11 basis; and (ii) that Garand first proposed a no-risk deal. 12 (i) Napier provided important testimony Napier testified that Monrad, at Ferguson’s 13 behest, led a meeting at AIG in late November or early 14 December 2000, in which she informed Howie Smith and Mike 15 Castelli (AIG’s CFO and Controller, respectively) that Gen 16 Re would book the LPT as a deposit. 17 that AIG could not later claim to be surprised by Gen Re’s 18 accounting. 19 Monrad’s scienter. 20 The disclosure ensured The testimony was thus strong evidence of Neither Napier nor the government could produce “one 21 scrap of paper” showing that the meeting actually took place 22 (Trial Tr. at 1274): no preparatory documents or emails, no 40 1 AIG sign-in or security records confirming that Monrad and 2 Napier had visited the office at that time; no records of 3 the Gen Re car (and drivers) that Napier claimed provided 4 their transportation. 5 confirm the meeting, because none of his historic calendar 6 data was recoverable. 7 discussion for those not in attendance or memorializing it 8 for those who were. 9 Napier’s calendar entries could not No one sent an email summarizing the Monrad’s counsel cross-examined Napier about an email 10 describing an earlier meeting he had with Howie Smith at AIG 11 on an unrelated matter. 12 did not attend--contradicted Napier’s testimony that the 13 purported LPT meeting was the first time that he had met 14 Smith. 15 meeting with this meeting. 16 The earlier meeting--which Monrad Napier admitted that he may have confused the LPT (ii) Garand challenges as perjury (and relatedly, as 17 government misconduct) Napier’s belated recollection (with 18 “certain[ty],” Trial Tr. at 1670) that it was Garand who 19 originated the idea of a no-risk transaction. 20 circumstances he cites as suspicious are: Napier did not 21 recollect Garand’s role as originator until the day that the 22 government filed the superseding indictment in which Garand 41 Among the 1 was first named as a defendant; 2 incompatible with his concession on cross-examination that 3 he was “having a hard time remembering the events of [that 4 day]” and was “drawing a blank on the entire date”; Napier 5 had earlier been uncertain about Garand’s first involvement 6 (he had suggested that Garand may not have been involved 7 until Gen Re collected on the side deal in 2001); the 8 identification contradicted Napier’s previous identification 9 (recanted at trial) of Milton as the source; and his Napier’s certainty is 10 identification of Milton was made while looking at the same 11 undated page of notes that he attributed at trial to a 12 meeting with Garand and Monrad (which he does not contend 13 that Milton attended). 14 delicately broached the LPT in a call with Garand the next 15 day, Garand evinced no recognition of the transaction. 16 Houldsworth formed the impression that Garand “didn’t appear 17 to know anything about it.” 18 learned about the transaction during this call with 19 Houldsworth.) 20 Moreover, when Houldsworth (Garand claims to have first The government argues that we should not review these 21 arguments at all because the defendants waived them; but 22 where a defendant does not “intentional[ly] relinquish[] or 42 1 abandon[]” a known right, but simply “fail[s] to make the 2 timely assertion of [it],” the result is not waiver but 3 forfeiture. 4 (1993) (internal quotation marks omitted). 5 forfeited arguments for plain error. 6 been presented to the trial court, a factual record about 7 Napier’s potential perjury (and the extent of the 8 government’s awareness and diligence) could have been made. 9 The district court requested substantive briefing and United States v. Olano, 507 U.S. 725, 733 We review such If these arguments had 10 argument on the issue, but was not taken up. 11 may have had their reasons for sidestepping the issue of 12 Napier’s possible perjury and the government’s alleged 13 responsibility for it; but “our review for plain error [is] 14 more rigorous” where the failure to object was a “strategic 15 decision” that “resulted in an incomplete record or 16 inadequate findings.” 17 665 (2d Cir. 2003). 18 The defendants United States v. Brown, 352 F.3d 654, There are ambiguities in our case law regarding the 19 proper standard to use, which could not have helped the 20 district judge in sorting this out. 21 agree that the two-part test from United States v. Wallach 22 applies: 43 The parties appear to 1 2 (1) Whether the perjury was material to the jury’s verdict; 3 4 (2) The extent to which the prosecution knew or should have known about the perjury;17 5 935 F.2d 445, 456 (2d Cir. 1991). 6 tension with the four-part test from United States v. 7 Zichettello, which supplements the Wallach factors with two 8 factors from precedent18 (italicized): But that test is in (i) “the witness actually committed perjury”;19 9 10 (ii) “the alleged perjury was material”; 11 12 (iii) “the government knew or should have known of the alleged perjury at the time of trial”; and 13 14 (iv) “the perjured testimony remained undisclosed during trial.” 15 208 F.3d 72, 102 (2d Cir. 2000) (internal quotation marks 17 Two standards of review are set, based upon the prosecution’s knowledge. If the prosecution knew or should have known of the perjury, the conviction must be set aside “if there is any reasonable likelihood that the false testimony could have affected the judgment of the jury.” Id. (internal quotation marks omitted). But where the government was unaware of the perjury, a new trial “is warranted only if the testimony was material and the court [is left] with a firm belief that but for the perjured testimony, the defendant would most likely not have been convicted.” Id. (internal quotation marks omitted). 18 See United States v. Helmsley, 985 F.2d 1202, 1205 (2d Cir. 1993); United States v. Blair, 958 F.2d 26, 29 (2d Cir. 1992). 19 In Wallach, the government conceded that the witness had committed perjury. See 935 F.2d at 455. 44 1 omitted). 2 Wallach without referencing Zichettello. 3 States v. Stewart, 433 F.3d 273, 297 (2d Cir. 2006). 4 tests are not necessarily incompatible, however.20 Later cases add to the confusion by applying See, e.g., United The 5 Since we are vacating the judgments on the grounds 6 discussed above, we need not reconcile these cases or decide 7 whether the prosecution’s actions amounted to misconduct. 8 (Our decision would have been hindered by the defendants’ 9 gamesmanship; and their fact-intensive arguments21 are 10 blunted by the underdeveloped record.) 11 dangerous for prosecutors to ignore serious red flags that a 12 witness is lying, and the government will doubtless approach 13 Napier’s revised recollections with a more skeptical eye on 14 remand. No doubt it is At the same time, Napier’s inconsistent statements 20 The government in essence collapses the Zichettello factors into the two Wallach factors, arguing that the perjury (if any) was immaterial because it was disclosed at trial and fully corrected by the defendants’ forceful attack on Napier’s credibility during cross-examination and summation, yet the jury nevertheless convicted Monrad and Garand. 21 For example, Garand argues that a subset of Napier’s notes produced by the government was in rough chronological order, suggesting that the undated notes page was from between November 15 and 17, rather than from November 13. The government’s use at trial of an identical copy of the notes from elsewhere in the production (rather than the version from the chronological subset), he argues, shows intent to obscure the correct date for the notes. 45 1 concern facts that could not have been conclusively verified 2 by the government, and the potential that Napier had lied in 3 these respects was fully presented in cross-examination and 4 summation to the jury, which resolved the credibility issue 5 against the defendants. 6 7 2 8 The remainder of the misconduct claims involve the 9 government’s comments at opening statement, in summation, 10 and on rebuttal. 11 comments . . . are so prejudicial that a new trial is 12 required.” 13 (2d Cir. 1992) (quoting Floyd v. Meachum, 907 F.2d 347, 348 14 (2d Cir. 1990)). 15 due process unless they constitute “egregious misconduct.” 16 Shareef, 190 F.3d at 78 (internal quotation marks omitted). 17 In assessing a claim, we consider: (1) “the severity of the 18 misconduct”; (2) “the measures adopted to cure it”; and (3) 19 “the certainty of conviction in the absence of the 20 misconduct.” 21 22 “It is a ‘rare case’ in which improper United States v. Rodriguez, 968 F.2d 130, 142 Such comments do not amount to a denial of Id. (internal quotation marks omitted). The defendants did not contemporaneously object to the statements they now claim constitute misconduct. 46 (The one 1 objection was made a day after the challenged statement was 2 made.) 3 transcript, hunting for any plausible (or nearly plausible) 4 claims. 5 or in the aggregate.22 6 7 8 9 They were thus able to pore at leisure over the The remarks do not amount to misconduct, separately First, Graham challenges two mistakes that the prosecution made when quoting his email: In quoting the line that “regulators (insurance and securities) may attack the transaction,” the prosecutor 10 repeatedly used “would” rather than “may.” 11 distinctions among “may,” “might,” “will” and “would” are 12 among the slipperiest in the English language. 13 distinction should have been preserved, but it cannot be 14 said that a slip--even a recurring slip--was misconduct. 15 is easy to make such mistakes, but there is reason to think 16 that there will be heightened vigilance on retrial. 17 18 However, the The It The prosecution also misquoted “potential reputational risk” as �