United States v. Ferguson, et al., No. 08-6211 (2d Cir. 2011)
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This criminal appeal arose from a "finite reinsurance" transaction between American International Group, Inc. (AIG) and General Reinsurance Corporation (Gen Re). Defendants, four executives of Gen Re and one of AIG, appealed from judgments convicting them of conspiracy, mail fraud, securities fraud, and making false statements to the Securities and Exchange Commission. Defendants appealed on a variety of grounds, some in common and others specific to each defendant, ranging from evidentiary challenges to serious allegations of widespread prosecutorial misconduct. Most of the arguments were without merit, but defendants' convictions must be vacated because the district court abused its discretion by admitting the stock-price data and issued a jury instruction that directed the verdict on causation.
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The court issued a subsequent related opinion or order on December 19, 2011.
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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 potential risk in two slides shown to the jury 22 Several of the misconduct arguments are discussed elsewhere, including the alleged misuse of (1) stock-price data, (2) the recordings with derogatory comments about AIG, and (3) Graham s email to McCaffrey. The argument about characterizing the deal as no risk from the start duplicates Ferguson s argument about co-conspirator statements discussed below. 47 1 (and referenced by the prosecutor twice). 2 object to the omitted word; he chose instead to correct the 3 government s mistake in his closing argument, which 4 dovetailed nicely with an argument that the email s use of 5 reputational was pregnant. 6 called the miscue a good faith mistake in closing 7 argument, 8 reversible misconduct. 9 honest mistakes, and any harm was cured by Graham s tactical 10 11 Graham failed to Having tried that (and having Trial Tr. at 4508), he now argues that was We conclude that the omissions were discussion of the error. These misstatements were minor aberrations in a 12 prolonged trial, rather than misconduct. 13 Modica, 663 F.2d 1173, 1181 (2d Cir. 1981) (internal 14 quotation marks omitted). United States v. 15 Second, the defendants contend that the government 16 oversimplified the case by emphasizing Gen Re s lack of need 17 for reinsurance and AIG s acquiescence to paying a $5 18 million fee despite accepting risk. 19 transaction, it is claimed, are irrelevant because they may 20 also inhere in any lawful finite reinsurance transaction. 21 It is true that these facts alone are insufficient to 22 support a conviction, but neither are they irrelevant: It 48 These features of the 1 was within the province of the jury to determine whether 2 these were incidents of fraud or incidental to a lawful 3 transaction of that specialized kind. 4 Third, the defendants claim that the government 5 knowingly invited a false inference. 6 that the LPT could not have been fraudulent because Warren 7 Buffet--the CEO of Berkshire Hathaway, Gen Re s parent 8 company--vetted aspects of the deal. 9 prosecution statement that there was no evidence Warren One defense theory was Defendants attack the 10 Buffet knew anything significant about the deal. 11 inference was invited: Although the government led with its 12 inference that Buffett knew nothing of significance, it then 13 described in detail all of the Buffett evidence. 14 could assess the evidence as it saw fit; the prosecution was 15 free to offer its assessment as well. 16 No false The jury Finally, the defendants challenge the government s 17 rebuttal assertion that Milton s delivery of the fake slip 18 and offer letter successfully deceived two AIG employees, 19 who therefore booked the transaction as reinsurance. 20 claim the statement was intended to paper over the 21 government s missing proof of causation. 22 sentence had an insignificant (if any) effect on the 49 They But this single 1 prosecution s causation evidence, especially in view of the 2 court s later reminder to the jury that statements from 3 summations are not evidence. 4 of misconduct. The statement fell far short 5 6 II 7 Ronald Ferguson, the CEO of Gen Re, and Hank Greenberg 8 envisioned a creative and unusual deal, but Ferguson claims 9 that he was unaware that the deal would be fraudulent. 10 cautions that the jury may have disregarded the flimsy 11 evidence of his scienter (some of which he claims was 12 admitted in error) and convicted him merely because he was 13 in charge as CEO. He 14 15 16 A Ferguson argues that the jury finding of his scienter 17 was supported by insufficient evidence. 18 burden of showing that no rational juror could have found 19 [his scienter] beyond a reasonable doubt. 20 Bryce, 208 F.3d 346, 352 (2d Cir. 1999) (internal quotation 21 marks omitted). 22 of the evidence in the light most favorable to the He has the heavy United States v. For a sufficiency challenge, we view all 50 1 government and draw all reasonable inferences in its favor. 2 Id. 3 Napier testified extensively about Ferguson s knowledge 4 of the no-risk aspect of the deal and his insistence on 5 disclosing Gen Re s deposit accounting to AIG; that 6 testimony alone was likely sufficient to support the jury s 7 finding. 8 Cir. 1990) ( The fact that a conviction may be supported 9 only by the uncorroborated testimony of a single accomplice See United States v. Parker, 903 F.2d 91, 97 (2d 10 is not a basis for reversal if that testimony is not 11 incredible on its face and is capable of establishing guilt 12 beyond a reasonable doubt. ). 13 In any event, that testimony, taken together with other 14 evidence--Ferguson s unusual request for internal 15 confidentiality, his review of the Houldsworth email noting 16 that no real risk 23 would be transferred and that [CRD] 17 w[ould] not transfer any losses under this deal (Joint 18 Appendix at 1978), and his proactivity with the tortuous fee 23 Ferguson attempts to distinguish no real risk from no risk, arguing that the former is simply a reference to a legitimate finite reinsurance transaction with low risk. He introduced CRD materials that arguably use no real risk in this manner. However, the evidence is inconclusive, and in any event the potential distinction was before the jury. A rational juror could have, but need not have, credited the distinction. 51 1 recovery (which was not in the LPT documents)--were 2 sufficient for a rational juror to have found his scienter 3 beyond a reasonable doubt. 4 5 B 6 Ferguson challenges the admissibility of a December 7 2000 email from Graham, which assured Gen Re s General 8 Counsel, Timothy McCaffrey, that: 9 10 11 12 [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. 13 Joint Appendix at 2192. 14 conspirator statement under Rule 801(d)(2)(E). 15 argues that the email: (1) was inadmissible double-hearsay; 16 (2) mandated severance because it created tension between 17 his lack-of-scienter defense and Graham s good-faith 18 defense; (3) and led the government to invite the inference 19 that Graham himself told Ferguson about the potential 20 reputational risk, which it knew to be false. The email was admitted as a co- 21 52 Ferguson 1 2 1 Double-hearsay24 is a potential issue because the 3 December email is written in the passive voice: Ferguson and 4 others have been advised about the potential reputational 5 risk by some unidentified person. 6 constitutes double-hearsay is a legal issue, which we review 7 de novo. 8 F.3d 365, 378 (6th Cir. 2009) ( Whether a statement is 9 hearsay is a question of law, which we review de novo. ); Whether this statement See, e.g., Biegas v. Quickway Carriers, Inc., 573 10 United States v. Collicott, 92 F.3d 973, 978 (9th Cir. 1996) 11 ( Whether the district court correctly construed the hearsay 12 rule is a question of law reviewable de novo. ). 13 a district court s hearsay rulings based upon factual 14 findings or the exercise of its discretion warrant 15 additional deference.25) (However, 24 As Ferguson notes, statements admitted under Rule 801(d)(2)(E) are technically nonhearsay, rather than hearsay exceptions. Ferguson s argument is thus a first-order hearsay issue (which happens to be embedded in a nonhearsay co-conspirator statement). The distinction is irrelevant for present purposes. We therefore use double-hearsay for ease of reference and to conform to the framing of the arguments in the district court. 25 See, e.g., United States v. Fell, 531 F.3d 197, 231 (2d Cir. 2008) (reviewing statement admitted as excited utterance under Rule 803(2) for abuse of discretion); United States v. Padilla, 203 F.3d 156, 161 (2d Cir. 2000) (reviewing district court s findings for admitting co53 1 The phrase have been advised of is used to convey the 2 idea that they know ; if the email said Ferguson et al. 3 know the potential reputational risk there would be no 4 double-hearsay issue.26 5 is not necessary to look for the speaker behind every 6 sentence written in the passive voice. 7 the email was carefully drafted for hearsay subterfuge, 8 especially in view of the incautious discussion about AIG 9 answering to God about its accounting practices. 10 Without indicia of evasiveness, it It is unlikely that This is not an instance in which a sentence is carefully manipulated conspirator statements under Rule 801(d)(2)(E) for clear error). 26 Such a formulation would raise a problem as to the speaker s competence to say what is in the mind of another person, however. It is unclear whether Graham knew that Ferguson had been informed or whether some degree of conjecture was involved. We have never explicitly held that co-conspirator statements admitted under Rule 801(d)(2)(E) need not satisfy Rule 602 s personal knowledge requirements. The government argues that personal knowledge is not required, noting that several other Circuits have so held, see, e.g., United States v. Lindemann, 85 F.3d 1232, 1237-38 (7th Cir. 1996), and that we have rejected such a requirement for a similar provision (for admissions by a party s agents under Rule 801(d)(2)(D), see United States v. Lauersen, 348 F.3d 329, 340 (2d Cir. 2003), vacated and remanded on other grounds, 543 U.S. 1097 (2005)). The potential personal knowledge issue was waived, however, because double-hearsay is what was argued and there was no ruling on personal knowledge in the first place. See Norton v. Sam s Club, 145 F.3d 114, 117 (2d Cir. 1998). 54 1 to smuggle hearsay evidence into pending litigation. 2 e.g., Official Comm. of Unsecured Creditors v. Hendricks, 3 No. 1:04-cv-066, 2008 U.S. Dist. LEXIS 116318, at *12 (S.D. 4 Ohio Aug. 1, 2008) (striking passive-voice sentence in 5 affidavit submitted with motion for summary judgment). 6 In any event, the unnamed speaker need not be See, 7 identified to conclude that the statement is nonhearsay. 8 First, the statement was not offered for its truth; it was 9 offered solely for the purpose of showing that the statement 10 was made to Ferguson. 11 914 F.2d 26, 30 (2d Cir. 1990) ( [A]n out of court statement 12 offered not for the truth of the matter asserted, but merely 13 to show that the defendant was on notice of a danger, is not 14 hearsay. ). 15 have given Ferguson the advice about potential reputational 16 risk, because only co-conspirators would have been aware of 17 the particular reputational risk that the conspiracy s 18 object entailed (especially in view of Ferguson s order for 19 an unusual level of internal secrecy about the deal). 20 statement, made in furtherance of the conspiracy, is thus 21 also a nonhearsay co-conspirator statement under Rule 22 801(d)(2)(E). See, e.g., George v. Celotex Corp., Second, no nonmember of the conspiracy could 55 The 1 2 2 Ferguson wished to keep Graham s email out of evidence, 3 but Graham wanted it in--as evidence that he acted in good 4 faith by soliciting his supervisor s imprimatur on a legally 5 questionable transaction. 6 the email created unavoidable tension between Ferguson s 7 lack-of-scienter defense and the good-faith defense mounted 8 by Graham, and that severance was therefore warranted. 9 Ferguson claims additional prejudice from his inability-- Ferguson and Graham claim that 10 without infringing Graham s rights--to place before the jury 11 an exculpatory statement from Graham s proffer session. 12 Motions to sever under Rule 14 are committed to the 13 sound discretion of the trial judge ; to compel reversal, 14 the defendant has the heavy burden to show prejudice so 15 severe that his conviction constituted a miscarriage of 16 justice. 17 Cir. 2008) (internal quotation marks omitted). 18 United States v. Rittweger, 524 F.3d 171, 179 (2d It was well within the district court s discretion to 19 conclude that any tension between defenses was insufficient 20 to warrant severance. 21 Graham and Ferguson feared reputational risk because the LPT 22 was objectionable but non-fraudulent--like, for example, an If the jury concluded that both 56 1 aggressive (but defensible) offshore tax position--it could 2 have credited both defense theories. 3 Nor was severance necessary to permit Ferguson to 4 introduce evidence from Graham s proffer session, in which 5 Graham denied personally informing Ferguson about the 6 reputational risk of the transaction. 7 in a joint trial, he was hamstrung: He could not introduce 8 the government s notes containing the statement, because 9 Graham was given limited-use immunity; nor could he compel Ferguson argues that 10 Graham to testify, because of Graham s Fifth Amendment right 11 against self-incrimination. 12 We have identified several factors for determining 13 whether to grant severance based on a defendant s need to 14 call a co-defendant as a witness: 15 16 17 (1) the sufficiency of the showing that the co-defendant would testify at a severed trial and waive his Fifth Amendment privilege; 18 19 (2) the degree to which the exculpatory testimony would be cumulative; 20 (3) the counter arguments of judicial economy; and 21 22 (4) the likelihood that the testimony would be subject to substantial, damaging impeachment. 23 United States v. Finkelstein, 526 F.2d 517, 523-24 (2d Cir. 24 1975) (internal citations omitted). 57 Although the district 1 court did not recite or explicitly apply these factors,27 2 its discretion is not conditioned upon reciting or 3 considering them. 4 court properly could have considered ; they were announced 5 [w]ithout purporting to delimit the trial court s field of 6 inquiry. 7 Rather, the factors are what the district Id. at 523 (emphasis added). In any event, the factors weigh in favor of the 8 district court s ruling. 9 Ferguson: Graham s testimony about the email would not have 10 been cumulative, because there is no adequate substitute for 11 further clarification from the drafter himself. 12 other factors favor the government: first, Ferguson merely 13 assumes Graham would testify, and it is unclear whether the 14 conflicting statement from the proffer session would even be 15 admissible if he did not;28 second, the exculpatory value of Only the second factor favors But the 27 Ferguson s motion to sever based on this email was made on the eve of trial, because it was prompted by the government s eleventh-hour Brady/Jencks disclosures. The district court thus had to decide the motion on an expedited basis, and did so orally (before the government was even able to file a written response). The court later provided a written explanation for the denial of Ferguson s renewed motion to sever (raised in connection with his Rule 29 motions), but that too omitted any reference to the Finkelstein factors. (Ferguson had once previously renewed the motion to sever, which was also denied orally.) 28 Ferguson argues that the proffer session statement would be admissible under Rule 804(b)(3) as a statement 58 1 the statement would be hugely outweighed by staging another 2 multi-week trial (with another potential appeal) for 3 Ferguson alone; third, the cross-examination of Graham would 4 elicit testimony damaging to Ferguson about Graham s qualms 5 concerning the deal, and the basis for his statement that 6 Ferguson knew of the reputational risk. 7 8 * * * At bottom, Rule 14 does not require severance even if 9 prejudice is shown ; instead, the tailoring of the relief 10 to be granted, if any, [is in] the district court s sound 11 discretion. 12 (1993). 13 justifies upending the district court s exercise of its 14 discretion. Zafiro v. United States, 506 U.S. 534, 538-39 Ferguson and Graham have not made a showing that 15 against interest or under the Rule 807 residual exception. But only those declarations . . . that are individually self-inculpatory are admissible under Rule 804(b)(3), and a court could exclude the statement for d[oing] little to subject [Graham] himself to criminal liability. See Williamson v. United States, 512 U.S. 594, 599, 604 (1994) (emphasis added). As for the residual exception, it is unclear that the notes have the necessary equivalent circumstantial guarantees of trustworthiness, Fed. R. Evid. 807, because Graham was not cross-examined and there was no transcript from the hearing. 59 1 2 3 The government s closing statement juxtaposes Napier s 3 comment that the LPT is Ferguson s deal with a description 4 from Graham s email that Ferguson was advised of the 5 potential reputational risk. 6 sequence (and a similar one in the government s opening 7 statement) amounted to prosecutorial misconduct, because it 8 advanced the inference that Graham had personally discussed 9 reputational risk with Ferguson, which the government knew 10 11 Ferguson argues that this to be false. Prosecutors are well advised to tread carefully when it 12 comes to arguing for inferences that are fair in terms of 13 evidence but are doubtful (if not foreclosed) based on what 14 they were told in proffer sessions. 15 arose from the structure of the government s argument, 16 rather than its substance. 17 misleading structure of a prosecutor s argument could amount 18 to misconduct, the misconduct here (if any) was insufficient 19 to create the substantial prejudice necessary to warrant 20 vacatur. 21 Cir. 1987). However, any inference Although it is possible that the United States v. Valentine, 820 F.2d 565, 570 (2d 22 60 1 2 C The government insists that the deal was tainted from 3 the very first call between Ferguson and Greenberg, when AIG 4 asked to rent a specific amount of reserves for a defined 5 period. 6 deal did not surface until Garand suggested it in mid- 7 November. 8 renders untenable the district court s finding that the 9 conspiracy began with the Greenberg-Ferguson call on October Yet it also theorized that the idea of a no-risk Ferguson claims that this is a contradiction that 10 31, a ruling that allowed the government to introduce co- 11 conspirator statements made starting on October 31 (rather 12 than starting from mid-November).29 13 decision to admit the co-conspirator statements under Fed. 14 R. 801(d)(2)(E) is reviewed for clear error. The district court s See United 29 Extrajudicial statements made among co-conspirators during and in furtherance of a conspiracy (whose existence is established by a preponderance of the evidence) are admissible against co-conspirators. See Fed. R. Evid. 801(d)(2)(E); United States v. Tellier, 83 F.3d 578, 580 (2d Cir. 1996). The court conditionally admitted the statements during the government s case, but admitted the statements only after conducting a hearing after the government rested; the court found that the government satisfied its burden of proving the necessary Rule 801(d)(2)(E) elements by a preponderance. See United States v. Geaney, 417 F.2d 1116, 1120 (2d Cir. 1969). 61 1 2 States v. Farhane, 634 F.3d 127, 160-61 (2d Cir. 2011). The government s theories are not irreconcilable. 3 Although the details of the plan were not settled during the 4 October 31 call, Greenberg and Ferguson agreed to a highly 5 unusual deal: The transaction was prompted predominately by 6 stock market concerns; it inverted their customary 7 commercial roles as cedant and reinsurer, even though there 8 was no evidence that Gen Re wanted reinsurance; and AIG 9 requested a specific dollar range of loss reserves for a 10 11 specific term. Even if Greenberg and Ferguson had hoped to accomplish 12 their objectives legally, execution of a no-risk transaction 13 was not unforeseeable. 14 to pursue specific parameters. 15 predictably exerted pressure on their subordinates on the 16 deal team to get the transaction done that way no matter 17 what.30 18 was clearly erroneous for the district court to find that 19 the conspiracy began on October 31. These very senior executives agreed And their objective Under these circumstances, we cannot say that it 20 30 The government presented evidence that Ferguson and Greenberg ratified the transaction even after it became norisk. 62 1 2 III The defense of Robert Graham, in-house lawyer for Gen 3 Re and the only attorney among the defendants, is that he 4 acted in good faith throughout, was unaware of the true 5 nature of the deal, and vetted his ethical concern with Gen 6 Re s General Counsel, Timothy McCaffrey. 7 (1) his requests for certain jury instructions were 8 improperly denied, and (2) government conduct rendering 9 McCaffrey unavailable was a hindrance to Graham s good faith 10 Graham argues that defense. 11 12 13 A Graham claims that the district court improperly denied 14 his request for jury instructions about professional 15 responsibility rules for attorneys, and non-contractual 16 understandings (i.e., handshake deals). 17 defendant is entitled to a jury instruction when there is 18 any foundation in the evidence for it, an instruction that 19 divert[s] the attention of the jury to questions of little 20 significance and that would have confused, if not misled, 21 the jury are properly rejected. 22 F.3d 1383, 1393-94 (2d Cir. 1996) (internal quotation marks 63 Although a criminal United States v. Russo, 74 1 omitted). 2 3 1 4 Graham sought a jury instruction explaining that an 5 attorney confronted with an arguable question of 6 professional duty may discharge his ethical 7 responsibilities by consulting with a supervisory lawyer and 8 relying on his resolution of the matter. 9 2844-45. Joint Appendix at He argues that his email to his boss,31 which the 10 government says is a basis for liability, was in fact and 11 effect compliance with his ethical responsibilities: 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 Tim The AIG project continues. It is now a two step loss portfolio deal between Cologne Re Dublin and National Union of Pittsburgh, with $250 million booked in the 4th quarter of 2000 and $250 million more to be booked in 2001 (probably 1st quarter). While it will be booked in the third quarter, it is retroactive to 1/12/2000. 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 31 This is the same email that Ferguson challenged (discussed above) for asserting that he had been advised of the potential reputational risk of the transaction. 64 1 2 3 4 5 6 7 accepted, the potential reputational risk that US regulators (insurance and securities) may attack the transaction and our part in it. Rob Joint Appendix at 2192 (emphasis added). The professional responsibility rules shed no light, 8 however: A memo reporting on what is being done, without 9 more, is not the kind of consultation contemplated by the 10 rules. 11 there a foundation for the instruction in the record, 12 because Graham presented no evidence implicating the rules. 13 (He evidently decided not to call the ethics expert witness 14 he had considered. 15 cr-137, 2007 WL 4539646, at *2 (D. Conn. Dec. 14, 2007).) See Conn. Rules of Prof l Conduct 5.2. Nor was See United States v. Ferguson, No. 06- 16 17 18 2 The government emphasized that Graham drafted the 19 contracts to omit the $15 million in payments to Gen Re. 20 Graham countered that the payments were non-contractual 21 handshake deals and thus needed not be included in a 22 written contract. 23 handshake deals to bolster this argument. 24 He sought a jury instruction about There was no foundation for the instruction; and the 65 1 instruction only would have created confusion about an 2 unimportant collateral issue. 3 deals was that they are agreement[s] over many years, often 4 decades in which one party may or may not make up losses 5 to the other party if they do particularly well, Trial Tr. 6 at 3435, and that such arrangements are common in the 7 insurance industry. 8 confirm that the $15 million payment was not a handshake. 9 (The only comment to the contrary was a stray remark by 10 Houldsworth that appears to have been a misstatement). 11 Moreover, the money trail does not suggest that the parties 12 were dealing on the trustful basis of a handshake: Gen Re 13 withheld the payment it was contractually obligated to make 14 until AIG had routed the $15 million from the side-deal 15 (premium repayment and fee) to Gen Re. The testimony on handshake But numerous comments in the record 16 17 18 B In a government interview, Graham s boss, Tim 19 McCaffrey, recalled that when he received Graham s email, he 20 saw nothing that warranted questioning or follow up, and 21 presumed that Graham would have been more explicit if truly 22 concerned about legal or ethical issues. 66 Graham subpoenaed 1 McCaffrey to testify about these matters (and Graham s good 2 character), but McCaffrey, who was changed to an unindicted 3 co-conspirator in the superseding indictment,32 declined to 4 testify unless immunized. 5 claims that McCaffrey should have been immunized so that he 6 could testify on Graham s behalf or, failing that, he should 7 have had the benefit of a missing witness instruction. 8 9 The government refused. Graham The situations in which the United States is required to grant statutory immunity to a defense witness are few and 10 exceptional. 11 1064 (2d Cir. 1979). 12 in the nearly thirty years since establishing a test for 13 when immunity must be granted, we have yet to reverse a 14 failure to immunize. 15 16 17 18 United States v. Praetorius, 622 F.2d 1054, So few and exceptional are they that, The test requires three findings: (1) [T]he government discriminatory use of advantage or, through forced the witness to 32 has engaged in immunity to gain a tactical its own overreaching, has invoke the Fifth Amendment ; Graham argues that the reference to McCaffrey as a co-conspirator in the indictment should have been stricken. Motions to strike surplusage from an indictment are granted only when the challenged phrases are not relevant to the crime charged and are inflammatory and prejudicial. United States v. Hernandez, 85 F.3d 1023, 1030 (2d Cir. 1996) (internal quotation marks omitted). The phrase was relevant because, as discussed below, McCaffrey was legitimately being investigated; he had to be referenced because he was the only recipient of Graham s infamous email. 67 1 2 (2) [T]he witness testimony will be material, exculpatory and not cumulative ; and 3 4 (3) The testimony is not obtainable from any other source. 5 United States v. Burns, 684 F.2d 1066, 1077 (2d Cir. 1982). 6 We review the court s factual findings about government 7 actions and motive for clear error, but its ultimate 8 balancing for abuse of discretion. 9 458 F.3d 110, 118 (2d Cir. 2006). 10 United States v. Ebbers, Graham s claim fails on two grounds. As to the first 11 part, a prosecutor does not overreach by refusing to 12 immunize a legitimate target of an ongoing investigation, 13 and the district court s finding that McCaffrey was a target 14 was not clearly erroneous: He failed to act following 15 Graham s remark that [h]ow AIG books [the LPT] is between 16 them, their accountants and God, and he annotated a list of 17 transactions in his personal files to indicate a hidden 18 letter for the LPT. 19 As for the second part, McCaffrey s interpretation of 20 Graham s email was not material because it was non- 21 contemporaneous and self-serving: It would have been 22 disadvantageous for McCaffrey to concede that the email had 23 raised red flags that he subsequently ignored. 68 Moreover, 1 McCaffrey s assumption, that Graham would have been more 2 explicit if he had a qualm, was conjectural. 3 Similarly, the district court did not abuse its 4 discretion by omitting a missing witness instruction. 5 an instruction need not be given in the absence of 6 circumstances that indicate the government has failed to 7 immunize an exculpatory witness. 8 18 F.3d 153, 160 (2d Cir. 1994). 9 above, it was within the court s discretion to conclude that Such United States v. Myerson, For the reasons discussed 10 McCaffrey s potential testimony was insufficiently 11 exculpatory to warrant the instruction. 12 13 14 IV Christian Milton, a Vice President of Reinsurance at 15 AIG, was the only AIG employee who was indicted in this 16 case. 17 vilification of AIG, and he was convicted by association. His primary defense is that the trial was a 18 19 20 21 A Milton argues that the court abused its discretion by admitting comments from the recordings of the Gen Re 69 1 defendants that impugned AIG generally.33 2 are undeniably prejudicial to AIG, but they are also highly 3 probative of the scienter of the Gen Re defendants. 4 district court conscientiously conducted extensive 5 balancing, evaluating and redacting recordings on a line-by- 6 line basis. 7 121-23 (D. Conn. 2007) (excluding comments that 8 sarcastically referenced the lovely people and nice 9 people at AIG, The statements The See United States v. Ferguson, 246 F.R.D. 107, that there were good reasons to avoid doing 10 business with AIG, and that Ferguson doesn t like it 11 because it s AIG ). 12 that guilt could not be conferred 33 Moreover, the court gave a charge Milton challenges the admission of four passages: 1) HOULDSWORTH: [I]f there s enough pressure on at [AIG s] end, they ll, they ll find ways to cook the books, won t they? 2) MONRAD: I m not sure [AIG] use[s] all the same rules we use. 3) HOULDSWORTH: . . . I mean, how much cooking goes on in, in there [at AIG]? . . . . . . . GARAND: They ll do whatever they need to make their numbers look right. 4) GRAHAM: [AIG s] organizational approach to compliance issues has always been, pay the speeding ticket. 70 1 2 3 based solely on [the defendants ] senior position or positions that he or she held within their respective companies. 4 5 6 7 . . . [Y]ou may not infer that any of the defendants, based solely on his or her position at Gen Re . . . or AIG, had any knowledge of the alleged fraud. 8 Trial Tr. at 4766-67. 9 and juries are presumed to follow their instructions. 34 The instruction is easy to follow, 10 Richardson v. Marsh, 481 U.S. 200, 211 (1987). 11 fortified limiting instructions for each recording could 12 have provided additional (perhaps redundant) protection, 13 Milton s strategy was to forgo additional instructions to 14 avoid drawing unnecessary attention to the recordings.35 15 Although Under these circumstances, we cannot say that the 16 district court abused its discretion in admitting the 17 statements.36 At the same time, some of the phrases (from 34 Milton argues that no limiting instruction could cure the prejudice, by analogy to cases where plea allocutions were introduced, see, e.g., United States v. Riggi, 541 F.3d 94 (2d Cir. 2008). The analogy is not apt. 35 It is easy to see why the defendant did not seek further limiting instructions. Confusion abounded when the first limiting instruction was given, causing the jury to hear the prejudicial statement three times in short succession. Nevertheless, the option to seek further instructions was available. 36 Two aspects of the district court s treatment of Houldsworth s cook the books comment give pause. First, the court excluded the comment from evidence after 71 1 the recordings) that denigrated AIG were exploited 2 rhetorically by the government. 3 is a cliche that comes easily to the lips, the government 4 pushed its luck by harping on it twenty-three times (by 5 Milton s count)--after a recording containing that phrase 6 was excluded. 7 could neutralize the effect of an otherwise sufficient 8 limiting instruction. 9 but the government would be well served to avoid gratuitous 10 Although cook the books Such conduct draws appellate scrutiny, and We need not consider this further; prejudice of that kind at retrial. 11 12 B 13 The recordings denigrating AIG did not require that 14 Milton s trial be severed.37 Joint trials play a vital previously allowing the jury to hear it during the government s opening. But the statement was not so explosively prejudicial as to taint the jury after one hearing; nor was it irrational for the district court to revisit its Rule 403 balancing and exclude the comment. Second, excluding the comment seems inconsistent with admitting Houldsworth s other comment that asked how much cooking goes on at AIG. But the cooking the books metaphor was not the only objectionable part of the excluded comment; Houldsworth also explained that We won t help them do that too much. We won t, we ll do nothing illegal. 37 Milton moved for a severance both before and after trial. The pretrial motion was based on the above recordings and evidence of a similar transaction, which was 72 1 role in the criminal justice system by promoting efficiency 2 and avoiding the scandal and inequity of inconsistent 3 verdicts. 4 (1993) (internal quotation marks omitted). 5 the decision whether to sever is confided to the sound 6 discretion of the district court and is virtually 7 unreviewable unless the conviction constituted a 8 miscarriage of justice, United States v. Yousef, 327 F.3d 9 56, 149-50 (2d Cir. 2003) (internal quotation marks 10 11 Zafiro v. United States, 506 U.S. 534, 537 As discussed, omitted). There was substantial other evidence to convict Milton 12 besides the recordings denigrating AIG. 13 with Napier--sometimes a couple of times a day, and other 14 times almost daily --to keep the pressure on Gen Re to 15 get the deal done. 16 candidly with Napier about the no-risk nature of the deal, 17 and their discussions are memorialized in at least one 18 email. 19 within AIG to avoid the customary actuarial and underwriting 20 due diligence. He spoke frequently Joint Appendix at 789. He also spoke He orchestrated the circulation of deal documents He signed the final contracts on behalf of excluded before trial. The post-verdict motion for severance lacked supporting legal arguments. 73 1 AIG, which omitted the $15 million fee, and then helped 2 effect (and disguise) the payment of the fee, including by 3 signing the relevant paperwork on AIG s behalf. 4 Even if the recordings were likely inadmissible had 5 Milton been tried alone (they were admitted for the limited 6 purpose of showing scienter of the Gen Re defendants), we 7 cannot say--in view of the line-by-line redaction of the 8 recordings, the court s steps to minimize each recording s 9 effect on Milton,38 and the jury charge rejecting conviction 10 based upon corporate title--that the district court abused 11 its discretion in denying severance. 12 13 V 38 (The content of the recordings is discussed above, see supra note 32.) Although the first recording was permitted to be played in the government s opening, the court did not allow the government to bring it out in Houldsworth s testimony. The second passage is not inflammatory, but in any event, the court instructed the jury that it may not consider this statement at all as to any of the other defendants besides Monrad, the speaker. The court offered to give a limiting instructions to the jury for the third recording if requested by Milton, 246 F.R.D. at 120, but Milton did not request one. Milton expressly requested that the court not give a limiting instruction for the fourth recording. 74 1 Elizabeth Monrad, the Chief Financial Officer of Gen 2 Re, argues principally the prosecutorial misconduct and 3 other issues discussed above. 4 testimony by Houldsworth and Napier about what others 5 (sometimes she herself) meant by certain statements was 6 equivalent to asking what she knew, which improperly 7 prejudiced the jury as to her scienter.39 8 she claims, was neither rationally based on the witnesses 9 perception nor helpful to the jury. 10 11 In addition, she argues that Such testimony, See Fed. R. Evid. 701. Monrad relies heavily upon United States v. Kaplan, 490 F.3d 110 (2d Cir. 2007). In Kaplan, conspirators from a 39 Monrad argues in general about improper lay opinions by Napier and Houldsworth, but focuses on four interpretations: 1) Testimony by Houldsworth and Napier concerning her statement that We told AIG that there would not be symmetrical accounting here. Joint Appendix at 2094. 2) Houldsworth s testimony about Napier s statement that The accounting does not appear to be an issue for AIG. Joint Appendix at 2067. 3) Houldsworth s testimony about his comment that to me it sounds like [Monrad s] got something in mind. Joint Appendix at 1957. 4) Testimony by Houldsworth and Napier concerning her statement that AIG may have a tough time getting the accounting they want. Joint Appendix at 1997. 75 1 medical office and a law firm set up auto accidents to 2 collect insurance. 3 lawyer involved in the ring, testified that when a successor 4 lawyer in the ring claimed experience with these kinds of 5 cases, the witness understood the cases as auto insurance 6 scams. 7 opinion testimony because the government did not establish 8 that it was rationally based on the perception of the 9 witness (who was extremely vague when explaining the basis 10 11 Id. at 117. for his testimony). Id. at 114-16. A cooperating witness, a That was held to be improper lay Id. at 119. Those concerns are absent here. Napier and Houldsworth 12 testified only about calls or emails they were involved 13 with, and their testimony was rationally based on the 14 perceptions that they formed from those communications and 15 as key players in the LPT deal. 16 to the jury because of the jargon,40 the heavy involvement 17 by Napier and Houldsworth in the LPT, and their experience 18 in the reinsurance industry. 40 The testimony was helpful Monrad s analogy to drug code cases is unpersuasive. See, e.g., United States v. Grinage, 390 F.3d 746 (2d Cir. 2004). Attributing highly inculpatory meaning to otherwise innocuous phrases (e.g., I need something bad, bad, bad, and I need about nearly four interpreted as needing four ounces of PCP) differs from providing context for obscure accounting terminology. 76 1 Although this Court has suspect[ed] that in most 2 instances a proffered lay opinion will not meet the 3 requirements of Rule 701 when the issue is a party s 4 knowledge, we have advised that, like here, [l]ay opinion 5 testimony will probably be more helpful when the inference 6 of knowledge is . . . from such factors as the defendant s 7 history or job experience. United States v. Rea, 958 F.2d 8 1206, 1216 (2d Cir. 1992). The district court therefore did 9 not abuse its discretion in admitting the testimony about 10 these statements. 11 12 13 VI All of the arguments raised by Chris Garand, a Senior 14 VP and Chief Underwriter of Gen Re s finite reinsurance 15 operation in the U.S., are raised by other defendants and 16 are discussed above. 17 18 19 CONCLUSION For the foregoing reasons, the defendants convictions 20 are vacated and the case is remanded to the district court 21 for a retrial. 77
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