On December 1, 2011, Judge A. Howard Matz entered an order granting the motion to dismiss filed by Lindsey Manufacturing Company, Keith Lindsey, Steve Lee in the criminal FCPA case against them. As discussed here, the Court announced its intention to do so at a hearing on November 29, 2011. In its Order, the Court said that the Government conducted a "sloppy, incomplete and notably over-zealous investigation … that was so flawed that the Government’s lawyers tried to prevent inquiry into it." The Court’s decision was based, in part, on: the untruthful testimony of an FBI agent to the grand jury; the provision of false information in applications for search and seizure warrants; the improper review of e-mail communications between a defendant and her lawyer; the failure to comply with discovery obligations and other court rulings; and misrepresentations to the Court. The Court held that "the multiple acts of misconduct … undoubtedly affected the verdicts and thus substantially prejudiced" the Defendants, necessitating the decision – made with what the Court called "deep regret" – to vacate the convictions and dismiss the Superseding Indictment.
The three defendants were named in a Superseding Indictment on October 21, 2010. On May 10, 2011, following a five-week trial, a federal jury convicted Lindsey Manufacturing, Mr. Lindsey, and Mr. Lee of one count of conspiracy to violate the FCPA and five counts of actually violating the Act. The charges were based on payments to employees of the Comisión Federal de Electricidad ("CFE"), an electric utility company owned by the government of Mexico, which were made in exchange for the CFE to award contracts to Lindsey Manufacturing.
The Court noted that "the almost non-stop, often acrimonious motion practice" that took place prior to the trial made it "difficult to step back and look into whether what was going on reflected not isolated acts but a pattern of invidious conduct." For example, the Court noted that prior to filing the May 9 motion to dismiss the Indictment that is the subject of this ruling, the defendants had filed five different motions to dismiss that argued that the Government engaged in misconduct. Looking back at the activity, the Court concluded that there had been misconduct:
Although the Court did issue orders granting various of Defendants’ motions to suppress, motions to exclude evidence, motions to compel further discovery, motions for curative instructions, etc., it did not fully comprehend how the various pieces fit together. And fit together they do. The Government has acknowledged making many "mistakes," as it characterizes them. "Many" indeed. So many in fact, and so varied, and occurring over so lengthy a period (between 2008 and 2011) that they add up to an unusual and extreme picture of a prosecution gone badly awry.
The Court found that prior to the Indictment, Farrell Binder, an FBI agent, executed an affidavit in support of an application for a search warrant which falsely stated that Lindsey Manufacturing made payments to "Sovrill," an entity controlled by co-defendant Enrique Aguilar which was allegedly used to funnel payments on behalf of various entities to CFE. The Court pointed out that the same false statement was included in five other applications for "follow on" search warrants. In addition, the Court found that when executing that search warrant, the FBI agents searched two additional buildings that were not authorized by the search warrant.
The Court carefully scrutinized the grand jury testimony of one of the FBI co-case agents, Susan Guernsey, which included:
• the prosecution’s decision to display a chart which suggested a non-existent link between Lindsey Manufacturing and Sovrill;
• incorrect testimony that a contact between Lindsey Manufacturing and another company controlled by Mr. Aguilar ("Grupo") was created in response to an IRS audit;
• incorrect testimony that CFE and Lindsey Manufacturing had only entered into two contracts before Mr. Aguilar was retained by the latter, when in fact there were five other contracts (Ms. Guernsey compounded this error when she testified at trial that she was not aware of the five other contracts because they were written in Spanish, when, in fact, they had been translated);
• testimony about a statement from Mr. Lee that he "didn’t want to know" about a 30% commission (which the Government acknowledges that he never said); and
• testimony that 90 to 95% of the funds in Grupo’s bank account came from Lindsey Manufacturing, countering her own earlier correct affidavit that it was approximately 70%.
The Court noted that portions of Special Agent Guernsey’s testimony "clearly reflected … the Government’s theories of the case presented to the grand jury" and was "indisputably material."
Following the issuance of the Superseding Indictment, the Government concluded that Special Agent Guernsey would be, as the Court described, "an exceedingly poor witness" and that "its investigation was terribly flawed." When the defense team learned that Ms. Guernsey was the "summary witness" before the grand jury the day the Superseding Indictment was issued, they requested her testimony. The Court ultimately ordered the production of all of the transcripts.
The Government produced nearly all of the grand jury transcripts on April 15, 2011 (ten days after opening arguments began). At a June 27, 2011 hearing (seven weeks after the verdict), Judge Matz learned that one of the grand jury transcripts had not been turned over to the defendants. The Court then ordered the Government to turn over the missing transcripts by 9:00 a.m. the following morning. These productions were made despite an earlier statement from the prosecution that "it had conducted a ‘top-to-bottom review of discovery’ and that ‘[w]e have done what we believe not only meets our obligation but exceeds it.’"
The Court also found (and the Government admitted) that "as a result of [the Government’s] unauthorized conduct, it obtained communications between [Ms.] Aguilar and her attorneys, and those e-mails [between Ms. Aguilar and her attorneys] were disclosed to the trial team."
The Court found that the prosecution violated his explicit order regarding the testimony of Fernando Maya Basurto. Mr. Basurto, who had pled guilty in another case and whom participated in the payment of unrelated bribes on behalf of another company, ABB, Inc. to CFE, testified about the role of Sovrill. After the Court ruled that there would be no more testimony on that subject, the prosecution solicited testimony from Mr. Basurto regarding additional Sovrill invoices that were signed in the name of "Enrique Aguilar" and were used in the ABB scheme. Then, at closing argument the Government attempted to link Mr. Basurto’s testimony to the Lindsey Manufacturing defendants. The Court that it was "not only misleading, but contrary to the Court’s ruling."
During closing argument, the prosecution, whose request for a "willful blindness" jury instruction was rejected by the Court, still attempted to make that argument, once by saying "you can’t turn a blind eye" and a second time by covering his eyes with his hands to emphasize the argument. The Court stated that it "could have been entirely unintentional," but found it was an improper statement that "undoubtedly resonated with at least some of the weary jurors."
The Court noted that there were other examples of wrongful conduct that may not have directly prejudiced Lindsey Manufacturing and Messrs. Lindsey and Lee, but reflected "just how far the Government was willing to go" in the case.
After making these findings regarding the evidence, the Court conducted a legal analysis. First, the Court stated that the dismissal of the Indictment was not based solely on what the Government did before the grand jury. The Court found that, "[a]lthough such misconduct was the critical component that triggered the motion to dismiss that was filed on May 9, 2011, the prosecution of this case was marred by a much wider range of misconduct."
In assessing how to judge the prosecution’s conduct, the Court quoted the oft-cited ruling in Berger v. U.S., 295 U.S. 78 (1935) that a prosecutor "may strike hard blows, he is not at liberty to strike foul ones."
The Court concluded that the Government’s failure to disclose the grand jury transcripts in a timely manner constituted a violation of the defendants’ rights to evidence favorable to the defense under Brady v. Maryland, 373 U.S. 83 (1963). Although the Government argued that it did not want to call Special Agent Guernsey because they did not want to "put the investigation on trial," the Court ruled that the defendants had been prejudiced by the Government’s conduct, which impacted the ability to fully argue their defense:
In their opening statements defense counsel were not in a position to cite grand jury transcripts as support for what eventually became part of their defense. Lacking the factual support they needed, they could not and did not assert, in effect, "The evidence will show that the Government team failed to conduct a complete and fair investigation. In fact, the Government obtained the very charges in the Indictment through false and misleading grand jury testimony of an FBI agent. The prosecution has been scrambling to find out what happened ever since. Had they done their homework properly, they would have learned long before now that there was no crime." Had defense counsel been able to deliver such an opening statement, it is likely that at later stages the jury would have understood the point of their cross-examinations and would have viewed the Government’s evidence with great skepticism.
As the Court noted, the "Government’s misconduct went way beyond the delayed and incomplete production of the Guernsey grand jury transcripts. It included procuring search and seizure warrants through materially false and misleading affidavits; improperly obtaining attorney-client privileged communications; violating court orders; questioning witnesses improperly; failing timely to produce information required under Jencks; and engaging in questionable behavior during closing arguments." These acts clearly prejudiced the defendants:
This Court is persuaded that the multiple acts of misconduct described above undoubtedly affected the verdicts and thus substantially prejudiced the Lindsey Defendants. The prejudice here is palpable once the prosecution and trial are assessed as a whole. Beginning even before the jury was selected and continuing throughout trial, the Defendants were thrown off balance by being forced to devote enormous effort to responding to and redressing serious and prejudicial wrongs, while at the same time having to defend themselves against the charges.
The Court also noted that the weakness of the Government’s case provided an additional basis for finding prejudice.
Finally, the Court considered what remedy to impose, which included measuring the real impact of the Government’s conduct:
Dr. Lindsey and Mr. Lee were put through a severe ordeal. Charges were filed against them as a result of a sloppy, incomplete and notably over-zealous investigation, an investigation that was so flawed that the Government’s lawyers tried to prevent inquiry into it. In some instances motives, statements and conduct were attributed to them that were wholly unfounded or were obtained unlawfully, … . The financial costs of the investigation and trial were immense, but the emotional drubbing these individuals absorbed undoubtedly was even worse. As for [Lindsey Manufacturing], the very survival of that small, once highly-respected enterprise has been placed in jeopardy.
While the defendants were not entitled to a finding of "factual innocence," dismissal of the Superseding Indictment was justified as both a deterrent and to release the defendants "from further anguish and uncertainty."
The Government immediately appealed Judge Matz’s ruling.