In a result that was anticipated by this earlier post, the ever-observant Peter Lattman reports this afternoon that the Second Circuit Court of Appeals in this 61-page opinion has overturned the conviction of former Credit Suisse First Boston investment banker Frank Quattrone on witness tampering and obstruction of justice charges. The Second Circuit remanded the case to the District Court for yet another trial (this will be the third) and, in an unusual move, ordered that U.S. District Judge Richard Owen — the judge of Quattrone’s first two trials — be replaced for Quattrone’s third trial.
The Second Circuit’s opinion essentially concludes that there was sufficient evidence to convict Quattrone of the charges, but that the jury instructions that Judge Owen were fatally flawed. Here is the meat of the decision on that issue, which relies heavily on the U.S. Supreme Court’s reasoning in its Arthur Andersen decision:
Quattrone claims that both charges incorrectly explained the nexus requirement in that each allowed the jury to convict without finding that Quattrone knew that the relevant subpoena or document request called for documents he sought to destroy. Quattrone also argues forcefully that the second portion of that section of the charge, presented in the alternative, is error. He argues that the instruction allowed the jury to find a nexus as a matter of law merely if it found that Quattrone ìhad reason to believe [the documents] were within the scope of the grand juryís investigation.î
The paragraphs of the charge preceding the language in question accurately describes the ìnexusî requirement. See Aguilar, 515 U.S. at 598-600. However, the charge then incorrectly instructs the jury how to determine if the nexus requirement has been met. The first portion of the ìapplicationî section told the jury in effect that if it found that Quattrone merely called for the destruction of documents that were within the scope of those sought by the subpoenas, that finding alone satisfied the nexus element. Clearly, that instruction is not a correct formulation of the law. Under the charge, as given, any defendant who urges the destruction of documents might run afoul of section 1503 (or 1505) without any proof that the defendant knew the documents were subject to a subpoena (or document request). More is required; a defendant must know that his corrupt actions ìare likely to affect the . . . proceeding.î Id. at 599.25. . .
[snipped is a discussion of the proseuction’s argument on the jury instruction]
However, [the government] argument overlooks a glaring deficiency in the courtís charge. When the court finally explained to the jury how to apply the law to the facts, it eviscerated the nexus requirement. It removed the defendantís specific knowledge of the investigatory proceedings and the subpoenas/document requests from the obstruction equation. It left a bare-bones strict liability crime. Given the courtís instruction for the nexus determination, all that need be proven was that an investigation had called for certain documents and that the defendant had ordered the destruction of those documents. Although wrongful intent, corrupt intent, and the nexus requirement were correctly defined, the charge, as a whole, relieved the jury of having to make those findings in assessing criminal liability.
Quattroneís theory of the case relied on several innocent explanations for his conduct and each has some basis in the record. Among these, Quattrone testified that he had no wrongful intent and that he was not aware that the investigations were focusing on IPO-allocation issues germane to Tech Group activity. J.A. 397-98 (Tr. 1787-90). While the government did offer proof that Quattrone knew that the grand jury and the SEC sought Tech IPO-allocation related documents, we cannot say that the proof convinces us beyond a reasonable doubt that the error was harmless. See Neder, 527 U.S. at 17. That conclusion finds strong support in the deficiency of the courtís charge. Under the charge, the jury was allowed to convict Quattrone of obstruction regardless of whether he intended such. Quattroneís defense of lack of knowledge of the specific focus of the investigation of Tech Group IPO activities was eliminated from the juryís consideration. Accordingly, the judgment of conviction with regard to Counts 1 and 2 must be vacated and the case remanded for retrial.
The following is the Second Circuit’s reasoning in ordering a new judge for Quattrone’s retrial:
This case has already endured two full trials before the same dedicated jurist. In our view, the contentions of the parties in this difficult and complex matter have taken a toll on all involved. We conclude that the better decision is that the case be reassigned to another judge upon remand. While we have considered the governmentís arguments and do not find evidence that the trial judge made any inappropriate statements leading us to seriously doubt his impartiality, portions of the transcript raise the concern that certain comments could be viewed as rising beyond mere impatience or annoyance. Ultimately we believe that the interest and appearance of justice are better served by reassignment.
I am going to reflect on the Second Circuit opinion before commenting further on it (subsequent comments here). However, I encourage anyone involved in business or in defending businesspersons to read the opinion. In doing so, it is impossible not to be struck with the adverse effect that CSFB’s waiver of the corporate attorney-client privilege had on Quattrone and the innocuous nature of the Quattrone email — which was noticed immediately by CSFB attorneys and not acted on to anyone’s detriment — that formed the core of the government’s case.
As businesspeople such as Martha Stewart, Sheila Kahanek, William Fuhs and the other Enron Nigerian Barge defendants have experienced, it is a dangerous business world out there in this era of criminalizing corporate agency costs.
Update: Ellen Podgor is asking all the right questions on the implications of the Second Circuit’s Quattrone decision.
Quattrone Conviction Reversed
Tom Kirkendall has details on the Second Circuit’s decision reversing former Credit Suisse First Boston investment banker Frank Quattrone’s conviction on witness tampering and obstruction of justice charges. The main problem seems to be flawed jury ins…
the Second Circuit’s reasoning in ordering a new judge for Quattrone’s retrial is the kind of BS that has no place in our jurisprudence; it should just be automatic.
The Seventh Circuit has the best practice. by local rule a new trial means a new judge.
Also, Andrea Yates’ murder conviction was overturned. Justice is on the march.
TK
read the 2nd Cir. opinion.
first, the prosecution was more than fully justified in light of the evidence. the opinion was written so that regardless of what happens in the re-trial, Quattrone will been seen in history as a slug
second, the prosecution was actually the major winner on the appeal on every issue but affirmance, but especially because it is going to get an ostrich instruction on re-trial and because so many evidence points were decided, mostly against the defendant. such takes all the air out of the defense.
third, Quattrone was lucky no one from the government understood some of his emails–for example, the ones he sent when the guy was asking him to call. such was about as conscious of guilt as any evidence I have seen in a WCC. he was already posturing, spinning.
Seriously, has anybody ever seen “Max” and “Moe” in the same room?
Tom, I understand as a private attorney you have a vested interest in promoting the idea that all prosecutions of corporate executives are unfounded under the principle of “criminalizing corporate agency costs” but where do you draw the line between the rights of corporate executives to have unfettered privilege to act in their own self interest at the expense of the investing public (and the public at large) and the rights of the investing public to to have reasonable expectations that grand theft on a corporate level will be prosecuted? I have yet to see an example of a corporate executive that you feel was rightfuly prosecuted. I enjoy your blog but i’m beginning to think that you have no respect for the rule of law when it comes to dealing with malfeasance committed by corporate executives.
Charles, businesspeople should not be exempt from criminal laws. However, my sense is that your misimpression that I think they should be is because one of the common topics on this blog is the questionable governmental policy of regulating business through criminalization of corporate agency costs. Thus, many of posts relate to that topic and, in turn, I understand how your misimpression evolved.
However, if you review my many posts on that subject, you will note that my objection is to the use of the state’s awesome prosecutorial power to criminalize what amounts to bad business judgments. In my view, such a policy costs society far more than it gains, and is more likely to deter honest businesspeople from taking beneficial risks than deterring the true corporate criminals.
That does not mean that I do not believe that clear evidence of corporate crime should not be prosecuted and punished. Andy Fastow and Ben Glisan’s effective embezzlement of money from Enron using Enron’s SPE’s is a good example of corporate crime that should be punishable. Moreover, if you peruse my blog archive under “Legal – General”, you will come across many examples of what I consider legitimate prosecutions of criminal conduct by businesspeople.
As a very general proposition, the simpler the nature of a prosecution of a businessperson (i.e., embezzlement), the more likely it is to be a valid prosecution of a businessperson.
On the other hand, when the prosecution seems more like a debate over the validity of a businessperson’s belief in the business or a prosecution of the businessperson for doing what is customary in business, the less likely it is that criminalization — as opposed to sorting out the conduct in a civil context — serves a useful societal purpose.
So, if Attorney General Spitzer had pursued civil litigation prior to criminal litigation, you would have no problem with the cases he brought forth?
Charles, civil litigation is generally a far better way to allocate responsibility for a business failure than criminalization of that failure.
As for Spitzer’s use of civil litigation, it depends. For example, if Spitzer were to use civil litigation to represent the interests of a legitimate state interest, then that’s what he is elected to do and I don’t generally have much of a problem with him purusing it.
However, the problem with Spitzer is that his understanding of a “legitimate state interest” is ill-defined, which often leads him to take up for interests that would be better served by pursuing their litigation claims in priviate litigation or, in some cases, not at all.