In re Grand Jury Proceedings

• Decision Date: 07 September 2007
• Docket Number: No. 1:07dm405.,1:07dm405.
• Citation: 503 F.Supp.2d 800
• Parties: In re GRAND JURY PROCEEDINGS:
• Court: U.S. District Court — Eastern District of Virginia

503 F.Supp.2d 800

In re GRAND JURY PROCEEDINGS:

No. 1:07dm405.

United States District Court, E.D. Virginia, Alexandria Division.

September 7, 2007.

Timothy D. Belevetz, Esquire, United States Attorney's Office, Alexandria, VA, for Movant United States of America.

Terrance G. Reed, Esquire, Lankford, Coffield & Reed, Alexandria, VA, for Movant Christopher Benyo.

Bruce C. Bishop, Esquire, Steptoe & Johnson LLP, Washington, DC, for Movant John Tuli.

Kerri L. Ruttenberg, Esquire, LeBoeuf, Lamb, Green & MacRae LLP, Washington, DC, for Movant Kent D. Wakeford.

OPINION

KELLEY, District Judge.

The United States, acting through the Department of Justice ("DOJ") and the Securities and Exchange Commission ("SEC"), has petitioned this Court to make public substantial amounts of grand jury material generated in connection with a now-completed investigation into the accounting practices of America Online, Inc. ("AOL"). Because the government has not shown a particularized need for the grand jury materials it seeks released, the petition is DENIED. However, DOJ may provide to its counterparts at the SEC reports of the proffer sessions that prosecutors conducted with Christopher Benyo. These reports, which were recorded on a FBI Form 302 (the "302s"), do not constitute "a matter occurring before the grand jury" that is protected from disclosure by Fed.R.Crim.P. 6(e)(2)(B).

I. Facts and Procedural History

On January 10, 2005, a grand jury sitting in the Eastern District of Virginia indicted defendants Charles Johnson, Jr., Christopher Benyo, John Tuli, Kent Wakeford, Michael Kennedy, and Scott Wiegand on charges of conspiracy, securities fraud, wire fraud, and obstruction of justice. United States v. Benyo, et al., Crim. Action No. 1:05cr12 (E.D.Va.). On the same day, the SEC alleged the same facts in an enforcement action filed in the United States District Court for the District of Columbia against most of the same defendants.¹ SEC v. Johnson, et al., Civ. Action No. 1:05cv36 (D.D.C.) (the "Enforcement Action"). The Indictment and. Enforcement Action represented the culmination of a massive investigation into the accounting practices of AOL arid several other companies, including PurchasePro.com, Inc. At the request of the SEC and DOJ, and over the objections of defendants, the Enforcement Action was stayed pending resolution of the criminal charges.

The Indictment and Enforcement Action were coordinated events that DOJ and the SEC publicized heavily. U.S. Securities and Exchange Commission, Litigation Release No. 19029 (Jan. 10, 2005) available at www.sec.gov/litigation/litrelease/ lr19029.htm.² These filings received extensive coverage in the mainstream media. See, e.g., James Bandler & Julia Angwin, PurchasePro.com, AOL Ex-Officials Face Fraud Case, Wall St. J., Jan. 11, 2005, at A3; Alec Klein & Jerry Markon, 6 Indicted in AOL Accounting Case, Wash. Post, Jan. 11, 2005, at E1. These coordinated press releases and extensive publicity proved to be the high point of the government's case.

Initially, this Court vacated an ex parte freeze of defendants' assets pending trial. United. States v. Benyo, 384 F.Supp.2d 909 (E.D.Va.2005). The Court then severed defendant Scott Wiegand from the rest of the defendants arid acquitted him after a bench trial. (Criminal Action No. 1:05cr12 (E.D.Va.), Docket No. 280.) A jury was empaneled to hear the case against defendants Benyo, Johnson, Tuli and Wakeford. After a trial that lasted more than three months, the jury acquitted defendants Benyo, Tuli, and Wakeford.³ (Id., Docket Nos. 689-94.) Finally, DOJ voluntarily dismissed all criminal charges brought against defendant Kennedy. (Id., Docket Nos. 706-07.)

Despite these setbacks, the SEC decided to pursue its Enforcement Action against the acquitted defendants. In essence, it seeks to prove by a preponderance of the evidence that which DOJ was unable to prove beyond a reasonable doubt.

Prosecution of the Enforcement Action resumed approximately one month after the jury acquitted defendants Benyo, Tuli and Wakeford. Upon motion of the SEC, the United States District Court for the District of Columbia (Kessler, J.) (the "D.C. Court") vacated its stay. Although the underlying facts had been investigated for two years by a grand jury and aired thoroughly in the course of more than three months of criminal testimony, the SEC sought additional discovery. Over the strong objection of the defendants, the D.C. Court acquiesced and scheduled the Enforcement Action for trial in February 2008. SEC v. Johnson, Civ. Action No. 1:05cv36, 2007 WL 2071679, at *1-2, 2007 U.S. Dist. LEXIS 50679, at *3-4 (D.D.C. July 13, 2007).

The SEC demanded other pretrial concessions in the Enforcement Action. The SEC initially sought leave to conduct more than the ten depositions allowed by Fed. R.Civ.P. 30(a)(2)(A) and Anther asked to exceed the seven hour per deposition limit imposed by Fed.R.Civ.P. 30(d)(2). The SEC later requested that it be allowed two additional hours of redirect in the deposition of a key witness under its control. The D.C. Court denied these requests; see 2007 WL 2071679, *1-2, 2007 U.S. Dist. LEXIS 50679, at *5-6; Mem. Order of July 10, 2007 at 2, SEC v. Johnson, Civ. Action No. 1:05cv36 (D.D.C.), calling the SEC "unreasonable" and "arrogant." Approximately one month ago, the D.C. Court stated that "[i]t is time for the SEC to get to work, start working cooperatively and reasonably with defense counsel, ... and do its job to get ready for trial." 2007 WL 2071679, at *3, 2007 U.S. Dist. LEXIS 50679, at *8-9.

Stymied in its effort to expand discovery in the Enforcement Action, the government now asks this Court to make public grand jury materials from the criminal investigation.⁴ DOJ initially requested that the Court authorize a wholesale disclosure of all grand jury materials to the SEC. At a hearing conducted on July 25, 2007, the Court denied this request because DOJ has no standing to move on behalf of the SEC, United States v. Sells Eng'g, 463 U.S. 418, 431, 103 S.Ct. 3133, 77 L.Ed.2d 743 (1983) (stating that the agency seeking disclosure of grand jury material must establish a need for the material in its own case), and wholesale disclosure would be inconsistent with the requirement that a movant must show a "particularized need" for grand jury materials.

The government subsequently amended its request. Lead counsel for the SEC has now submitted a Declaration purporting to establish particularized need and narrowing the scope of the request from wholesale disclosure to the disclosure of all grand jury materials involving 17 individuals that the defendants identified in their Initial Disclosures as persons with knowledge. (Declaration of David. J. Gottesman, Esq., filed Aug. 2, 2007.) These materials include Form 302 interview reports, transcripts of the individuals' grand jury testimony, and all exhibits related either to the transcripts or to the 302s. It thus appears that the SEC has changed its position from wanting all of all of it to just wanting all of some of it.

Five of the seventeen individuals identified by the SEC are defendants Johnson, Benyo, Wakeford, Tuli, and Kennedy. Johnson, Wakeford, Tuli, and Kennedy previously gave interviews on the record in 2002 pursuant to SEC investigative subpoenas.⁵ Since the stay of the Enforcement Action was lifted in March 2007, the SEC has also deposed or noticed the deposition of all defendants except Mr. Johnson. In addition, Mr. Wakeford testified for more than two days at his criminal trial, although his cross examination by a DOJ "senior" trial attorney was less than rigorous.

The other twelve individuals listed by the SEC appear to be either former employees of the subject companies, or employees of companies that did business with PurchasePro and AOL. DOJ did not call any of these individuals to testify in the three-month criminal trial, and no party has advised the Court of what testimony, if any, they have to offer.

II. Analysis

A. The SEC Has Not Established a Particularized Need for Grand Jury Materials

Rule 6(e)(2)(B) of the Federal Rules of Criminal Procedure prohibits certain persons (including prosecutors) from disclosing "matters occurring before the grand jury." The purposes of grand jury secrecy are: (1) to ensure that potential witnesses come forward and testify fully and truthfully; (2) to prevent the target of a grand jury investigation from fleeing; and (3) to protect the reputation of wrongfully accused individuals. United States v. Reiners, 934 F.Supp. 721, 723 (E.D.Va. 1996) (Ellis, J.) (citing Douglas Oil Co. v. Petrol Stops Nw., 441 U.S. 211, 219, 99 S.Ct. 1667, 60 L.Ed.2d 156 (1979)). Not all of these goals would be vindicated by continuing to keep secret the proceedings of this grand jury. The grand jury term has expired, and DOJ advises that there is no ongoing investigation. Nonetheless, defendant Johnson remains to be tried, and the Court must be mindful of the need to assure future grand jurors and witnesses that grand jury proceedings will remain secret absent compelling justification for disclosure. Douglas Oil, 441 U.S. at 222, 99 S.Ct. 1667; United States v. Smith, 123 F.3d 140, 148 (3d Cir.1997).

The district court overseeing a grand jury may waive Rule 6(e)'s secrecy requirement if the movant establishes a "particularized need" for certain grand jury information. Douglas Oil, 441 U.S. at 222, 99 S.Ct. 1667. To do this, the movant must demonstrate that: "(1) the materials are needed to avoid an injustice in another proceeding; (2) the need for disclosure is greater than the need for continued secrecy; and, (3) the request is structured to cover only needed materials." United States v. Moussaoui, 483 F.3d 220, 235 (4th Cir.2007).

The SEC offers four general arguments to establish particularized need. First, the SEC states that the Rule 6(e) material is necessary "in order to prepare for trial" and to "prepare for examination or...