Perlin, In re

Decision Date04 October 1978
Docket NumberNo. 78-2139,78-2139
Citation589 F.2d 260
PartiesIn re Paul PERLIN, a Witness before the April 1977 Grand Jury, Paul Perlin, Respondent-Appellant.
CourtU.S. Court of Appeals — Seventh Circuit

William J. Martin, Chicago, Ill., for respondent-appellant.

Stephen J. Senderowitz, Asst. U. S. Atty., Chicago, Ill., for appellee.

Before CUMMINGS, PELL and TONE, Circuit Judges.

PER CURIAM.

Paul Perlin refused to testify under a grant of immunity before the Special April 1977 Grand Jury investigating commodities trading in Chicago. He was held in contempt and ordered committed. On appeal he argues that there was so substantial a conflict of interest, or appearance of conflict, in the appearance before the grand jury, as a Special Assistant U.S. Attorney, of the Commodities Futures Trading Commission (CFTC) attorney who had initially recommended the criminal prosecution that the grand jury was tainted and its termination required. It was therefore, he argues, without power to compel his testimony. Although the propriety of agency attorneys appearing before the grand jury as special assistant U.S. attorneys has been frequently questioned in recent months, the question has not yet been conclusively resolved. 1 It is of considerable importance to the administration of criminal justice.

FACTS

In 1975 the newly formed CFTC began investigations of illegal transactions on the Chicago Board of Trade. Michael Koblenz, an attorney with the CFTC in Washington, D.C., worked on the investigation of trading in the soybean pit. These investigations resulted in an administrative complaint against a number of people charging violations of the Commodity Futures Trading Act. At the same time, Koblenz referred criminal violations and related tax violations to the U.S. Attorney's Office in Chicago for prosecution. Koblenz spoke with an assistant U.S. attorney who on March 9, 1976, wrote William Schief, Director of the Division of Enforcement of the CFTC in Washington noting that the two offices were conducting parallel investigations and suggesting the appointment of Michael Koblenz as a Special Assistant U.S. Attorney. Koblenz was appointed on May 21, 1976, pursuant to 28 U.S.C. § 515 and § 543. Given the complexity of commodity trading, the U.S. Attorney's Office needed assistance in assessing information developed by the grand jury, and to that end Judge Parsons entered an order on June 9, 1976, authorizing disclosure of grand jury materials to employees of the CFTC, the IRS and the Postal Service, pursuant to Fed.R.Crim.P. 6(e), Infra pp. 266 - 267. A similar order of August 19, 1976, extended the disclosure to a new area of the commodities investigation. The orders named no specific agency employees and were interpreted by CFTC as authorizing disclosure to all investigators and attorneys within the CFTC Division of Enforcement. 2

Pursuant to these Rule 6(e) orders, certain CFTC personnel were assigned to assist in the grand jury investigation, and in practice, disclosure was limited to those four or five and their superiors. To protect the secrecy of the grand jury materials, Koblenz, following the suggestions of Robert Hawthorne, Inc. v. Director of Internal Revenue, 406 F.Supp. 1098 (E.D.Pa. 1976), had the materials placed in a restricted-access safe, had the investigative staff sworn as agents of the grand jury, and instructed them on the importance of secrecy. There is no issue here regarding the adequacy of those precautions or the appropriateness of disclosure to the investigative personnel.

The grand jury investigation into trading in the soybean pit was expanded in the summer of 1976 when the CFTC referred to the U.S. Attorney an investigation into trading on the Chicago Mercantile Exchange, International Monetary Market Division. In the fall of 1976, the U.S. Attorney, acting on independent information, initiated his own investigation into trading in the silver pit of the Chicago Board of Trade. This investigation was not referred from the CFTC. All three investigations were conducted by the February 1975 Grand Jury and its successor, the April 1977 Grand Jury.

Koblenz and an assistant, Charlotte Ohmiller, prepared investigative reports for the U.S. Attorney's Office regarding their findings, including analyses of documents subpoenaed by the Grand Jury, and Koblenz gave copies of these reports to Schief, the Director of the CFTC Division of Enforcement, and to Donald Weiss, the Assistant Director who was Koblenz' immediate supervisor. When Koblenz returned to Washington on weekends, he discussed the Chicago Grand Jury investigations in conversation with Schief.

Paul Perlin was first contacted by investigators from the CFTC in 1975, and trading records of his commodities trading firm were subpoenaed by the grand jury in 1976. Perlin appeared personally before the grand jury on January 4, 1978, where he was questioned regarding trades he had executed at the Chicago Board of Trade. Having been informed that he was a subject of the grand jury investigation, Perlin declined to answer the questions. The government maintains that Perlin was a subject of investigation only with regard to trading in the silver pit, but the trades about which Assistant U.S. Attorney Senderowitz asked on January 4, or about which he intended to ask, included a soybean trade. Senderowitz, speaking before the grand jury, told Perlin that they had a witness who would testify to an illegal transaction on Perlin's behalf made at the soybean pit.

Perlin persisted in his refusal to testify and was granted immunity on June 14, 1978. At that time the government said that his status had changed, and "he has the status at this point of a witness rather than a subject or target of this investigation." Perlin again refused to testify, and the government moved that he be judged in contempt and committed. On June 20, Perlin moved to vacate the immunity order and to strike the petition for judgment and commitment. Perlin argued that the grand jury was tainted by the participation in it of personnel from the CFTC, principally the special attorney, Koblenz, and by the use of grand jury materials in CFTC administrative proceedings. Other commodity traders under investigation had motions before Judge Parsons based on similar arguments and he ruled on them during a hearing on August 10. At that hearing, an affidavit of Nancy Beers, a former investigator for the CFTC, and a Rule 6(e) "disclosee" during the commodities investigation, was introduced alleging that the government's agents had indicated an awareness of exceeding the rule against disclosure of grand jury material, and had expressed a concern to develop a way of avoiding judicial examination on that issue. These new allegations prompted Judge Parsons to hold an evidentiary hearing on August 14-15 into possible abuse of the grand jury either as a tool to get evidence for the CFTC administrative proceedings, or by leakage of information into the administrative case in violation of Rule 6(e). At the end of the hearing Judge Parsons ruled that there was "no evidence that the receipt of (information) was used to in any manner assist in the civil litigation, nor in any manner was it used to infect or contaminate the grand jury." Perlin's motions were subsequently denied and he was judged in contempt and ordered committed on September 8, 1978. The commitment was stayed pending this appeal. We affirmed by order of October 4th, stating that this opinion would follow.

I. Conflict of Interests

The evidentiary hearing held by Judge Parsons laid to rest any claim that there was actual misuse of the grand jury for civil administrative purposes, or that there was breach of grand jury secrecy sufficient to warrant its termination. The primary issue on appeal, therefore, is an alleged tainting of the grand jury by the appearance of impropriety rising from the conflict of interests in which Special Assistant U.S. Attorney Koblenz was placed. Having first, as attorney for the CFTC, himself recommended the grand jury investigation, he then, as Special Assistant U.S. Attorney, appeared before the grand jury to conduct the investigation he had recommended. 3 Perlin argues for a Per se rule that an appearance of impropriety sufficient to taint the grand jury and require its termination results when the agency attorney referring the criminal matter to the grand jury is appointed a special attorney to assist in the grand jury investigation.

There is said to be a conflict because the agency attorney's interest naturally lies in justifying the agency's recommendation that the case be referred for criminal prosecution. That bias allegedly conflicts with the alleged duty of the prosecutor to protect innocent citizens against unfounded criminal prosecution. In support of this view of the prosecutor's duty Perlin cites United States v Calandra, 414 U.S. 338, 94 S.Ct. 613, 38 L.Ed.2d 561 (1973), but Calandra indicates that protection of citizens is the function, not of the prosecutor, but of the grand jury itself:

The grand jury's historic functions survive to this day. Its responsibilities continue to include both the determination whether there is probable cause to believe a crime has been committed and the protection of citizens against unfounded criminal prosecutions.

414 U.S. at 343, 94 S.Ct. at 617. Branzburg v. Hayes, 408 U.S. 665, 686-687, 92 S.Ct. 2646, 33 L.Ed.2d 626 (1972); Wood v. Georgia, 370 U.S. 375, 390, 82 S.Ct. 1364, 8 L.Ed.2d 569 (1962). Cf. Duncan v. Louisiana, 391 U.S. 145, 155-156, 88 S.Ct. 1444, 20 L.Ed.2d 491 (1967). Although grand juries should not be transformed by zealous prosecutors into symbols of oppression, In Re Special February 1975 Grand Jury (Lopez), 565 F.2d 407, 411 (7th Cir. 1977), the function of the prosecutor is nonetheless to prosecute. Whether the...

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