U.S. v. Ferguson

Decision Date24 January 2007
Docket NumberCriminal No. 3:06CR137 (CFD).
Citation478 F.Supp.2d 220
CourtU.S. District Court — District of Connecticut
PartiesUNITED STATES of America, v. Ronald E. FERGUSON, Christopher P. Garand, Robert D. Graham, Christian M. Milton, and Elizabeth A. Monrad.

Alfred U. Pavlis, Daly & Pavlis, LLC, Southport, CT, Clifford H. Schoenberg, Douglas I. Koff, Cadwalader, Wickersham & Taft LLP, Alan M. Vinegrad, Covington & Burling, Frederick P. Hafetz, Michael S. Chernis, Hafetz & Necheles, Richard L. Spinogatti, Robert J. Cleary, Proskauer Rose, New York City, James K. Robinson, Michael E. Horowitz, Philip E. Urofsky, Cadwalader Wickersham & Taft, LLP, Hope Ivy Hamilton, Covington & Burling, LLP, Peter H. White, Mayer Brown Rowe & Maw LLP, Brian M. Heberlig, Bruce C. Bishop, Eduardo L. Crosa, Erik L. Kitchen, Reid H. Weingarten, Steptoe & Johnson, Thomas Abbenante, Thomas Abbenante, Washington, DC, William F. Dow, III, Jacobs, Grudberg, Belt, Dow & Katz, P.C., Richard A. Reeve, George Gust Kouros, Sheehan & Reeve, Jonathan J. Einhorn, New Haven, CT, Anthony Pacheco, Proskauer Rose LLP, Los Angeles, CA, Richard R. Brown, Brown, Paindiris & SCott, Hartford, CT, for Defendants.

RULING ON MOTIONS RELATING TO THE SUPERSEDING INDICTMENT AND DISCOVERY

DRONEY, District Judge.

On September 20, 2006, a federal grand jury in the District of Connecticut returned a sixteen count Superseding Indictment charging the defendants, Ronald E. Ferguson, Christopher P. Garand, Robert D. Graham, Christian M. Milton, and Elizabeth A. Monrad, with conspiracy, securities fraud, mail fraud, and making false statements to the Securities and Exchange Commission ("SEC"). Since their indictment, the defendants filed ten motions on matters relating to the indictment and discovery. Defendant Graham also moved for a severance. For the reasons stated below, these motions are granted in part and denied in part.

1. Background

The Superseding Indictment ("Indictment") stems from an allegedly fraudulent reinsurance transaction between American International Group ("AIG") and General Reinsurance Corporation ("Gen Re")1 initiated in late 2000. At that time, Ferguson was the chief executive officer ("CEO") of Gen Re; Garand was a senior vice president and the chief underwriter of Gen Re's finite reinsurance operations; Graham was legal counsel and a senior vice president at Gen Re; Milton was AIG's vice-president of reinsurance; and Monrad was the chief financial officer ("CFO") of Gen Re. The indictment recounts that on October 26, 2000 AIG publicly reported that its year 2000 third quarter loss reserves declined $59 million from the previous quarter; after this news AIG's stock price decreased and some outside stock analysts downgraded AIG's stock. The indictment alleges that soon after this stock price drop, the defendants created a two-stage sham reinsurance transaction between AIG and Gen Re, which had the effect of boosting AIG's loss reserves by $250 million in the fourth quarter of 2000 and by $250 million in the first quarter of 2001. Under the implementing contracts, AIG appeared to agree to reinsure Gen Re for $600 million of liability in exchange for $500 million in premiums; as a result, AIG appeared to assume $100 million in risk and gain $500 million in loss reserves. The indictment alleges, however, that pursuant to a secret side agreement, (1) the transactions did not actually transfer any risk from Gen Re to AIG, (2) AIG paid Gen Re $10 million to fund the first and only premium payment on the contracts, and (3) AIG paid Gen Re a $5 million fee to do the transactions because there were no other economic incentives for Gen Re. Despite the terms of this side agreement, the indictment alleges, AIG reported the additional $500 million in loss reserves in its mandatory SEC filings from 2001 until 2005. Further, allegedly because AIG reported increased enhanced loss reserves in both the fourth quarter of 2000 and the first quarter of 2001, stock analysts positively changed their assessment of AIG's economic health.

2. Motions Related to the Indictment:

The defendants filed five motions relating to the indictment: a motion for a bill of particulars, a motion to dismiss the mail fraud and securities fraud counts, a motion to strike surplusage, a motion to strike multiplicitous counts, and a motion to strike certain language. Defendant Garand also moved separately for a bill of particulars. For the reasons that follow, these motions are denied.

A. Defendants' Motion for a Bill of Particulars [docket # 203]

Defendant Milton, joined by all of the other defendants, moved for a bill of particulars. The motion asks the Court to require the government to: (i) specify the allegedly false or misleading statements, the schemes or artifices to defraud, and the false entries in books and records alleged in the indictment, and (ii) identify the unnamed co-conspirators and other relevant parties. The government opposes the motion on both points. The government states that it has provided the defendants with adequate information about the defendants' alleged false statements and fraudulent scheme through significant detail in the indictment and through its rule 16 disclosure materials, which are electronically and readily searchable. The government also claims that it has provided sufficient information so that the defendants can determine the identities of the unindicted co-conspirators referenced in the indictment.

A defendant is entitled to a bill of particulars when the indictment does not indicate which of his acts are allegedly criminal. United States v. Torres, 901 F.2d 205, 234 (2d Cir.1990). The bill enables the defendant to defend the initial charge properly and to avoid double jeopardy. A bill of particulars avoids impermissibly shifting the burden of proving criminal liability from the government to the defendant. United States v. Bortnovsky, 820 F.2d 572, 575 (2d Cir.1987). Information that is necessary to give the defendant enough specificity about his allegedly criminal conduct must be disclosed by the government even if it reveals the government's evidence or theories of the case. United States v. Barnes, 158 F.3d 662, 665 (2d Cir.1998). However, a bill of particulars should only be granted when the particulars sought are necessary for the defendant to prepare his case, not in cases where the information would merely be helpful. United States v. Young & Rubicam, 741 F.Supp. 334, 349 (D.Conn. 1990). The defendant bears the burden of showing that the information requested is necessary and that he will be prejudiced without it so as to justify granting a bill of particulars. Barnes, 158 F.3d at 666. A mere statement that the defendant will be prejudiced without the bill is insufficient. See id. Even if the indictment does not fully give notice of the charges, a bill of particulars is still not necessary if the government provides the required notice in "some acceptable alternate form." Bortnovsky, 820 F.2d at 574; see United States v. Nachamie, 91 F.Supp.2d 565, 572 (S.D.N.Y.2000). Granting a bill of particulars is within the sound discretion of the district court and will be reviewed only for abuse of discretion. United States v. Walsh, 194 F.3d 37, 47 (2d Cir.1999); Barnes, 158 F.3d at 665-66.

(i) Particulars of alleged false statements and fraudulent scheme

The defendants claim that they are faced with a lengthy indictment alleging false statements, false documents, and a fraudulent scheme, but they are left with insufficient guidance through the government's 3.5 million page document production to specifically identify those false statements, false documents, and the fraudulent scheme. The defendants rely on Bortnovsky, an insurance fraud case where particulars were required by the trial court after the government produced 4,000 documents to the defendants without identifying the specific documents that were allegedly fraudulent. See 820 F.2d at 574-75. The defendants here argue that, like in that case, "the government did not fulfill its obligation merely by providing mountains of documents to defense counsel." Id. at 575.

The government argues that the motion should be denied because the indictment and the government's document production went far beyond the "mountains of documents" found insufficient in Bortnovsky. The indictment describes in detail the allegedly fraudulent transactions, including sections containing extensive general allegations, an explanation of the manner and means of the alleged fraud, and eighty-two overt acts allegedly committed in furtherance of the conspiracy. The indictment further identifies the documents containing false statements to be the false offer letter, the contracts between AIG and Gen Re, and AIG's earnings reports, Forms 10-K and 10-Q, and annual statements. The government concedes that it did produce a large quantity of documents pursuant to Fed.R.Crim.P. 16, but they were given to the defendants in the exact same electronically searchable format that the government is currently using. See Government's Memorandum in Opposition to Defendants' Motion for Bill of Particulars, at 5. Finally, at the defendants' arraignments, the government provided them with 1,350 pages of "hot documents"2 culled from the rule 16 production materials. The government identified these documents as the most relevant documents to the transaction at issue in the case and stated its intention to use these documents in its case-in-chief. Given the degree to which the government has explained the alleged fraud and false statements in the indictment and identified the most relevant documents in its production, the government argues that the defendants have not proven that a bill of particulars is necessary.

The Court concludes that the decisions cited by the defendants in favor of their motion, in which courts ordered bills of particulars,...

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