United States v. Ghavami

Citation23 F.Supp.3d 148
Decision Date15 May 2014
Docket NumberNo. 10 Cr. 1217KMW.,10 Cr. 1217KMW.
PartiesUNITED STATES of America v. Peter GHAVAMI, Gary Heinz, and Michael Welty, Defendants.
CourtUnited States District Courts. 2nd Circuit. United States District Courts. 2nd Circuit. Southern District of New York

Charles Vincent Reilly, U.S. Department of Justice, Eric C. Hoffmann, John Van Lonkhuyzen, Michelle Ofner Rindone, U.S. Dept. of Justice, Antitrust Division, New York City, NY, Jennifer Marie Dixton, Kalina M. Tulley, Neville Hedley, U.S. Dept. of Justice, Antitrust Division, Chicago, IL, for United States of America.

Erik March Zissu, James Alfred Mitchell, Mary Margulis–Ohnuma, Ballard Spahr Stillman & Friedman LLP, Marc Lee Mukasey, Jonathan Nassau Halpern, Philip Joseph Bezanson, Bracewell & Giuliani, LLP, New York, NY, Gregory L. Poe, Preston Burton, Poe & Burton PLLC, Washington, DC, for Defendants.

OPINION & ORDER

KIMBA M. WOOD, District Judge:

After a month-long trial, Defendants Peter Ghavami (Ghavami), Gary Heinz (Heinz), and Michael Welty (Welty) (collectively, Defendants) were convicted of conspiracies to defraud municipal bond issuers, the United States Department of Treasury, and the Internal Revenue Service, by manipulating the bidding process for municipal bond investment products and other municipal finance products, in violation of 18 U.S.C. §§ 371 and 1349. Heinz and Ghavami were also convicted of substantive wire fraud, in violation of 18 U.S.C. § 1343.

Welty now moves for a new trial, pursuant to Federal Rule of Criminal Procedure 33 (“Rule 33 ”); Ghavami and Heinz join Welty's motion for a new trial. In addition, Heinz and Welty move for release pending appeal, pursuant to 18 U.S.C. § 3143(b). For the following reasons, the Court DENIES both motions.

I. BACKGROUND

Defendants worked for UBS Financial Services, Inc. (“UBS”) on its municipal bond reinvestment and derivatives desk, (Tr. 502–03), participating in a market in which financial institutions provide investment products to the issuers of municipal bonds. Municipal bonds are issued by government and quasi-governmental entities to raise money for operations or projects. The money raised is typically spent slowly over time; issuers therefore frequently invest bond proceeds in investment products. These products are often chosen through a competitive bidding process, run by a financial institution hired by the issuer to act as a “broker.” The broker solicits bids from financial institutions for investment products that are customized to the issuer's needs. The investment product offering the highest rate of return generally wins the bidding, and the financial institution that submits the winning bid is chosen as the investment product “provider.” UBS functioned as both a broker and a provider for municipal bond investment products during the relevant time period. (Tr. 517, 529–30, 3861); see generally United States v. Grimm, 738 F.3d 498, 499–500 (2d Cir.2013) (discussing the investment of municipal bond proceeds); (see, e.g., Tr. 499–590, 2703, 2913–14, 3858–61).

Typically, interest payments on municipal bonds are not subject to federal income tax.See I.R.C. § 103(a) (providing that, subject to certain exceptions, “gross income does not include interest on any State or local bond”). As part of the process for maintaining a bond's tax-exempt status when its proceeds are put into an investment product, United States Treasury regulations require issuers to determine the investment product's fair market value, see Grimm, 738 F.3d at 500 (citing Treas. Reg. § 1.148–5(d)); under the regulations' “safe harbor” provision, an investment product's purchase price can be “treated as the fair market value of the investment,” if certain requirements for a competitive bidding process are satisfied, Treas. Reg. § 1.148–5(d)(6)(iii). The regulations require, among other things, that at least three bids be received, that a potential provider “not consult with any other potential provider about its bid” or be “given the opportunity to review other bids (i.e., a last look) before providing a bid,” that bids be “determined without regard to any other formal or informal agreement that the potential provider has with the issuer or any other person,” and that bids not be submitted “solely as a courtesy to the issuer or any other person for purposes of satisfying” the three-bid requirement. Id. Brokers and bidders sign “certifications” to the issuer that typically contain representations mirroring the Treasury regulations' requirements, so that the issuer's legal counsel can verify the bond's tax-exempt status. See generally Grimm, 738 F.3d at 499–500 (discussing the Treasury regulations); (see, e.g., Tr. 521–94, 1640–47, 1858, 2068, 2473, 2701–10, 2735–46, 2802–09, 2914–16, 3590–91, 3942–56).

The Government charged Defendants with conspiring to manipulate and rig bidding on certain investment products, and then falsely certifying that competitive bidding processes had occurred. The Superseding Indictment contained six counts.

Counts One and Two charged Defendants with conspiracy to commit wire fraud in connection with UBS's role as a potential provider. Count One alleged that Defendants, acting as potential providers, conspired with other potential providers—specifically, individuals at J.P. Morgan Chase (“JPMC”) and Bank of America (“BOA”)—to reduce competition among the firms by exchanging bid information, such as discussing on which transactions to bid, and submitting intentionally losing bids on each others' behalf, in violation of 18 U.S.C. § 371. Count Two charged that Defendants, acting as potential providers, conspired with a broker—Chambers, Dunhill, Rubin & Co. (“CDR”)—to set up bids for UBS to win, in violation of 18 U.S.C. § 1349. Coconspirators at CDR allegedly provided Defendants with the opportunity to change bids after reviewing the bids of others, kept competitive bidders off bid lists, and solicited intentionally losing bids from other potential providers. In return, UBS gave CDR kickbacks and submitted intentionally losing bids when requested. (See Superseding Indictment [Dkt. No. 30] ).

The Government also alleged, in Counts Three through Five, that Defendants rigged bidding while acting as a broker. Count Three charged Defendants with substantive wire fraud, for purportedly setting up a transaction for BOA to win in exchange for a kickback, in violation of 18 U.S.C. § 1343. Count Four charged Heinz and Welty with conspiracy to commit wire fraud. Count Four alleged that Heinz and Welty conspired with a potential provider—GE Capital (“GE”)—to rig bidding in GE's favor by providing coconspirators at GE with “last looks” and by agreeing to keep competitive bidders off bid lists, in return for kickbacks on other transactions, in violation of 18 U.S.C. § 1349. Count Five charged Heinz with substantive wire fraud for manipulating the bidding process on a transaction to steer it to JPMC, in violation of 18 U.S.C. § 1343. (See Superseding Indictment).

Additionally, the Government charged Heinz, in Count Six, with witness tampering, in violation of 18 U.S.C. §§ 1512(b)(1) and (3). (See Superseding Indictment).

At trial, the Government presented substantial evidence to support these charges. Among numerous witnesses called by the Government who testified against Defendants were alleged coconspirators at UBS, CDR, BOA, JPMC, and GE. In addition to emails and other documents in furtherance of the conspiracies that were submitted into evidence, the Government played audio recordings of numerous phone calls between Defendants and their alleged coconspirators. The Government also submitted approximately sixty purportedly false certifications signed by Defendants and their alleged coconspirators on over twenty transactions.

The jury found Ghavami guilty on Counts One through Three; Welty guilty on Counts One, Two, and Four; and Heinz guilty on Counts One through Five. (Tr. 4864–65). Welty was found not guilty on Count Three, and Heinz was found not guilty on Count Six. (Id. ). Ghavami was sentenced to 18 months of imprisonment, and he was fined $1,000,000. [Dkt. No. 389]. Welty was sentenced to 16 months of imprisonment and three years of supervised release, and he was fined $300,000. [Dkt. No. 386]. Heinz was sentenced to 27 months of imprisonment and three years of supervised release, and he was fined $400,000. [Dkt. No. 385].

II. MOTION FOR A NEW TRIAL

Welty's motion for a new trial contends that the Government failed to disclose material evidence favorable to the defense in violation of Brady v. Maryland, 373 U.S. 83, 83 S.Ct. 1194, 10 L.Ed.2d 215 (1963). In the course of discovery in this case, the Government produced the equivalent of approximately 19.5 million records, along with over 600,000 audio files of recorded conversations. (See Gov't Opp. to Mot. for New Trial 3 [Dkt. No. 461] ). After Defendants were convicted, the prosecutors in this case learned that, due to the fault of a vendor, a subset of files from CDR—an alleged coconspirator broker—had not been reviewed by the prosecutors in this case and thus had not been turned over in discovery. (See Letters to the Court [Dkt. Nos. 421, 423, 439–48, 450–51, 455] ). Those records (which totaled nearly 400,000 documents) were produced to Defendants post-trial, in late 2013. (See id. [Dkt. Nos. 423, 439, 455] ). Welty asserts that one of the newly-produced documents (the “Goldberg Email”) could have changed the outcome of the trial and should have been produced pursuant to the Government's Brady obligations. The Court disagrees and thus DENIES Welty's motion for a new trial.

A. Legal Standard

Rule 33 provides that a court “may vacate any judgment and grant a new trial if the interest of justice so requires.”1

Under Brady, the Government must “disclose material evidence favorable to a criminal defendant.” United States v. Mahaffy, 693 F.3d 113, 127 (2d Cir.2012) ; see also United States v. Bagley, 473 U.S. 667, 676, 105 S.Ct. 3375, 87 L.Ed.2d 481 (1985) (noting that [i]mpeachment evidence ... as well as exculpatory...

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