The Martoma Trial and Character Evidence in White-Collar Trials

Former SAC manager Mathew Martoma

Former SAC manager Mathew Martoma

In the trial of former SAC hedge fund manager Mathew Martoma, the dispute over getting kicked out of Harvard Law School  is worth noting for what evidence we have juries consider at white-collar trials and what we don’t:

In 1999, Mr. Martoma was expelled from Harvard for creating a false transcript when he applied for a clerkship with a federal judge, court papers unsealed on Thursday showed. Mr. Martoma used a computer program to change several grades from B’s to A’s, including one in criminal law, and then sent the forged transcript to 23 judges as part of the application process.

Then, during a Harvard disciplinary hearing to determine whether he should be expelled, Mr. Martoma tried to cover his tracks by creating a fake paper trail that included fabricated emails and a counterfeit report from a computer forensics firm that Mr. Martoma had created to help conceal his activities.

After Harvard expelled him, Mr. Martoma, who at the time was known as Ajay Mathew Thomas, legally changed his name to Mathew Martoma.

The Government wishes to introduce this evidence, it says, not because it’s trying to paint Martoma as a bad guy but rather to prove that he has the computer-forensic capability to destroy real evidence, create bogus evidence and thus mislead the authorities:

The prosecution argues in court papers that Mr. Martoma’s deception is relevant to show that he has the technical knowledge to alter computer files. That could be relevant, prosecutors say, if Mr. Martoma’s lawyers seek to argue he never received a copy of a confidential report that discussed problems with a clinical trial for an experimental Alzheimer’s drug being developed by Elan and Wyeth.

Prosecutors charge that Mr. Martoma recommended that SAC sell its shares in Elan and Wyeth after receiving the report from a key cooperating witness in the case, Dr. Sidney Gilman, and then flying to Ann Arbor, Mich., to discuss the results of the trial with him.

Mr. Martoma’s lawyers at Goodwin Procter, in the run-up to the trial, have raised questions about the government’s failure to find any email evidence that Dr. Gilman sent Mr. Martoma a copy of the report. Dr. Gilman, 81, who received a nonprosecution agreement from the government, is expected to testify that he sent the report to Mr. Martoma and discussed the findings both on the phone and when the two men met a few days before SAC began selling the companies’ shares.

Prosecutors have conceded they have not found any email evidence to support Dr. Gilman’s contention that he sent a copy of the report to Mr. Martoma. But they said Mr. Martoma’s pattern of deception at Harvard is “evidence of the defendant’s capacity to destroy or fabricate electronic forensic evidence.”

In other words, the Government lacks evidence (other than the testimony of the cooperating email-sender) that the report was actually sent to or received by the defendant.

You hit "Send," you never know what happens.

You hit “Send,” you never know what happens.

Essentially, the Government wants jurors to conclude that the defendant could have received the report; could have destroyed it; and could have hidden the fact of destruction from investigators because of his (unsuccessful) attempts to do something similar in law school.

This is over-reaching.

First, such questions are usually handled at trial by each side offering computer-forensic experts.  The expert offers an opinion on which he or she can be cross-examined, then jurors decide whom to believe.  (Of course, if there is nothing an expert can opine on — if old servers are simply gone, for example — then experts are of little help.)

Second, this is “character evidence.”  Rule 404 provides:

(a) Character Evidence.

(1)Prohibited Uses. Evidence of a person’s character or character trait is not admissible to prove that on a particular occasion the person acted in accordance with the character or trait.

(2)Exceptions for a Defendant or Victim in a Criminal Case. The following exceptions apply in a criminal case:

(A) a defendant may offer evidence of the defendant’s pertinent trait, and if the evidence is admitted, the prosecutor may offer evidence to rebut it;

(B) subject to the limitations in Rule 412, a defendant may offer evidence of an alleged victim’s pertinent trait, and if the evidence is admitted, the prosecutor may:

(i) offer evidence to rebut it; and

(ii) offer evidence of the defendant’s same trait; and

(C) in a homicide case, the prosecutor may offer evidence of the alleged victim’s trait of peacefulness to rebut evidence that the victim was the first aggressor.

(3)Exceptions for a Witness. Evidence of a witness’s character may be admitted under Rules 607, 608, and 609.

(b) Crimes, Wrongs, or Other Acts.

(1) Prohibited Uses. Evidence of a crime, wrong, or other act is not admissible to prove a person’s character in order to show that on a particular occasion the person acted in accordance with the character.

(2) Permitted Uses; Notice in a Criminal Case. This evidence may be admissible for another purpose, such as proving motive, opportunity, intent, preparation, plan, knowledge, identity, absence of mistake, or lack of accident. On request by a defendant in a criminal case, the prosecutor must:

(A) provide reasonable notice of the general nature of any such evidence that the prosecutor intends to offer at trial; and

(B) do so before trial — or during trial if the court, for good cause, excuses lack of pretrial notice.

Rule 608 is also pertinent:

(a) Reputation or Opinion Evidence. A witness’s credibility may be attacked or supported by testimony about the witness’s reputation for having a character for truthfulness or untruthfulness, or by testimony in the form of an opinion about that character. But evidence of truthful character is admissible only after the witness’s character for truthfulness has been attacked.

(b) Specific Instances of Conduct. Except for a criminal conviction under Rule 609, extrinsic evidence is not admissible to prove specific instances of a witness’s conduct in order to attack or support the witness’s character for truthfulness. But the court may, on cross-examination, allow them to be inquired into if they are probative of the character for truthfulness or untruthfulness of:

(1) the witness; or

(2) another witness whose character the witness being cross-examined has testified about.

By testifying on another matter, a witness does not waive any privilege against self-incrimination for testimony that relates only to the witness’s character for truthfulness.

The fact that the defendant points out the prosecution’s lack of evidence — that is,there’s apparently no evidence that Martoma received the email to which the report was attached — does not magically turn that same lack of evidence into admissible 404(b) evidence of “motive, opportunity, intent, preparation, plan, knowledge, identity, absence of mistake, or lack of accident.”  

"From the Old Fields Must Spring the New Corn."

“From the Old Fields Must Spring the New Corn.”

Plus, the prejudicial effect of the evidence — here’s a guy who went to Harvard Law School, a fancy institution, where he cheated and tried to cover it up, then ended up at SAC, another fancy organization, and is nowaccused of cheating — would grossly outweigh any probative value.


Take The Deal or Go To Trial? Exactly.

"I know.  I should've taken the deal."

“I know. I should’ve taken the deal.”

The awful pressure to plead guilty, brought on by the significantly enhanced sentences that the Government often seeks where a defendant asserts his right to a trial, is highlighted in the media in drug cases, as here: Prosecutors Draw Fire for Sentences Called Harsh. For white-collar defendants — businesspeople who may be otherwise wholly unacquainted with the criminal justice system — the combination of mandatory minimums, ardent prosecutors and a public consciousness that prefers to blame for their woes abstractions (“Wall Street” or “the accountants” or “bankers”) rather than individual choices means that going to trial is almost impossible.  Plus, the costs can be prohibitive.

Not Rodin's "Thinker"

Not Rodin’s “Thinker”

Indeed, when a federal judge says in public that the wrong people decide who goes to prison, things have come to a head.  There is a move afoot in Congress to address sentencing, but it’s focused primarily on drugs.  Maybe, though, reform will trickle up to the businessperson’s case.



Civil Lessons From Criminal Trials (on YouTube)

Criminal Trials.  Civil Lessons.

This recent talk on Civil Lessons From Criminal Trials  is primarily directed to internal counsel; what they should think about when hiring outside counsel; and how they should review that lawyer’s plan to defend and resolve the case.  It may be of some interest, though, to outside counsel looking for a different perspective on handling his or her civil case.

Here is the (very short) written Handout.

 


New DOJ Cases From the Financial Crisis? Look For This Criminal/Civil Hybrid

A good summary by Peter Henning, here —   DOJ Financial Crisis Cases?  — about possible future cases arising from the financial crisis and the Government’s use of a FIRREA provision.  In part:

But pursuing criminal cases from the financial crisis gets increasingly difficult, especially against individuals, because unlike a good bottle of wine, evidence does not age well. Memories dim and the chance of finding the “smoking gun” e-mail or recording that can help implicate a defendant in a fraudulent scheme becomes less likely with the passage of time.

Mr. Holder will more likely pursue charges under a civil statute that has become the Justice Department’s favorite tool of late against banks: 12 U.S.C. 1833a. The statute provides for civil penalties for violations “affecting a financial institution” of up to $5.5 million or the amount the defendant gained from the misconduct.

Congress enacted this provision in 1989 during the savings and loan crisis as part of the Financial Institutions Reform, Recovery and Enforcement Act to give prosecutors another tool to pursue cases involving fraud and other misconduct at banks.

The law is a hybrid: it requires prosecutors to establish that criminal conduct occurred while using the lower civil burden of proof to establish the violation. That makes it easier for the Justice Department to make its case and can even allow a court to make a favorable ruling based solely on written evidence without a trial.

Section 1833a contains other favorable measures for the government. The law extended the statute of limitations for a host of banking crimes to 10 years from the usual 5-year period, so the Justice Department faces little time pressure in pursuing cases involving the mortgage market during the lead up to the financial crisis.

The statute only requires that the violation affect a financial institution, a term that has been broadly construed in recent district court decisions. Last week, Judge Jed S. Rakoff of Federal District Court in Manhattan rejected a challenge by Bank of America to a lawsuit involving the sale of faulty mortgages by its Countrywide Financial subsidiary. He found that the financial institution affected by the fraud could be Bank of America itself, so that even a self-inflicted wound could be the basis for pursuing a civil penalty action.

 




Closing Arguments In The Whitey Bulger Trial

Closing arguments in the Whitey Bulger trial here: Closing Arguments in Bulger Trial
The argument that the Government witnesses were “paid” with leniency rings true enough but, with guys nicknamed “The Executioner” and the like, the jury can discount a good bit and still come out with a conviction.
A fascinating trial, though, with an old-school gloss: no emails, no texts, no high-def surveillance. Just guys in track suits, talking about murder — and often committing it.