Opinion
S2 00 Cr. 91 (RWS)
December 19, 2002.
HONORABLE JAMES B. COMEY, United States Attorney for the Southern District of New York, Michael S. Kim, Steven G. Kobre, of Counsel, Assistant United States Attorneys, for United States of America.
John R. Wing, Esq. Pierre M. Davis, Esq., of Counsel, WEIL, GOTSHAL MANGES, Attorneys for Defendant, Timothy Matthews.
OPINION
Defendant Timothy Matthews ("Matthews") has moved for a new trial pursuant to Rule 33, Fed.R.Crim.P., and the Fifth Amendment to the United States Constitution, on the ground that the Government's violation of Rule 16(a), Fed.R.Crim.P., through the improper use of an undisclosed tape recording, substantially prejudiced defendant's credibility before the jury and effectively denied his due process right to a fair trial. For the following reasons, the motion is denied.
Prior Proceedings
On May 9, 2002, Matthews was found guilty as charged on one count of conspiracy to commit securities, mail and wire fraud and five counts of securities fraud following a jury trial which commenced on March 25, 2002, involving five defendants and the accounts of hundreds of customers of Sterling Foster, Matthews' employer.
Sterling Foster conducted a "boiler room" securities fraud operation. Twenty other defendants have been or will be sentenced, with one plea taken during the trial. Despite the complicated issues presented, the jury deliberation took less than three hours, including lunch, without any review of exhibits, testimony or the Court's instructions.
The motion for a new trial was heard on October 23, 2002.
The Trial Proceedings
Matthews, one of the branch managers at Sterling Foster, was the only defendant to testify as to his conduct at Sterling Foster. In his direct testimony he described his role as a manager with authority only over a limited number of the brokers. As contrasted with the evidence presented against the other defendants, no evidence had been adduced concerning any false statements made by Matthews to customers. Matthews testified on direct for two days and introduced a number of exhibits and on May 1, 2002, Matthews was undergoing cross-examination by the Government. The relevant portion of the cross-examination follows:
Q: You didn't run Sterling Foster?
A: No, sir.
Q: To say that would be a lie, wouldn't it?
A: I believe so, yes, sir.
Q: Mr. Matthews, you told at least one customer that you, it was you, sir, who ran the retail part of Sterling Foster, isn't that right?
A: I don't recall that.
Q: If you said it, it would be a lie?
A: If I said it, it would — it would definitely be not true. I did not run the retail division of Sterling Foster.
Q: You didn't run Sterling Foster, did you?
A: No.
Q: That would be a lie also, right?
A: Yes, sir.
(Tr. 3791).
The Government then asked the following question purportedly based on the tape which they later asserted had been provided by Joseph Price ("Price"), a customer of Matthews:
Q: Do you recall saying to a customer: My commitment to you is this, and this is my commitment. I've got deals coming up. I have an enormous amount of power on Wall Street. I run this firm. I run 260-plus brokers on the largest firm on Long Island and one of the fastest-growing firms in the country. I run it. Besides the president of the firm, it is me. You said that once, didn't you sir?
A: I don't recall.
Q: You might have said it, right?
A: Again, I don't recall.
Q: Mr. Matthews, if you heard yourself on a tape saying it, it would refresh your recollection as to whether or not you said that?
A: Yes, sir.
(Pause) [unsuccessful attempt to play cassette through headphones for defendant]
(Audiotape played) [out loud]
MR. WING: I object, your Honor.
COURT: Sustained.
MR. KIM: We will go back the other way, Judge. Your Honor wants us to play for the witness first and then have the witness comment on it?
COURT: I don't have any — I just sit here and do my 4 thing.
MR. KIM: Your Honor, perhaps I could play it softly and for the witness nearby.
COURT: Doubt it. Would you like a recess?
MR. KOBRE: Yes, your Honor, briefly.
COURT: Ladies and gentlemen, tomorrow morning, 9:30.
(Tr. 3791-93).
An effort was made to play the tape for Matthews using headphones, which was unsuccessful. Assistant United States Attorney ("AUSA") Kim then started to play the tape out loud. As soon as the tape started to become audible, the objection was made, and the tape was stopped. In response to the Court's question to whether anyone present had been able to hear the tape, only AUSA Kim, who had been right next to the tape recorder, responded, and stated that the words "I run" had been audible to him. Neither AUSA Kobre nor any of the defense counsel responded that they had heard any part of the tape. (Tr. 3811).
The next morning Matthews' counsel moved for a mistrial on the ground that the prosecution unfairly used the tape to make Matthews "look like a liar in front of the jury." Counsel advised the Court that he had specifically asked the prosecutor prior to trial whether there were any tapes on Matthews and had been told that there were none. (Tr. 3805).
MR.WING: I think also, Judge, one has to acknowledge the fact that the way this was done as effectively and dramatically as it was done, even if we had 6 year olds in the jury, they would know and believe that the tape contained Mr. Matthews saying those words —
COURT: Yes.
(Tr. 3804-05).
After the mistrial motion was made, it was denied and the Court stated:
COURT: I am going to instruct the jury that — I think maybe the best way to do it — I would like to say there is no tape, but Mr. Wing points out that the jury is not that stupid, they saw the tape. I think I will instruct the jury that there is no audible tape and there is no basis upon which you can make any inference based on what happened in this — with respect to this episode.
(Tr. 3811).
After a discussion about the difficulty of instructing the jury to ignore the "elephant" in the room, the trial was resumed and the Court gave the following instruction:
COURT: Ladies and gentlemen, yesterday afternoon just before our recess there were a series of questions put to Mr. Matthews concerning an alleged statement to a customer about his role at Sterling Foster. Under the circumstances, those questions were improper and they will be stricken from the record. There is no admissible tape and you may draw no inference whatsoever from the questions which were asked 6 and the performance which you observed yesterday late in the afternoon.
(Tr. 3822).
The prosecution's summation referred to another defendant's taped comments to a customer about how he "ran the firm" and then reminded the jurors, "You have heard that phrase a lot . . . That's a lie right there." (Tr. 4062).
Matthews' counsel objected to the summation and renewed his motion for a mistrial, which was denied:
In the morning session, when he [AUSA Kim] was talking about something on the John Giffen tape, and there was apparently some statement on that tape by one of the parties about how I'm running the firm, Mr. Kim went on to say, you've heard that phrase a lot, everyone is running the firm. And he repeated it again a little later, not too long afterwards, everyone is running the firm at Sterling Foster, which to my mind, Your Honor, echoed, unfortunately, on the tape that they started to play, and got stricken because, of course, that was the only line in those, and those were the questions that Mr. Covert [sic] [Kobre] had put to Mr. Matthews, were you running the firm, etc., etc., and it is sort of compounding a felony, if you'll pardon the expression, and I think that's a fairly serious problem. So I would renew my original [mistrial] motion based on that ground as well.
AUSA Kim's summation continued the theme with a reference to a tape recording of co-conspirator Scuteri: "Mr. Scuteri to another customer told them he was the managing partner of the firm, that he runs the firm. Everybody seems to be running the firm at Sterling Foster. It is more act as if, more lies, more deceit." (Tr. 4065).
The haste with which the jury rejected the Matthews' defense is some indication that his credibility was damaged by the incident in addition to the substantial amount of testimony by cooperating witnesses as to Matthews' role.
Access to the Tape
After receiving Matthews' motion for a new trial, the Government investigated Matthews' claims that he had been unaware of the Joseph Price tape and that he had been surprised by it and has asserted that on April 1, 1997, an attorney representing Price wrote a letter to Matthews demanding compensation for Price's losses in investing with Sterling Foster. The letter was delivered to Matthews' home, and an acknowledgment of receipt was signed by Matthews. In that letter, Price's attorney quoted verbatim from audiotapes that Price had made of his conversations with Matthews, and enclosed a tape containing the Matthews-Price conversation. The attorney informed Matthews that Price had obviously taped Matthews extensively.
On August 27, 1997, Price served Matthews with a civil complaint filed in the United States District Court for the Eastern District of Texas (the "August 27, 1997 Complaint") demanding compensation for losses suffered in investing in Sterling Foster securities, and again quoted extensively from the tape of Price's conversations with Matthews, which had previously been sent to Matthews in April 1997. The action was transferred to the Eastern District of New York, consolidated with other similar civil actions and stayed during the pendency of this action.
More than a month prior to trial, on or about February 20, 2002, the Government provided Matthews with a witness list including Joseph Price. Matthews served subpoenas on Price, calling for production of communications concerning Sterling Foster. The Government has asserted that it received the Joseph Price tape containing statements by Matthews during trial, a few days before the cross-examination at issue. It is conceded that the Government did not disclose the existence or content of the tape to Matthews.
Counsel to Matthews represented to the Court that he had no knowledge of the tape. Matthews has not been examined nor has he submitted an affidavit on the subject. This record does not directly establish that Matthews had knowledge of and access to the tape.
Rule 16 Was Not Violated
A defendant requesting a new trial bears the burden of proving that the violation occurred and that the error caused him substantial prejudice. See United States v. Stevens, 985 F.2d 1175, 1181 (2d Cir. 1993).
Federal Rule of Criminal Procedure 16(a)(1)(A) states in relevant part:
Upon request of a defendant the government must disclose to the defendant . . . any relevant written or recorded statements made by the defendant . . . within the possession, custody, or control of the government.
Fed.R.Crim.P. 16(a)(1)(A) (2000). The Second Circuit has stated that "the rule is intended to enable a defendant to obtain prior to trial any of his own statements relevant to the crime charged against him so that he will be able to prepare properly to face the evidence that may be introduced against him at trial." United States v. Gleason, 616 F.2d 2, 24 (2d Cir. 1979).
The Government relies heavily on Gleason, where the defendant was a bank president charged with having made false entries in the bank's financial records. On the eve of trial, the Government obtained several documents handwritten by the defendant, including a letter in which the defendant stated that a bank president should keep close track of a bank's finances and notations on the bank's board agendas and earnings statements showing that the he had been keeping track of the bank's finances.
The Government did not produce these to the defendant, nor did it use the documents in its case-in-chief. In his direct examination, the defendant claimed, for the first time, that he had been ignorant of the bank's finances. The Government used the documents at issue to impeach the defendant. The Court stated that the documents only became "relevant" after the defendant testified and falsely denied having followed the bank's finances closely. An additional factor relied on by the Second Circuit in Gleason was that the defendant had access to the documents as they were in the custody of the Federal Deposit Insurance Agency.
Matthews relies upon United States v. Thomas, 239 F.3d 163 (2d Cir. 2001) where the defendant's prior statement related to a particular factual issue in the trial, i.e. whether the defendant had a connection to a blue jacket found to contain ammunition. The Government had obtained a transcript in which the defendant acknowledged that he had been wearing a blue jacket when he fled the police, and that the same jacket contained the ammunition which the defendant was charged with possessing. Failure to provide the statement was held to violate Rule 16. Thomas, 239 F.3d at 167-68.
Here the tape was not introduced into evidence, but the proceedings at the trial indicate that the tape was to be used by the Government to impeach Matthews' testimony with respect to his role at Sterling Foster. The questions put to Matthews sought to establish a predicate which would be contradicted by his statements on the tape. According to the Government, the alleged statements on the tape as to his responsibility were true statements which had just been denied by Matthews on the witness stand. Whether true or false, the alleged statements on the tape were not direct evidence of the crimes charged, that is, misrepresentations as to securities or market manipulation.
Where a defendant requests a new trial based on an alleged Rule 16 violation, the court must assess whether: (1) the defendant has met his burden of proving that such violation occurred, and (2) whether the violation caused "substantial prejudice." Stevens 985 F.2d at 1181. In determining whether the violation caused "substantial prejudice," the court must assess "the nature of the evidence sought, the extent to which it bore on the critical issues in the case, the reason for its nonproduction, and the strength of the Government's untainted proof." See Stevens, 985 F.2d at 1181.
Under this test, the first issue is whether or not the materials at issue that were withheld bore on "critical issues" in the trial. The indictment charged the defendants with two types of fraud: having made misrepresentations to customers, and having manipulated the prices of the Sterling Foster house stocks. The tape did not relate directly to either issue but did relate to the issue of control.
Matthews' motion presents the question as to whether its disposition is controlled by Gleason or Thomas.
In Gleason, the Second Circuit held, only "relevant statements" as defined by case law need be produced while recorded statements that are relevant for impeachment need not be produced, concluding the scope of "relevant" under Rule 16(a)(1)(A) to be statements that bear on the defendant's guilt, a narrower definition of "relevant" than that under Federal Rule of Evidence 401 for deciding what evidence is admissible.
The Court stated:
The Government is not obligated by Rule 16(a) to anticipate every possible defense, assume what the defendant's trial testimony (if he decides to testify) will be, and then furnish him with otherwise irrelevant material that might conflict with his testimony.
Gleason, 616 F.2d at 25.
Matthews has cited United States v. Scafe, 822 F.2d 928 (10th Cir. 1987) for the proposition that a "defendant's statement is discoverable even if intended use of statements is for impeachment or rebuttal purposes." (Def. Br. at 15). The statement in Scafe was a letter written by the defendant regarding the circumstances of the fight that led to the murder for which the defendant was being tried. However, the Scafe court declined to grant a new trial despite the discovery violation in that case since the defendant was aware of the letter and that the Government had access to it.
In United States v. Padrone, 406 F.2d 560 (2d Cir. 1969), also cited by Matthews, the Second Circuit reversed a conviction for the Government's failure to produce a prior statement of the defendant which was the defendant's post-arrest statement to the prosecutor. Moreover, in Padrone, the Government had apparently violated a specific court order to produce the post-arrest statement.
In Stevens, supra, also cited by Matthews, the Second Circuit held that non-disclosure of a recording of the defendant's conversation with an alleged co-conspirator was improper where, unlike here, the statements were arguably incriminating (in Stevens, narcotics-related) and the defense opening statement at trial had specifically referred to defendant's interactions with the alleged co-conspirator who was the other party to the conversation at issue. Stevens upheld the conviction because there was adequate evidence of the defendant's guilt and hence no substantial prejudice could be shown. Stevens, 985 F.2d 1175.
In United States v. Matthews, 20 F.3d 538 (2d Cir. 1994), also cited by Matthews, the Government failed to produce a letter written by the defendant to a key witness who testified at trial regarding the topic of the letter (i.e., the relationship between the defendant and the witness). Id. at 549.
These authorities establish that the undisclosed statements considered in the cases cited by Matthews were more directly inculpatory than the statement here which could be considered puffing if untrue, or a demonstration of control if true. It is concluded that the tape was not relevant as defined in Gleason, and the motion for a new trial is denied on that basis.
Matthews Was Substantially Prejudiced
The rapidity of the jury verdict was both disturbing and an indication that the events of the last few days of the trial eliminated the need for deliberation which might have been anticipated after a six week trial presenting a number of issues with respect to each defendant. Given the nature and timing of the episode involving the tape, Matthews was substantially prejudiced.
There had been no evidence of misrepresentation with respect to securities by Matthews as to any particular customer, contrary to the evidence presented against the other defendants. There was, however, substantial evidence by the cooperating witnesses of Matthews' participation in the manipulative practices conducted at Sterling Foster. The "untainted proof", in Stevens terms, against Matthews depended in large measure on the credibility of the cooperating witnesses.
The Government did not produce the tape, relying primarily on Gleason, and secondarily on its assumption that the Matthews' subpoena upon Price had garnered the tape. Whether that assumption was correct or not is not established by this record.
On balance it can be concluded that Matthews was substantially prejudiced by the presentation of the tape, although a corrective instruction was given.
In any case, for the reasons set forth above, the Government did not violate its Rule 16 obligation to turn over relevant statements to the defendant.
Conclusion
The motion for a new trial pursuant to Rule 16 is denied, no violation having been established.
Sentencing will take place upon a date to be agreed upon by counsel between January 15 and February 15, 2003.
It is so ordered.