Brady Obligations of Civil Investigators

Brady Obligations of Civil Investigators Ronald G. Blum and Arunabha Bhoumik

In February, after a four-week trial, a jury in the Southern District of New York convicted Mathew Martoma of three counts of insider trading and conspiracy. The case attracted attention because it adds to the list of recent insider trading convictions in the Southern District and because Martoma had worked for SAC Capital and Steve Cohen.

But behind the headlines generated by the Martoma verdict is a decision by U.S. District Judge Paul Gardephe that exposes the artifice of coordinated, but “separate,” criminal and civil investigations by the Department of Justice and civil enforcement agencies such as the Securities and Exchange Commission, the U.S. Commodity Futures Trading Commission (CFTC), and Justice Department civil attorneys. Building on U.S. District Judge Jed Rakoff’s widely noted 2012 decision in United States v. Gupta, Gardephe’s decision may expand the paradigm for Brady/Giglio disclosure in criminal cases.

Discovery Obligations

As criminal practitioners are aware, under Brady v. Maryland, in a criminal prosecution the government has an affirmative obligation to disclose exculpatory information to defense counsel before trial. 373 U.S. 83 (1963). Exculpatory information is any information that either negates guilt or is inconsistent with the government’s theory of the case. Failure to disclose material exculpatory information violates due process. United States v. Rivas, 377 F.3d 195, 199 (2d Cir. 2004). In United States v. Giglio, the Supreme Court extended Brady to include information that may be used to impeach a government witness. 405 U.S. 150 (1972).

Courts do not expect prosecutors to be omniscient. Thus, they do not require prosecutors to be aware of (and thus disclose) all exculpatory information in the possession of the entire federal government. But courts do require prosecutors to be aware of exculpatory information in the possession, custody or control of the prosecution team, which may include civil investigative agencies. As stated by the U.S. Supreme Court, “[t]he individual prosecutor has a duty to learn of any favorable evidence known to others acting on the government’s behalf in the case.” Kyles v. Whitley, 514 U.S. 419, 437 (1995).

Thus, courts have long held that where the Justice Department conducts a joint investigation with civil enforcement agencies (such as the SEC), the prosecution is expected to disclose Brady/Giglio information in the possession of civil investigators. “The inquiry is not whether the United States Attorney’s Office physically possesses the discovery material; the inquiry is the extent to which there was a ‘joint investigation’ with another agency.” United States v. Upton, 856 F.Supp. 727, 750 (E.D.N.Y. 1994). This is because, as the U.S. Court of Appeals for the Ninth Circuit stated, “[t]he government cannot with its right hand say it has nothing while its left hand holds what is of value.” United States v. Wood, 57 F.3d 733, 735 (9th Cir. 1995).

Accordingly, the Justice Department has long instructed prosecutors to “seek all exculpatory and impeachment information from all the members of the prosecution team.” See U.S. Attorneys’ Manual 9-5.001.B.2. “Members of the prosecution team include federal, state, and local law enforcement officers and other government officials participating in the investigation and prosecution of the criminal case against the defendant.” Id. And at least as early as January 2010, the Justice Department issued guidance specifically instructing prosecutors of various factors to consider in determining whether non-criminal investigative personnel should be considered members of the prosecution team, including:

• Whether the prosecutor and the agency conducted a joint investigation or shared resources related to investigating the case;

• Whether the agency played an active role in the prosecution, including conducting arrests or searches, interviewing witnesses, developing prosecutorial strategy, participating in targeting discussions, or otherwise acting as part of the prosecution team;

• Whether the prosecutor knows of and has access to discoverable information held by the agency;

• Whether the prosecutor has obtained other information and/or evidence from the agency;

• The degree to which information gathered by the prosecutor has been shared with the agency;

• Whether a member of an agency has been made a special assistant U.S. attorney;

• The degree to which decisions have been made jointly regarding civil, criminal, or administrative charges; and

• The degree to which the interests of the parties in parallel proceedings diverge such that information gathered by one party is not relevant to the other party.

See U.S. Department of Justice Criminal Resource Manual 165 (“Guidance for Prosecutors Regarding Criminal Discovery”). Notably, this guidance from the Justice Department presumes that a prosecutor’s Brady/Giglio obligation extends beyond information in the actual possession of the prosecutor.

Despite this long-established case law and specific Justice Department guidance to prosecutors, the department has sometimes taken the position—most notably in Gupta—that it need not disclose information that was in the possession of civil investigators but not physically in the possession of the prosecutor. In Gupta, the U.S. Attorney’s Office for the Southern District of New York charged Rajat K. Gupta, the former chief executive of McKinsey & Co. and Goldman Sachs board member, with providing insider information to his friend, Galleon Group hedge fund founder Raj Rajaratnam. Before trial, the defense moved to compel disclosure of Brady material in the possession of the SEC, in particular SEC interview memos pertaining to 44 joint interviews conducted by the U.S. Attorney’s Office and the SEC.

In a widely noted decision, Judge Rakoff ordered the criminal prosecution team to conduct a Brady/Giglio review of the SEC interview memoranda of 44 witnesses who had been jointly interviewed by the Justice Department and the SEC. United States v. Gupta, 848 F.Supp.2d 491, 497 (S.D.N.Y. 2012). In so ruling, Rakoff specifically noted that the government’s Brady obligations extend to joint “investigations” even if there is no joint “prosecution.” Id. at 494-95. Further, Rakoff noted that Brady trumped any attorney work-product protection afforded the SEC’s interview memoranda. Id. at 497.

Put simply, Gupta confirmed that in a joint investigation, exculpatory information (in that case, information contained in SEC witness interview memoranda) must be disclosed to the defense, even if it is not in the physical possession of the criminal prosecutor. According to Rakoff, “any argument that the Government’s duty does not extend so far merely because another agency, not the [U.S. Attorney's Office], is in actual possession of the documents created or obtained as part of the joint investigation is both hypertechnical and unrealistic.” Id. at 493 (quoting United States v. Shakur, 543 F.Supp. 1059, 1060 (S.D.N.Y. 1982)).

‘Martoma’ Goes Further

Martoma was charged with trading on insider information while employed at the hedge fund SAC Capital. The defense moved pretrial to compel disclosure of Brady/Giglio materials in the possession of the U.S. Attorney’s Office and the SEC. In particular, the defense argued that it was entitled to disclosure of Brady/Giglio information contained in communications between the government and counsel for the government’s cooperators. In response, the government, citing United States v. Rigas, 583 F.3d 108, 126 (2d Cir. 2009), argued that “the Second Circuit has rejected the contention that the USAO has an obligation to produce documents in the SEC’s custody that are not in the possession of the USAO.”

In a decision before trial, Gardephe flatly rejected this argument. United States v. Martoma, No. 12 Cr. 973 (PGG), 2014 U.S. Dist. LEXIS 1566 (S.D.N.Y. Jan. 5, 2014). First, citing Gupta, Gardephe noted that the government indisputably would have to produce materials solely in the possession of the SEC if the U.S. Attorney’s Office and the SEC had conducted a joint investigation. Id. at *5. Looking at the facts of this particular investigation, Gardephe found that the U.S. Attorney’s Office and SEC were clearly conducting a joint investigation.

Among other things, Gardephe noted that the U.S. Attorney’s Office had conferred with the SEC since the beginning of its investigations, and had then conducted parallel investigations. Id. at *9. During these “parallel” investigations, SEC and the U.S. Attorney’s Office had jointly conducted 20 interviews of 12 witnesses. Id. The SEC had also shared with the U.S. Attorney’s Office documents it had obtained during its investigations. Id. at *10. The office and the SEC also coordinated efforts with respect to conducting depositions of SAC employees, in particular with respect to a deposition of SAC founder Cohen. Id.

Indeed, prior to the Cohen deposition, the SEC met with the U.S. Attorney’s Office to discuss the deposition, and contacted the office during and after the deposition to provide updates. Id. at *10-11. Finally, Gardephe noted that the criminal complaint against Martoma was based in part on information obtained from the SEC. Id. at *11. Taken together, Gardephe concluded that “[c]learly, the agencies [were] engaged in joint fact-gathering, even if they [were] making separate investigatory or charging decisions.” Id. (quoting Gupta, 848 F.Supp.2d at 494) (internal quotations omitted).

Thus, because the agencies were conducting a joint investigation, Gardephe ordered that the government provide the defendants Brady/Giglio information that was included in communications between the SEC and counsel for the government’s cooperators, even though those communications were solely in the possession of the SEC. Id. at *11-12.

A Sea Change?

Martoma is significant for two reasons. First, Gardephe concluded with little apparent hesitation that the government’s discovery obligations extended to the SEC because the U.S. Attorney’s Office and the SEC had conducted a “joint investigation.” In doing so, he rejected the U.S. Attorney’s Office’s position that it was not required to produce materials solely in the possession of the SEC. This decision—that “separate” investigations are “joint” when the Justice Department and the SEC (or some other agency) confer and coordinate their investigations—was made without much fanfare and did not receive the same attention in the white-collar bar as the Gupta decision.

This suggests that judges and lawyers—at least in New York— now expect that Justice Department prosecutors will disclose (or review for Brady/Giglio purposes) materials solely in the possession of civil investigators, where the Justice Department and the civil agency have coordinated their investigations. In short, Martoma shows that Gupta was not an aberration.

Second, and more important, is the subject of disclosure in Martoma—SEC emails with defense lawyers. In United States v. Triumph Capital Group, 544 F.3d 149 (2d Cir. 2008), the U.S. Court of Appeals for the Second Circuit extended the government’s Brady/Giglio obligations to information obtained by the government during an attorney proffer. Relying on Triumph Capital, Martoma’s lawyers argued, and Gardephe agreed, that communications between defense lawyers and the government could be subject to Brady as well. Gardephe then extended this principle and applied it to not only emails between defense lawyers and Justice Department criminal prosecutors, but also emails between SEC lawyers and defense lawyers where no Justice Department lawyer was involved.

Each of these incremental expansions of disclosure obligations flows from the previous one, and each is almost self-evident. But taken as a whole, Gardephe’s decision might portend a sea change in the Justice Department’s discovery obligations. Pursuant to Martoma, all information in the possession of civil investigators is potentially subject to review under Brady/Giglio, not merely the memoranda of joint interviews at issue in Gupta.

In other words, it does not matter (nor should it) whether the information exists in an email or a formal report, whether the Justice Department or some other agency has the information, or whether the information came from a percipient witness, or from an attorney in a presentation, email, or written submission. See, e.g., United States v. Villa, No 3:12 Cr. 40, 2014 U.S. Dist. LEXIS 8748, *13-16 (D. Conn. Jan. 24, 2014) (declining to order disclosure of Internal emails between two U.S. attorney’s offices and the FBI because they had already been reviewed by the USAO, but noting that Brady might trump any work product protections that applied to such emails) (citing Gupta, at 497).

Why is this important? Justice Department criminal prosecutors have long coordinated with civil components of other agencies, as well as the department’s civil attorneys in various areas of enforcement, including financial crimes, environmental crime, and health care fraud. This coordination preserves resources, prevents the government from taking inconsistent positions, and allows criminal prosecutors to tap into the substantive expertise of their civil colleagues.

But civil attorneys and investigators may not be as sensitive to the possibility of disclosure under Brady/Giglio as their criminal division colleagues. After all, the Justice Department has long assumed that its electronic communications might be discoverable. See, e.g., Memorandum from Deputy Attorney General James M. Cole, “Guidance on the Use, Preservation, and Disclosure of Electronic Communications in Federal Criminal Cases” at 4 (March 30, 2011). As a result, the Justice Department has instructed its prosecutors that substantive email communications, both with non-law enforcement personnel and with members of the prosecution team, “should be avoided” because they might be discoverable. Id. at 5. The Justice Department has also provided guidance to its prosecutors on the preservation of substantive electronic communications. Id. at 7.

But Gupta and Martoma make clear that such guidance should also apply to civil enforcement attorneys. And while cautious prosecutors may, early in an investigation, advise their civil counterparts of the potential pitfalls of criminal discovery down the road—including the need to preserve certain communications—it seems from the government’s arguments in Gupta and Martoma that some prosecutors may have not anticipated having to review or disclose information solely in the possession of the civil investigators, or may not have advised their civil colleagues on these issues. Moreover, even if cautious prosecutors, after Gupta and Martoma, now anticipate having to disclose information in the sole possession of civil investigators, many current prosecutions were initiated years ago, at a time when some Justice Department attorneys may not have been as forward-thinking.

For defense counsel, the decision prompts a few suggestions: (i) ask for Brady/Giglio materials early and often, (ii) seek disclosure of information, even if solely in the possession of the SEC or some other civil investigative agency, and (iii) confirm that the government is including substantive email communications, including those communications in the possession of civil lawyers and investigators, as part of any Brady/Giglio review.

Ronald G. Blum and Arunabha Bhoumik are partners in the New York office of Manatt, Phelps & Phillips; both are former prosecutors. Blum is an adjunct professor at Fordham Law School.