The recent federal prosecutions of Raj Rajaratnam and Rajat K. Gupta for violating federal securities laws prohibiting insider trading introduced the business community, Wall Street and the general public to investigative techniques that previously had been the province of narcotics and organized crime prosecutions. Though in the past wiretapping had been employed in other types of cases,1 the use of wiretapping in an insider trading case was novel. Moreover, the government appears to be committed to the ongoing investigation of insider trading and so-called "expert-network" firms, and wiretapping and other forms of electronic surveillance undoubtedly will play a part in such prosecutions.2

Many of the techniques used in the Rajaratnam case and its successors were originally developed in the context of prosecutions of organized crime figures.3 Mob bosses quickly learned that the sound of their own voice on tape provided veritably insurmountable evidence of guilt. Indeed, it was so well-known that such commentary could lead to conviction that one mob figure, Genovese family boss Vincent "the Chin" Gigante, forbade underlings from uttering his name or nickname in conversations or telephone calls.4

Today, board members, traders and hedge fund managers find themselves in an environment akin to that faced by the mob in the 1980s. Counsel representing targets of these investigations are faced with the same issue of how to combat the effectiveness of the government’s use of "snippets" of recorded conversations choreographed together to establish guilt. Previously, counsel may have been able to count on some jurors’ aversion to the government’s intrusion into their own lives to taint their analysis of such evidence. In today’s world, such surveillance methods have become ubiquitous in cinema and television. As a result, many jurors not only are not offended by such intrusions, but in fact may expect to hear such evidence. Indeed, the government recently argued that the use of pre-paid mobile devices reflects consciousness of guilt—much as it argued in the past that the use of pay telephones was designed to avoid wiretaps.5

Much attention has been paid to how counsel for the targets of such surveillance can attempt to exclude intercepted statements.6 However, little has been said about how to negate the impact of these statements if a challenge to the wiretap is unsuccessful and recorded statements are deemed admissible.

Rule 801(d)(2)(E) Statements

Among seasoned criminal defense lawyers, there is nothing new about the government’s reliance on Federal Rule of Evidence 801(d)(2)(E) to admit statements of non-testifying co-conspirators. This method of presentation derived its power from the fact that the government need not call live witnesses if it can establish that there was a conspiracy, that its members included the declarant and the party against whom the statement is offered, and that the statement was made both during the course of, and in furtherance of, the conspiracy.7 Thus, trial counsel is deprived of the opportunity to cross-examine the co-conspirator.

Consider the following hypothetical: A former employee of a prominent hedge fund is charged with insider trading based on trades he suggested to the fund following meetings and conversations with a professor acting as a consultant to a publicly traded pharmaceutical firm. The professor secures a non-prosecution agreement, the former employee refuses to cooperate, and the only evidence against the hedge fund’s principal appears to be circumstantial evidence of well-timed phone conversations, face to face meetings at critical moments, and the principal’s role in every significant investment decision made by the fund. However, the professor, who never met with or spoke to the principal, will testify that the employee told the professor that they were providing the information to the principal, that they were working directly with the principal, and that the principal would personally review the professor’s fee. This testimony is perfectly permissible under Rule 801(d)(2)(E).

Now imagine the analysis if the government had intercepted the professor’s telephone conversations (either consensually or under court order), or had monitored the professor’s email, instant messages or text messages. In these circumstances, the former employee could be heard or seen spelling out the principal’s direct knowledge and participation in the allegedly illegal trades. The analysis would likely result in the same outcome; namely, that the statements would be admissible against not only the former employee, but against the principal.

Intercepted Rule 801(d)(2)(E) Statements

Assuming counsel has been unsuccessful in challenging the propriety of the government’s surveillance, the focus at trial shifts to the persuasive power of intercepted communications. The government typically follows a standard procedure for the introduction of such statements. It calls a case agent to authenticate and introduce the intercepted statements. This agent usually will have reviewed all of the available statements. The agent also will be familiar with the various speakers so that he (or she) can identify those speakers in order to authenticate the recordings. He will have prepared or participated in the preparation of transcripts of the communications. Assuming that the government has established the elements for admission of the statements under Rule 801(d)(2)(E), it will be allowed to introduce, through the agent, pre-selected statements or portions of statements that suggest the guilt of the principal. Following introduction of this evidence, counsel is faced with the task of undermining the significance of such "snippets" without the ability to directly confront the individual who uttered the damning words.

Using 806 Against 801(d)(2)(E) Statements

Federal Rule of Evidence Rule 806 provides a method to attack the probity of the government’s intercepted communications. Rule 806 permits trial counsel to attack the non-testifying declarant’s "testimony" by any means permissible, as if he were sitting in court.8 As the Advisory Committee Notes to the rule explain, the declarant is, in effect, a witness and "his credibility should in fairness be subject to impeachment and support as though he had in fact testified."9 In addition to attacking the declarant’s testimony, Rule 806 may be used to attack various statements other than those attributed to the non-testifying declarant. For instance, statements of a declarant who has made authorized statements on behalf of a party may be attacked using Rule 806.10 In addition, statements by any agent or servant of a party may also be subject to Rule 806′s broad applicability.11

Under Rule 806, evidence of the declarant’s inconsistent statements or conduct may be admitted regardless of the timing of such statements or conduct. Ordinarily, such inconsistencies must predate the witness’ testimony.12 But significantly, Rule 806 also obviates the need to confront the witness with the inconsistent statement prior to using the statement to impeach the witness.13 Trial counsel may impeach the "testimony" of the declarant by addressing questions to the agent.14 In the absence of proper preparation, counsel may be able to impugn the reliability of the agent while impeaching the declarant. For example, the agent may be well-versed in those communications that the government introduces in its case in chief, but unfamiliar with the conversations that the defense chooses to introduce. Significantly, failure to permit trial counsel to impeach the non-testifying declarant where such impeachment is warranted constitutes reversible error.15

Where counsel seeks to undermine the veracity of the co-conspirator’s statements through inconsistent statements, such statements need not be "diametrically opposed."16 The Second Circuit has held that the inconsistency requirement is satisfied when one of the following factors is met: (1) there is any variance between the statement and the testimony that has a "reasonable bearing on credibility," or (2) the jury could "reasonably find" that a witness who believed the testimony would have been unlikely to make a statement "of [its] tenor."17 The "witness" may also be impeached, subject to Rule 609, with a prior conviction.18 Other techniques include establishing the declarant’s reputation for untruthfulness,19 conduct that may be probative of the declarant’s lack of truthfulness20 and, of course, bias.21

Trial counsel also may employ more novel methods of attack. For instance, counsel can introduce its own "snippets" of recorded conversations that are inconsistent with the government’s theory of the case. Such statements ordinarily would not be admissible under Rule 801 unless they were introduced by a party-opponent.22 Counsel also can introduce conversations between the declarant and other third parties to demonstrate the declarant’s own illegal conduct. For instance, in our example, if there are recordings illustrating that the declarant was "stealing" tips for himself or engaging in illegal trades without the principal, Rule 806 would permit such evidence. Similarly, if there are recordings demonstrating that the declarant falsely bragged about his/her relationship with the principal, or acknowledged that he/she did not really know the principal, such recordings could be introduced. Indeed, if trial counsel is fortunate, he/she might discover conversations where the declarant stated that they acted on their own and were authorized to execute trades for the fund without approval of the principal. Such evidence would provide compelling arguments that the declarant cannot be relied upon, or that he/she independently engaged in illegal activity and is simply trying to avoid responsibility.

Dangers Associated With Rule 806

As with all cross-examination, Rule 806 presents risks as well as rewards. Thus, while Rule 806 may be used to impeach the non-testifying former employee in the example, it may also be used by the government as a means of rehabilitation. Where counsel introduces a statement of the former employee that suggests that the principal had no knowledge of the illegal activity, the government may be permitted to introduce other recordings not previously introduced in which the employee’s relationship with the principal, including other activities the two men engaged in, could be admitted. Moreover, where counsel succeeds in introducing their client’s exculpatory statements, those statements could be impeached by a prior felony conviction23 or other source of impeachment material that previously had been precluded pursuant to Rules 401 and 403.

The government also may be permitted to introduce sworn admissions elicited during the former employee’s plea allocution. Ordinarily, the introduction of a prior allocution as substantive evidence violates the Confrontation Clause.24 Although the Second Circuit does not appear to have addressed this particular issue in the Rule 806 context, if a court is satisfied that the purpose of such evidence relates to credibility, as opposed to being offered as substantive proof of the existence of the conspiracy or the principal’s participation in the conspiracy, the government may be permitted to introduce portions of the allocution.25 Rather than allowing such statements to stand in a vacuum, counsel then may choose to elicit the circumstances of the allocution in order to establish that the statement was self-serving, i.e., made to obtain a favorable disposition.

Trial counsel also must be mindful of the potential dangers posed by Rule 806 in the context of multi-defendant cases. For example, in our hypothetical, imagine that the principal and former employee are codefendants, and that the professor is identified as an unindicted co-conspirator who does not testify at trial. The government introduces portions of communications between the former employee and the professor that implicate the former employee. Counsel for the former employee may use Rule 806 to impeach the credibility of the professor, as well as the principal. For instance, counsel might introduce evidence of the professor’s prior relationship to the hedge fund, its previous employees, or the history of trades that preceded their own tenure. Thus while the codefendant’s counsel is ostensibly negating the significance of their client’s own relationship to the professor, they would be presenting evidence that the principal had been orchestrating the flow of information and trades for years.

Conclusion

Defending members of the business and financial community now entails being conversant in the techniques of electronic surveillance and how to attack the introduction of such statements, as well as how to counter their impact during trial if exclusion is not possible. Though Rule 801(d)(2)(E) statements, once admitted, can be a powerful tool for prosecutors, Rule 806, when carefully employed, provides defendants with their own weapon to undermine the impact of such communications.

Douglas E. Grover, a partner at Thompson Hine in New York, is a former federal prosecutor and has been practicing criminal law for over 30 years. James M. Roberts, an associate at the firm, is a former assistant district attorney at the Manhattan District Attorney’s office.

Endnotes:

1. See Jeff Coon and Bob Secter, "Wiretaps detail Blagojevich’s wish list," Chicago Tribune (May 3, 2011), available at http://www.chicagotribune.com/news/local/breaking/chibrknews-testimony-begins-today-in-blagojevich-retrial-20110503,0,5652328.story?page=1.

2. Kevin McCory, "Informant led FBI to 20 insider trading cases," USA Today (Jan. 23, 2013), available at http://www.usatoday.com/story/money/business/2013/01/22/insider-trading-informant-wesley-wang/1836685/.

3. Ailsa Chang, "Wall Street Wiretaps: Investigators Use Insiders’ Own Words to Convict Them," (Dec. 26, 2012), available at http://www.wnyc.org/npr_articles/2012/dec/26/wall-street-wiretaps-investigators-use-insiders-own-words-to-convict-them/.

4. According to Gigante’s obituary, "[w]hen references to him had to be made, capos and soldiers would silently point to their chins or form the letter ‘C’ with their fingers." Selwyn Raab, "Vincent Gigante, Mafia Leader Who Feigned Insanity, Dies at 77," The New York Times (Dec. 19, 2005).

5. Jonathan Stempel, "Seven Indicted in Galleon Insider Trading Case," Reuters, Jan. 22, 2010, available at http://www.reuters.com/article/2010/01/22/us-galleon-indictments-idUSTRE60K6O220100122.

6. Anello & Albert, " Rajaratnam, ‘Necessity’ and the Path for Future Wiretaps," NYLJ, Vol. 248-No. 107 (Dec. 4, 2012).

7. United States v. Tracy, 12 F.3d 1186, 1196 (2d Cir. 1993).

8. Fed. R. Evid. 806; Fed. R. Evid. 608, 609.

9. Fed. R. Evid. 806, advisory committee’s notes; trial counsel should be sure to request all impeachment material of any non-testifying witnesses whose statements the government intends to introduce under Rule 801(d)(2)(E).

10. Fed. R. Evid. 806; Fed. R. Evid. 801(d)(2)(C).

11. Fed. R. Evid. 806; Fed. R. Evid. 801(d)(2)(D), (E).

12. Fed. R. Evid. 613(b); 5 J. Weinstein & M. Berger, Weinstein’s Federal Evidence §613.05(1) (J. McLaughlin ed., 2d ed. 2012) (Weinstein).

13. Fed. R. Evid. 806; Weinstein §§613.05(2), 806.02(1).

14. The rule does, however, permit counsel to call the declarant. Weinstein §806.07.

15. Delaware v. Van Arsdall, 475 U.S. 673, 680 (1986); United States v. Burton, 937 F.2d 324 (7th Cir. 1991). But see United States v. Myerson, 18 F.3d 153, 161-62 (2d Cir. 1994) (Rule 806 impeachment should have been permitted, but evidence was de minimis and error was harmless); United States v. Ebbers, 458 F.3d 110, 123 (2d Cir. 2006) (trial court did not abuse its discretion by denying defendant’s attempts to impeach government witness’ hearsay statements under Rule 806 with statements that were not contradictory).

16. United States v. Preldakaj, 456 Fed. Appx. 56, 58 (2d Cir. 2012).

17. Id.

18. Weinstein §806.04(2)(b).

19. Fed. R. Evid. 608(a); United States v. Medical Therapy Services, 583 F.3d 36 (2d Cir. 1978).

20. Fed. R. Evid. 608(b)(1); United States v. Friedman, 854 F.2d 535, 569-70 (2d Cir. 1988); see, e.g., United States v. White, 692 F.3d 235, 248-51 (2d Cir. 2012).

21. United States v. Check, 582 F.2d 668 (2d Cir. 1978).

22. Such an attack is distinct from, and far more expansive than, Federal Rule of Evidence 106 (the "rule of completeness"), because it permits the introduction of unrelated conversations on separate occasions. However, evidence introduced under Rule 106 may be admitted for all purposes, while cross examination by inconsistent statements is focused solely on the issue of credibility and admitted for that purpose only.

23. Weinstein §806.04(2)(b).

24. United States v. Riggi, 541 F.3d 94, 102 (2d Cir. 2008).

25. Weinstein §806.05; United States v. Benson, 591 F.3d 491, 498-99 (6th Cir. 2010).