A broker’s assistant who was caught up in a securities fraud case has had her conviction vacated by a judge who questioned the fairness of saddling her with a felony record while some of her ex-coworkers who had more prominent roles in the alleged scam were “now conviction free.”
Taking the unusual step of granting a writ of error coram nobis, Eastern District Judge I. Leo Glasser (See Profile) overturned Irene Santiago’s conviction for conspiracy to obstruct justice. In doing so, he objected to the fact that Santiago remained a felon while her former superiors— the case’s principal targets—were now “free to vote, to serve on a jury, to honestly say that they are not felons in making application for employment.”
Glasser also questioned the Eastern District U.S. Attorney’s Office’s opposition to Santiago, who lost her securities license and has had trouble landing jobs in the wake of her felony conviction.
The prosecution’s attitude “suggests a determination to embody Irene Santiago as the real life Hester Prynne, condemned to wear her scarlet letter of conviction for life,” Glasser wrote in U.S. v. Santiago, 05-cr-590.
The underlying case started with a 2004 investigation into Merrill Lynch and Lehman Brothers stock brokers.
The brokers were alleged to have put phone receivers on “squawk boxes” that transmitted internal communications to third-party day traders at A.B. Watley, who used the information to their advantage.
Timothy O’Connell and Kenneth Mahaffy were Merrill Lynch brokers in its Garden City office, and Santiago was a client assistant who worked for both men, but primarily for O’Connell.
The pair occasionally told her to put the phone on the box if they were late to the office, or to hang up the phone if Mahaffy left the office before the market closed.
Santiago did not understand what information was being transmitted. She once asked O’Connell if it was permissible to put the phone on the box, he responded,”It’s fine,” according to court papers.
Authorities sought to question Santiago about the dissemination of internal information.
According to Glasser, O’Connell and Ben Grimaldi, chief compliance officer of Merrill Lynch’s Garden City branch, “embarked on an effort to induce [Santiago] to lie to the investigating federal agents and to the grand jury. They succeeded.”
Santiago told grand jurors she never saw or heard of O’Connell letting people outside Merrill Lynch know what was coming across his squawk box.
O’Connell left Merrill Lynch the same day Santiago gave her grand jury testimony. She then decided to tell the truth to the government.
She pleaded guilty to conspiracy to obstruct justice in 2005 as the government built the case against the brokers. Grimaldi pleaded guilty to conspiring to commit witness tampering the same year.
O’Connell, Mahaffy and other brokers went to trial before Glasser on a range of charges that included securities fraud.
Prosecutors insisted the brokers were relaying confidential information. Santiago testified for the government.
A jury acquitted the brokers of all securities fraud charges but convicted O’Connell of witness tampering.
The jury could not reach a verdict on conspiracy to commit securities fraud and Glasser declared a mistrial.
On retrial before Judge John Gleeson, Santiago again testified and jurors convicted the defendants of the remaining count.
Soon after the brokers’ sentencing, they learned of depositions taken by the Securities and Exchange Commission of a Merrill Lynch employee who said the information from the squawk boxes was not confidential.
Before Santiago’s September 2010 sentencing, the government submitted a letter vouching for Santiago’s substantial assistance but rebuffed repeated defense entreaties to vacate the conviction.
Glasser imposed a $10 fine on Santiago, saying, “A reasonable man might wonder why Ms. Santiago was indicted at all.”
In August 2012, the U.S. Court of Appeals for the Second Circuit criticized Eastern District prosecutors for “failures to comply with Brady [that] were entirely preventable” (NYLJ, Aug. 3, 2012). The panel vacated the brokers’ conspiracy to commit securities fraud convictions and remanded the case.
Prosecutors then entered deferred prosecution agreements with the brokers.
Santiago filed her petition to void her conviction in February, after the deferred prosecution agreements were executed. She argued that the felony conviction meant a 10-year ban on securities industry work, hampering her job prospects and stigmatizing her.
Noting the “perverse outcome” that came from the deferred prosecution agreements, she said she “suffered greater consequences than almost all other former Merrill Lynch employees connected to this matter.”
Prosecutors opposed, saying the circuit ruling had no bearing on Santiago’s lies to the grand jury. “The government does not deny that one could sympathize with the petitioner; however, even she would agree that her actions must have consequences,” said prosecutors, arguing that Santiago came out with the mildest punishments, compared with incarceration and lifetime bans for others.
Glasser, however, found Santiago satisfied all prongs for a writ of error coram nobis: the case’s circumstances were “compelling”; there were “sound reasons” she did not seek relief earlier and she continued to “suffer legal consequences.”
The judge noted the government’s repeated claim that Santiago lied, but “not once” did it acknowledge the pressure and manipulation she suffered from superiors.
Glasser also said there were valid reasons for Santiago’s vacatur bid coming four years after her sentence. The lag “plainly attributable to the government’s belatedly revealed failure to discharge its constitutional Brady obligations.”
Marjorie Peerce, a partner at Ballard Spahr Stillman & Friedman, and Nathaniel Kolodny, an associate, appeared for Santiago.
Peerce said Santiago is “extremely pleased to have her name back and not be labeled a felon. The past nine years have been very difficult and she’s gratified with Judge Glasser’s decision.”
Assistant U.S. Attorneys Sarah Coyne and Jonathan Lax appeared for the prosecution.
An Eastern District spokesman said the office is reviewing Glasser’s decision, but declined to comment further.