WASHINGTON — Three men convicted of rigging bids for guaranteed investment contracts in the municipal market are urging a federal appeals court to overturn a lower court's decision on the basis of an expired statute of limitations, improper testimony, and other alleged errors in their earlier trial.
Former UBS AG bankers Michael Welty, Peter Ghavami, and Gary Heinz, were convicted in a U.S. District Court in Manhattan in August 2012 as part of a wide-ranging U.S. Department of Justice antitrust investigation into the rigging of bids for GICs and other muni products.
Ghavami received a $1 million fine and an 18-month prison sentence last July, while Heinz got 27 months and a $400,000 fine and Welty received 16 months and a $300,000 fine for fraudulent schemes conducted from 2001 to 2006. The three have sought a new trial, but want the U.S. Court of Appeals for the Second Circuit in New York to reverse their convictions.
The three men took slightly different approaches to their appeals and filed separate briefs, though they concurred on some points. Ghavami's lawyers are arguing that the prosecution was time-barred under the statute of limitations, along with the admission of "prejudicial evidence" presented at the criminal trial. Ghavami's lawyers said the prosecution should have been prevented because the 2010 indictment of Ghavami came well after the expiration of the five-year statute of limitations for wire fraud and conspiracy. General Electric bankers Dominick Carollo, Steven Goldberg, and Peter Grimm, also convicted for GIC bid-rigging, won their appeal in the same appellate court in December after making the same statute of limitations arguments.
The lower court allowed Ghavami's prosecution on the grounds that the fraud affected a financial institution, invoking a 10-year statute, but Ghavami's brief challenges that finding.
"That ruling was incorrect because the banks (unindicted co-conspirators) were active participants in the fraud and because the harms alleged [against the banks] — costs, fines and legal fees incurred by the institutions in settling various regulatory and criminal investigations into their employees' conduct — are not the type contemplated by the statute," his brief states.
Heinz's lawyers filed a document that agreed the prosecution should have been time-barred, and further argued that Heinz's rights were violated because the government adopted two contradictory positions on cases arising from the same investigation. Other men who pled guilty to the same conduct as Heinz were not alleged to have affected a financial institution, but Heinz was, violating his due process rights, his brief argues. This should have been prevented by a legal precedent called judicial estoppel, which provides that a party who prevails on one ground in one lawsuit may not repudiate that ground in another, the brief states.
Welty's brief argues that the jury was given instructions, harmful to Welty, with regard to what the government had to prove to find him guilty of acting criminally by intentionally losing and certifying some of his bids. The jury was instructed that "you may not consider a certification to be false if you find that an intentionally losing bid was submitted only for a legitimate business purpose." Welty's appeal argues that this instruction improperly invited the jury to speculate on Welty's purpose in submitting bids. An improper jury instruction sustained over an objection by defense counsel is reversible on appeal, his lawyers wrote.
All three briefs also claim there was improper testimony from former UBS banker Mark Zaino, who pleaded guilty in 2010 to a role in the scheme and who walked out of court a free man last week after a judge declined to impose further punishment on him. Zaino testified about the meaning of taped telephone conversations which he did not take part in, violating federal evidence rules.
"This cooperator testimony was not 'rationally based on the witness's perception' as Rule 701 requires — after all, the witnesses were not on the calls — but was based instead on the witnesses' years-long review of the government's evidence during proffer sessions and trial preparation," Ghavami's brief states.
Department of Justice lawyers are expected to file responses in the coming weeks.
