The U.S. government arbitrarily and wrongfully extended the statute of limitations from five years to 10 to obtain bid-rigging convictions for three former UBS AG bankers, their lawyers said in a New York appeals court on Friday.
Government counsel, meanwhile, said representatives of Peter Ghavami, Michael Welty and Gary Heinz contradicted themselves on points of law and said the convictions of the three should stand.
Both parties appeared in oral arguments before justices Ralph Winter, Raymond Lohier Jr. and Susan Carney at U.S. Court of Appeals for the Second Circuit in lower Manhattan. The justices are expected to rule in roughly 60 to 90 days.
The highly granular give-and-take among counsel and justices in Room 1703 at the Thurgood Marshall Courthouse included debate over the meaning of “effect.”
The former bankers say the five-year statute of limitations for wire fraud should have applied and that a district court jury erred in applying 10 years for fraud affecting a financial institution.
“This was a dramatic expansion of criminal liability,” said Ghavami’s lawyer, Nathaniel Marmur. “The offense here is the conspiracy to affect municipal issuers. It didn’t affect financial institutions.”
He added: “A person who attempts suicide is not charged with attempted murder.”
Carney, though, responded that the bank was affected through fines and other financial liability.
UBS, Bank of America, General Electric Co., JPMorgan Chase & Co. and Wells Fargo & Co. have paid roughly $750 million in restitution and fines related to charges of defrauding municipal issuers, the U.S. Treasury and the Internal Revenue Service.
“The government’s interpretation is wildly ambiguous and that’s the problem here,” attorney Marc Mukasey said on behalf of Heinz.
He said prosecutors worried about losing convictions, citing the successful appeals of former General Electric bankers Steven Goldberg, Dominick Carollo and Peter Grimm.
“The government said uh-oh, we might lose’, and all of a sudden, post hoc [after the fact], as a manufactured justification, they said it affected financial institutions,” Mukasey said.
A District Court jury in August 2012 convicted Ghavami, Welty and Heinz as part of a far-reaching Justice Department enforcement over the manipulation of bids for guaranteed investment contracts and other municipal products between 2001 and 2006.
The government said they agreed which provider would win a particular transaction; intentionally solicited intentionally losing or “courtesy” bids to meet the three-bidder requirement and feign a competitive bidding process; shared information about pricing and other providers’ bids under a “last looks” scheme; and falsely certified compliance to bond counsel.
Ghavami received an 18-month prison sentence and a $1 million fine last July; 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.
U.S. antitrust attorney Daniel Haar urged the justices to uphold the conviction.
“The defense is inaccurately shifting its position,” he said. “These people committed fraud and insider abuse, and used their positions to defraud municipalities in a way that exposed these employers to criminal sanctions.”
The defense and prosecutors also sparred over testimony from former UBS banker Mark Zaino, who pleaded guilty in 2010 to participating in the scheme. The defense said it was prejudicial.
“This is an appeals court, so they can only overturn what they decide is a mistake about the law the trial judge made, if they even find that,” said Anthony Sabino, a white-collar defense attorney in Mineola, N.Y., and a St. John’s University law professor. “The factual findings are pretty much sacrosanct, and the Second Circuit will not touch them.
“The main argument here seems to be what is the applicable limitations period, and that is a straight-up legal argument. Given that we are talking about fraud that purportedly affected one of the largest banks in the world, it’s pretty hard to say the longer 10 year statute does not apply.”
White-collar defendants, Sabino added, have had spotty track records before the Second Circuit of late. That court affirmed the convictions of Galleon Group founder and former hedge fund manager Raj Rajaratnam and former Goldman Sachs Group Inc. director Rajat Gupta, both related to insider trading.
“I would say these gentlemen [the UBS bankers] definitely have less than a 50-50 chance of overturning their convictions before the tribunal,” said Sabino.
