WASHINGTON — Federal prosecutors and defense lawyers are tussling over the evidence that can be presented in the upcoming bid-rigging trial against former UBS Financial Services Inc. bankers Peter Ghavami, Gary Heinz and Michael Welty.
Late last week, attorneys for the three ex-bankers requested permission from the court to present evidence on municipal bond transactions other than 38 specific deals that prosecutors have said prove the allegations in the indictment.
Ghavami, former managing director at UBS, and former vice presidents Heinz and Welty were charged in 2010 with fraud and conspiracy in connection with bidding for municipal bond investment and derivatives contracts.
Heinz is also charged with witness tampering. Prosecutors allege he directed a cooperating witness to “forget” about investment agreements and urged the witness to meet with another witness to “get their story straight” regarding kickback payments.
U.S. attorneys said the men defrauded muni bond issuers and the U.S. Treasury Department by conspiring with those at other financial firms between 2001 and 2006 to set bids and to determine which financial institution would win particular contracts.
The trial is slated to start July 23 in the U.S. District Court for the Southern District of New York in Manhattan.
It comes after the trial and conviction of three former executives of General Electric Co. affiliates over bid-rigging: Dominick Carollo, Steven Goldberg and Peter Grimm. The three were found guilty of wire fraud and conspiracy on May 11 and are to be sentenced on Oct. 11.
The request to present evidence on more transactions by lawyers for Ghavami, Heinz and Welty, filed July 6, came in response to a request by prosecutors last month, who asked the court to exclude from the trial evidence “suggesting the absence of criminal activity in transactions.”
In their response, defense lawyers, who declined to comment, called the prosecution’s request an attempt to ensure jurors hear only about “38 cherry-picked transactions and nothing more.”
Lawyers for Ghavami, Heinz and Welty noted that the former bankers conducted hundreds of other reinvestment, escrow and swap transactions, often processing multiple bids for multiple transactions in a single day.
Calling the transactions “context-setting evidence,” they said the material can demonstrate the environment in which the defendants worked. They said the evidence can be used to show the absence of a pattern of corruption, and that the transactions highlighted by the government were “disconnected, non-sequential, unrelated, stand-alone transactions that are separated by time and by hundreds of other intervening transactions.”
“Testimony regarding the existence of transactions outside the 38 calls into question when, why, how and whether defendants entered in a conspiracy,” the lawyers said. “Such proof tends to undermine the notion that the defendants acted in concern, by agreement or plan.”
The lawyers also said evidence about the other transactions “may bear directly on the credibility of the government’s witnesses.”
Law firms Stillman & Friedman PC, Bracewell & Giuliani LLP and Poe & Burton PLLC represent Ghavami, Heinz and Welty, respectively.
U.S. attorneys, who did not return calls for comment, had argued in a June 25 filing that only 38 transactions are relevant to the case, and that evidence of other deals would waste time and confuse the jury.
“As a ... bank robber cannot introduce instances ... where she went into a bank and did not rob it, so here too,” prosecutors said.
Also on July 6, U.S. attorneys filed a request asking the court to deny a defense motion asking the court to exclude testimony regarding “municipal issuers’ expectations.”
Although the defense’s motion remains under seal, the U.S. attorneys said in their filing that the defense argued that such testimony would be based on the “state of mind of the alleged victims,” which “is not an element of the charged crimes.”
But the attorneys claimed they should be able to present issuers’ “objective expectations” about transactions, based on Treasury Department regulations governing the tax-exempt status of municipal bonds.
The U.S. attorneys said issuer witnesses will discuss processes manipulated by the defendants and explain regulations they must follow to ensure the bonds are tax-exempt and the role of various participants in a transaction.
“In order to understand how the defendants subverted these processes through their schemes to defraud, one must first understand the processes themselves,” attorneys said.
Also last week, the U.S. attorneys asked the court to permit evidence showing that Ghavami, Heinz and Welty received ongoing compliance training from UBS.
The evidence includes UBS compliance bulletins, training related to gifts and gratuities conduct, new employee orientation booklets, continuing education materials, internal policy, and procedures documents and materials showing that the defendants received such training.
The compliance materials describe behavior that would violate regulations, explain consequences of offering misleading information or making material omissions, and warn staffers not to sign “certificates which contradict facts” and not to “ask or agree with other competing dealers to fix, raise, lower or maintain quotes or prices,” according to court papers.
The U.S. attorneys said the evidence can rebut the argument that the defendants were not properly trained on competitive bidding.
