WASHINGTON — A federal judge rejected a request by the U.S. Justice Department to use sections of certain audio files as evidence in the upcoming bid-rigging trial against former UBS Financial Services bankers Peter Ghavami, Gary Heinz and Michael Welty.
Magistrate Judge James Francis 4th of the U.S. District Court for the Southern District of New York ruled that redacted sections in 27 tapes, which the government said includes recordings of trading desk phone calls, is protected by attorney-client and other privileges, and cannot be used in court, according to court documents filed June 6.
The trial of Ghavami, Heinz and Welty — who are charged with fraud and conspiracy in connection with manipulating the bidding for investment and other municipal bond contracts — is slated to begin July 9.
The three men were indicted in 2010. The Justice Department said the men, acting as brokers, accepted kickbacks on behalf of their employer in exchange for steering investment and other contracts to certain firms between 2001 and 2006.
Attorneys for the three defendants and the Justice Department either declined to comment or did not return calls for comment.
The department asked the court in January to allow it to release to trial attorneys the 27 tapes in their entirety, unredacted, and to deny requests from third parties that certain information in the tapes remain confidential.
Those third parties had said the information is protected by attorney-client privilege, or by so-called attorney work product.
Attorney work product includes materials lawyers use as they prepare for a case, according to Anthony Sabino, a trial lawyer at Mineola, N.Y.-based Sabino & Sabino PC, who teaches law courses at St. John’s University’s Peter J. Tobin College of Business,
“The third parties are saying, 'No, no no, no. This is privileged. You can’t air my dirty laundry,” said Sabino, who specializes in white-collar criminal defense.
The Justice Department did not name the third parties, but court documents list individuals who were recorded on the tapes. They included those involved in recent civil and criminal bid-rigging cases.
Among them were Heinz; Dean Pinard, who agreed in 2011 to pay more than $40,000 to the Securities and Exchange Commission to settle charges that he was involved in bid-rigging; Mark Zaino, a former UBS broker who pleaded guilty in May 2010 to charges of conspiracy and wire fraud; and Stewart Wolmark and Dani Naeh, who formerly worked at CDR Financial Products Inc.
CDR founder David Rubin pleaded guilty in late 2010 on behalf of himself and his firm to bid-rigging and fraud.
Others on the tape include David Eckhart and Martin Stallone, executives at Investment Management Advisory Group Inc., a brokerage firm that prosecutors said played a role in bid-rigging, and Patrick Marsh, a broker at Deutsche Bank Securities Inc. who formerly worked at Bear, Stearns & Co., which was acquired by JPMorgan. Michael Fresco, James Engel, Gib Carpenter, and Christopher Winters, a principal at Winters & Co. Advisors LLC, along with others, were also recorded, according to documents.
Among those listed as a “recording individual” are Zaino, Pinard, Naeh, Douglas Campbell, who pleaded guilty bid-rigging and fraud in September 2010, and others.
Court documents said the tapes also “relate” to the criminal case against Dominick Carollo, a former employee of a General Electric Co. affiliate. Carollo and colleagues Steven Goldberg and Peter Grimm were convicted May 11 of wire fraud and conspiracy in relation to bid-rigging.
The government said the recordings do not involve conversations with attorneys, but include instances of subjects restating, to a government cooperator, previous conversations with attorneys.
In its January letter to the court, the government said the recordings should not be withheld because conversations in the tapes do not include privileged material.
Magistrate Judge Francis disagreed, noting that the portions of the tapes at issue are still subject to attorney-client privilege or the work product doctrine.
Trial lawyer Sabino said he was not surprised by the judge’s decision. Just because the third parties aren’t defendants doesn’t make their conversations “any less privileged,” he said.
Audio recordings played a prominent role in bid-rigging trials, including the recent trial against Carollo, Goldberg and Grimm. Prosecutors played tapes during the trial in which former CDR executives and bidding agents discussed manipulating bids with Goldberg. Goldberg’s lead attorney also played a conversation between Goldberg and an associate that contradicted testimony of Adrian Scott-Jones, who had told the court he discussed swap agreements with Goldberg at a dinner in 1999.
Sabino said the inclusion of audio tapes can be “absolutely critical” in a trial, especially ones involving conspiracy charges.
“A few crucial pieces of evidence could send these guys up the river, and the exclusion of [evidence] could mean they could go free,” he said. “You have to catch them red-handed. A recorded conversation could be highly determinative of that.”
The district court judge assigned to the case is Kimba M. Wood, who in 1990 sentenced “junk bond king” Michael Milken to 10 years in prison for violating securities rules.
Sabino called Wood a “veteran” who “knows securities fraud inside and out.”
“Both sides are in pretty good hands,” he added.
