Posted by Brett Sherman
Below is a copy of the US Attorney's letter reply to Defendant Cioffi's Opposition to the Government's Motion In Iimine (the United States Attorney's formal request to Judge Frederic Bloc to find certain evidence relevant and admissible in advance of the Cioffi trial).
Please excuse the formatting issues. WSLB made an editorial decision to post this primary source document as soon as we received it because the Government makes some fascinating revelations regarding its view of evidence that prosecutors say shows fraud by former Bear Stearns' Hedge Fund managers Ralph Cioffi and Matthew Tannin.
* * * * * * * * * * *
U.S. Department of Justice
United States Attorney
Eastern District of New York
271 Cadman Plaza East
F.#2007R01328 Brooklyn, New York 11201
September 25, 2009
VIA ECF
The Honorable Frederic Block
United States District Judge
United States District Court
Eastern District of New York
225 Cadman Plaza East
Brooklyn, New York 11201
Re: United States v. Ralph Cioffi and Matthew Tannin
Criminal Docket No. 08-415 (FB)
Dear Judge Block:
On August 18, 2009, the government moved in limine
to admit certain evidence pursuant to Federal Rule of
Evidence 404(b). Cioffi opposed this motion on September 1,
2009, and the government now replies. Based on the complete
evidence now obtained and set forth below, the government
asserts that the proffered evidence is direct proof of the
charged crimes. This proof will demonstrate that Cioffi and
Tannin used Cioffi’s investment in the High Grade Structured
Credit Strategies Enhanced Leverage Master Fund Ltd. (the
“Enhanced Fund” or “the Fund”) to lie to Busey Bank to
secure a $4,250,000 line of credit, which Cioffi needed to
complete a construction project in Longboat Key, Florida.
The defendants fraudulently pledged Cioffi’s interests in
the Enhanced Fund and bound Bear Stearns Asset Management
(“BSAM”) to the terms of a “Consent and Agreement” (“pledge
agreement”) knowing that BSAM refused to consent to Cioffi
pledging his Enhanced Fund investment. Of course, this is
the very same investment that Cioffi is charged with
illegally redeeming in Count Four of the indictment, and
which Cioffi and Tannin are charged with lying about in
Counts One and Three of the indictment.
As discussed below, the concealment of this fraud
is direct evidence of Cioffi’s motive to commit insider
trading and both defendants’ motives to commit the remaining
crimes charged in the indictment. This evidence is
alternatively admissible pursuant to Rule 404(b) of the
Case 1:08-cr-00415-FB Document 188 Filed 09/25/09 Page 1 of 15
1 By no means does the government intend to offer all of
these facts at trial. The government provides the Court with a
fullsome recitation of the facts here, however, to refute
Cioffi’s claim that the government has somehow “misrepresented”
the facts surrounding the pledge agreement. (See, e.g.,
Supplemental Memorandum Regarding The Government’s Motion To
Admit Evidence Pursuant To Federal Rule Of Evidence 404(b), dated
September 22, 2009). In Section III-E herein, the government
outlines the proof it intends to offer during trial on these
issues.
2
Federal Rules of Evidence as it is directly relevant to
issues of the defendants’ motive, intent, knowledge and
absence of mistake.
I. The Facts1
In no uncertain terms, BSAM refused to consent to
Cioffi’s request to pledge his investment in the Enhanced
Fund as collateral for a $4,250,000 line of credit from
Busey Bank. With Tannin’s assistance, Cioffi executed the
pledge anyway, thereby compelling them to hide the truth
from BSAM management and their investors.
• Cioffi invested in a multi-million dollar building
project (“La Firenza”) in Florida that was on the verge
of foreclosure in November 2006 (email from Cioffi to
bank officials acknowledging, “[y]our latest threat was
that you would foreclose on 11/13th.” BS-SEC4220963-
65).
• Cioffi negotiated the use of his Fund investment as
collateral to secure a loan (the “pledge”)(11/3/06
email from Cioffi to bank official indicating, “I’m
prepared to secure you with my shares in my Bear
Stearns Hedge Fund . . . As of 10/31/06 the market
value is $5.7M.” BS-SEC4214205).
• Cioffi knew that BSAM management had to consent to the
pledge (11/6/06 email BS-SEC4214846; 11/8/06 email
stating, “I’m waiting on Bear Stearns to sign and
return to me the assignment agreement on one of my BSC
accounts that has $5.7M market value in.” BSSEC4218189).
• On or within days before November 6, 2006, Tannin
contacted an attorney in BSAM’s legal department (the
Case 1:08-cr-00415-FB Document 188 Filed 09/25/09 Page 2 of 15
3
“Attorney”) to obtain the necessary documents for the
pledge. The Attorney neither approved the pledge nor
had the authority to do so. Rather, as set forth
below, he provided ministerial editing services on
certain documents.
• On November 6, 2006, the Attorney notified BSAM’s
Global Head of Hedge Funds (the “Global Head”), the
Chairman of BSAM’s Hedge Fund business, BSAM’s General
Counsel, and the Director of BSAM’s Third Party Seeded
Hedge Funds about the pledge. He informed the senior
managers that he had discussed the pledge with outside
counsel, who did not think the pledge was a disclosable
event “because Ralph was maintaining a beneficial
ownership in the interests,” but asked if the managers
had any questions. (BS-USAO 0055990)(Exhibit #1).
Cioffi was not a party to this discussion.
• Minutes later, the Chairman of the Hedge Funds replied
to all who were on the email questioning whether
Cioffi’s outside interest in this real estate concern
posed a potential conflict of interest for Cioffi.
(BS-USAO 0055991)(Exhibit #2).
• About 30 minutes later, Tannin emailed the General
Counsel and explained that La Firenza was a real estate
partnership, in which Cioffi was 40% investor. (BSUSAO
005592)(Exhibit #3).
• A few minutes later, Tannin asked the General Counsel
“Are we ok?” (BS-USAO 0055993). The General Counsel
responded, “not yet.” Without addressing whether BSAM
would consent to the pledge, he told Tannin that Cioffi
would have to complete the “Outside Business Interest”
(“OBI”) process at BSAM. The General Counsel directed
Tannin to inform Cioffi that “[a]nything else he hasn’t
disclosed also should be on the table.” The General
Counsel advised Tannin that “[s]ometimes, in times of
difficulty, we prohibit managers from removing their
investment in favor of clients going first. This
[pledge] arrangement has the potential to interfere
with that if there was a problem and the bank seized
the assets at an inopportune time.” (BS-USAO
0056001)(Exhibit #4).
• Minutes after sending the last email to Tannin, the
General Counsel forwarded the email exchange to the
Global Head, stating, “FYI.” The Global Head was
Case 1:08-cr-00415-FB Document 188 Filed 09/25/09 Page 3 of 15
4
Cioffi and Tannin’s direct supervisor. (BS-USAO
0056001)(Exhibit #5).
• On November 7, 2006, the General Counsel exchanged
emails with Cioffi and the compliance department
regarding Cioffi’s involvement in the OBI process. The
General Counsel told a compliance officer, who was
about to go speak with Cioffi, that after Cioffi’s OBI
is approved, “the next question is whether we agree
with him pledging the assets he owns in the fund. We
have the right to restrict a withdrawal by any manager
at anytime if we feel that investor withdrawals have
priority. His arrangement could interfere with that.”
(BS-USAO 0056004)(emphasis supplied)(Exhibit #6).
• In the meantime, the Global Head consulted with a
variety of senior managers of BSAM about the propriety
of Cioffi’s pledge, including the Chief Executive
Officer (“CEO”) of BSAM, who delegated the decision on
the pledge to the Global Head. As set forth below, the
Global Head denied the pledge.
• For his part, Tannin advocated in favor of Cioffi’s
pledge to the Global Head. (11/13/06 email from Tannin
stating “[t]his is more than you want to know ... but .
. . Ralph’s pledge of the hedge fund shares is to cover
the $3mm lein [sic].” (BS-SEC0354455)(Exhibit #7).
• Viewing the decision whether to permit Cioffi to enter
into the pledge agreement as a business, rather than a
legal decision, the Global Head decided not to grant
BSAM’s consent to Cioffi’s pledge of his investment in
the Enhanced Fund. (See 3500 GQ-4 and GQ-5; BSSEC0247403).
• On November 14, 2006, the Global Head sent Cioffi an
email telling him that he came by Cioffi’s office to
see him, but that Cioffi was in a meeting. He asked
Cioffi to call him “re the pledge.” (BS-USAO
0056042)(Exhibit #8).
• That same day, the OBI Group informed Cioffi that it
had approved his continued interest in La Firenza as an
OBI. (BS-USAO 0056041). The OBI group never
considered or approved the pledge.
• On either November 14 or 15, 2006, the Global Head
visited Cioffi’s office again. He informed Cioffi, in
Case 1:08-cr-00415-FB Document 188 Filed 09/25/09 Page 4 of 15
2 In his position, the Middle Office Manager supported
the portfolio managers, provided estimates to clients on returns
by sector and portfolio, and oversight for administrators. (See
3500-GC-3 at 1).
5
no uncertain or ambiguous terms, that BSAM did not
consent to Cioffi’s pledge. The Global Head gave
Cioffi his reasons for the denial of consent, including
his concern that such a pledge would have to be
disclosed to Fund investors. Cioffi became enraged,
resorting to expletives, and blamed the decision on
BSAM’s General Counsel. (3500 GQ-4 and GQ-5; BSSEC0247403
or BS-USAO 0056042)(Exhibit #9).
• On November 29, 2006, Tannin emailed the Attorney and
asked him if him if he was “cool with” a draft pledge
agreement Tannin attached to the email. (BS-USAO
0056071-76). Neither Tannin nor Cioffi advised the
Attorney that BSAM had expressly denied the pledge on
or about November 14, 2006.
• Later that day, the Attorney responded to Tannin,
providing some minor typographical edits to the draft
pledge agreement. (BS-USAO 0056081). The Attorney did
not and could not have approved the pledge.
• On a later date after November 29, 2006, (see BS-USAO
0056071-75)(Exhibit #10), Tannin brought the pledge
agreement to BSAM’s Hedge Fund Middle Office Manager
(“Middle Office Manager”).2 The Middle Office Manager
signed the agreement at Tannin’s request. Neither
Tannin nor Cioffi advised the Middle Office Manager
that BSAM had expressly prohibited the pledge on or
about November 14, 2006.
• On or about December 20, 2006, a Busey Bank Senior
Vice-President, executed the pledge agreement on behalf
of Busey Bank thereby finalizing the pledge of Cioffi’s
Enhanced Fund investment as collateral for the
$4,250,000 line of credit to Cioffi. (BUSEY 00000004-
42).
Case 1:08-cr-00415-FB Document 188 Filed 09/25/09 Page 5 of 15
3 Inexplicably, the form is in the name of the Bear
Stearns High-Grade Structured Credit Strategies, L.P. (“High
Grade Fund”), despite the fact that, as of December 20, 2006,
Cioffi had no investments in the High Grade Fund. Other
documents, such as the State of Florida Uniform Commercial Code
Financing Statement Form, clarify that the pledge was secured by
Cioffi’s investment in the Enhanced Fund. (BUSEY 00000027).
6
• The pledge agreement has four signatories: (1) Matthew
Tannin on behalf of the Enhanced Fund3 and as a
representative of BSAM; (2) the Middle Office Manager
on behalf of BSAM, (3) Ralph Cioffi as the Customer
(Borrower) and (4) Busey Bank’s Senior Vice-President,
on behalf of Busey Bank. Id.
• The pledge agreement states that:
1. BSAM consented to Cioffi’s pledge;
2. BSAM consented to the assignment of Cioffi’s
security interest in the Enhanced Fund to Busey
Bank;
3. BSAM acknowledged that it had been directed by
Cioffi to register Busey Bank’s partnership
interest in the Enhanced Fund as “[Busey Bank] as
pledgee of [Ralph Cioffi];”
4. BSAM agreed not to change that registration
without Busey Bank’s written consent;
5. BSAM represented that Cioffi’s Enhanced Fund
investment was not otherwise encumbered;
6. BSAM agreed not to consider or act upon any
request by Cioffi to withdraw all or some of his
interest in the Enhanced Fund;
7. BSAM agreed to consider only withdrawal requests
made by Busey Bank;
8. BSAM agreed neither to consider nor act upon any
request by Cioffi to sell, assign or otherwise
dispose of his interest in the Enhanced Fund; and
Case 1:08-cr-00415-FB Document 188 Filed 09/25/09 Page 6 of 15
7
9. BSAM agreed that the agreement would remain in
effect until it received written notice from Busey
Bank.
• By the agreement, Tannin, as the Fund’s agent,
represented that, “as of the date of” the agreement,
the interests of Busey Bank were registered on the
books of the Enhanced Fund as “[Busey Bank] as pledgee
of [Ralph Cioffi].” Tannin also agreed to pay the
proceeds of any distributions or withdrawals incurred
by Cioffi directly to Busey Bank’s account.
• Contrary to Tannin’s representations, the security
interests of Busey Bank were never registered on the
books of the Enhanced Fund on December 20, 2006, or on
any date thereafter. (See Fund Shareholder Register,
as of May 31, 2007)(BS-USAO 0057446-51)(Exhibit # 9).
• Along with the pledge, Cioffi executed a four-page
revolving promissory note for the $4,250,000 line of
credit, which contained an acceleration clause that
provided that if Cioffi defaulted “in the performance
of or compliance with the Security Agreements or any of
the other loan documents” securing the note, he would
be liable for the entire principal of the loan plus
interest on 10 days notice. (BUSEY 00000006-9)
• As of April 1, 2007, Cioffi redeemed $2 million (or
one-third) of his investment in the Enhanced Fund,
which was still, albeit unregistered, subject to the
restrictions of the pledge with Busey Bank. Similar to
the manner in which he approached the pledge, Cioffi
did not personally notify BSAM senior management of his
intent to redeem.
• On July 23, 2007, after inquires by Busey Bank, Cioffi
advised the bank that its security interest in the
Enhanced Fund was worthless. (BS-SEC4352711).
II. Witness Accounts
To verify the above facts, the government
interviewed the CEO, the Global Head, the Middle Office
Manager, the Attorney and Busey Bank personnel. These
interviews have provided the following information.
The Global Head stated that he was the highest
ranking manager in the hedge fund division of BSAM; he was
Case 1:08-cr-00415-FB Document 188 Filed 09/25/09 Page 7 of 15
8
Cioffi’s and Tannin’s direct supervisor; and he reported
directly to BSAM’s CEO. The decision to deny the pledge was
his to make, and he communicated his decision to Cioffi
directly and unequivocally. As his subordinate, the Middle
Office Manager, had no authority to overrule the Global
Head’s decision. As the denial was a business decision,
rather than a legal decision, the Attorney had no input in,
much less the authority to overrule, the Global Head’s
denial of consent. Other than the CEO, no other person at
BSAM had the authority to overrule the denial, and the CEO
did not do so. In fact, the Global Head assumed that Cioffi
abided by the denial until only a few days ago.
The Attorney stated that he learned about Cioffi’s
pledge from Tannin. The Attorney alerted BSAM senior
management to the pledge because he thought it was unusual
and something they should know about. (See BS-USAO 0055990
(“Matt was being a bit cagey about the purpose of the
loan”)). The Attorney merely provided the pledge documents
to Tannin. He had no contact with Cioffi about the pledge.
He did not approve the pledge, nor did he have the authority
to do so. Had he been informed by Cioffi, Tannin or anyone
else that the Global Head forbade Cioffi’s pledge, he would
not have assisted Cioffi and Tannin in any way.
The Middle Office Manager stated that Tannin
brought him the pledge agreement, and he signed it. While
he had previously signed investor pledge documents, this was
the first and only time he had seen a portfolio manager
pledging his or her investment in their own fund. He
recalled that he was hesitant to sign the document because
Busey Bank had not yet signed the agreement. He recalled
offering some “push-back” to Tannin over signing the pledge.
He was confident, nonetheless, that he would have asked
Tannin whether Cioffi had obtained the proper approvals for
the pledge. Had he been told by Tannin or anyone else, that
the Global Head, his superior at BSAM, had denied Cioffi’s
request to pledge the investment, he is absolutely sure he
would have never signed the pledge.
For his part, the CEO stated that the Global Head
had the authority to deny BSAM’s consent to Cioffi’s pledge.
He stated that neither the Attorney nor the Middle Office
Manager had the authority to override the Global Head’s
decision. He, as the CEO, was the only person at BSAM who
was authorized to reverse the Global Head’s decision not to
permit Cioffi to pledge his investment in the Enhanced Fund,
and he did not do so.
Case 1:08-cr-00415-FB Document 188 Filed 09/25/09 Page 8 of 15
4 Documents show that Tannin was familiar with the pledge
registration process, having been involved in another investor’s
redemption of his pledged assets in the High Grade Fund to
effectuate a subscription of the same assets into the the
Enhanced Fund only months before. (BS-USAO 0059137)(Exhibit
#10). Not surprisingly, the existence of that investor’s pledge
agreement is clearly reflected in the books and records of the
Enhanced Fund. (See Exhibit #9, BS-USAO 0057448).
9
III. Argument
A. Cioffi Did Not Have BSAM’s Permission To
Pledge His Investment In the Enhanced Fund
As a threshold matter, the government can now put
to rest the question of whether Cioffi had BSAM’s consent to
pledge his investment in the Enhanced Fund as collateral for
a loan: Cioffi did not. Cioffi’s recent attempts to skew
the facts by stringing together emails from the Global
Head’s subordinates are meritless. See Supplemental
Memorandum Regarding The Government’s Motion To Admit
Evidence Pursuant To Federal Rule Of Evidence 404(b), dated
September 22, 2009.
The evidence is also clear that Tannin was in
lock-step with Cioffi in his scheme to circumvent BSAM’s
decision to deny the pledge and, in doing so, bind BSAM to
the terms of a pledge agreement of which it did not approve.
Tannin was involved in the pre-denial negotiations with the
Global Head: he directly advocated that Cioffi be permitted
to enter into the pledge. Tannin did all of the legwork to
make it appear to Busey Bank that BSAM approved the pledge:
(1) he managed all of the contacts with the Attorney to
obtain the forms needed to effectuate the pledge; (2) he
brought the pledge to the Middle Office Manager for his
signature, without informing him that the Global Head
forbade the pledge; and (3) by signing the pledge, he
represented to Busey Bank that the bank’s interests in
Cioffi’s investment were recorded on the books of the
Enhanced Fund. They never were.4
Moreover, Tannin never raised an objection to
Cioffi’s redemption of $2 million from the Enhanced Fund
when he learned of it in April 2007, even though he knew the
proceeds of the redemption were subject to the terms of the
pledge agreement that he signed. Tannin also did not
deposit the proceeds of the redemption in Busey Bank’s
Case 1:08-cr-00415-FB Document 188 Filed 09/25/09 Page 9 of 15
5 It should be noted that the Busey Bank loan was
subsequently re-paid in full months after the bank’s collateral
in the Enhance Fund was reduced to zero.
10
account as required by the pledge agreement. Tannin, an
attorney, did neither of these things because he, like
Cioffi, knew that BSAM did not consent to the pledge.
In sum, the facts will show that Cioffi and Tannin
conspired to circumvent BSAM’s denial of consent for
Cioffi’s pledge. Together, the defendants duped the Middle
Office Manager into signing the pledge and later lied to
Busey Bank in representing, inter alia, that BSAM consented
to the pledge when they knew that was false. As a result of
their efforts, Busey Bank was defrauded into granting Cioffi
a $4,250,000 line of credit based, in part, on collateral in
which the bank did not have a registered interest and was
later rendered worthless.5
B. The Pledge Is Direct Evidence Of The
Defendants’ Motive To Commit Securities Fraud
Evidence of Cioffi and Tannin’s scheme to
circumvent BSAM’s denial of Cioffi’s pledge coupled with
evidence of the fraud they perpetrated on Busey Bank
provides probative, direct proof of the defendants’ motives
to commit each and every crime charged in the indictment.
This pledge occurred immediately prior to the charged
conspiracy and colored every decision and motive of the
defendants throughout the spring of 2007 and the securities
fraud conspiracy.
The defendants had to keep the existence of the
pledge a secret from BSAM and the existence of Cioffi’s
blatant violation of the pledge (i.e., the $2 million
redemption of Busey Bank’s collateral in the Enhanced Fund)
a secret from Busey Bank. Together with their obvious
motives to increase their wealth and maintain their
lifestyles, their motive to conceal pledge-related frauds
drove them to commit additional acts of securities fraud
against the investors in the Funds.
To be sure, when Cioffi, aware of negative
material, non-public information about the prospects of the
Funds, redeemed $2 million from the Enhanced Fund in April
2007, he also did so out of concern for the future value of
the collateral he had fraudulently pledged to Busey Bank.
Case 1:08-cr-00415-FB Document 188 Filed 09/25/09 Page 10 of 15
11
Having been threatened once with foreclosure by Busey Bank,
Cioffi was aware of Busey Bank’s willingness to initiate
foreclosure proceedings in the event of a default. A
foreclosure would have required Cioffi to pay the entire
balance of the loan on 10 days notice, which would have been
a demand Cioffi was ill-equipped to meet due to the numerous
other financial burdens he carried during the same time
period (see Govt’s September 21, 2009 Letter, p. 10-11).
Avoiding foreclosure proved to be a strong motive for Cioffi
to tell lie after lie to his investors to keep the Enhanced
and High Grade Funds in business. That motive was further
augmented by Cioffi’s reasonable expectation that BSAM would
take adverse action against him if it discovered that he
pledged his investment against BSAM’s explicit orders.
As an attorney, Tannin was fully cognizant that if
his lies to Busey Bank came to light, he would face
potential criminal liability. Indeed, Tannin’s
misrepresentations to Busey Bank amounted to black-and-white
violations of the law (e.g., falsely binding BSAM to the
pledge when he knew he did not have the authority to do so
and falsely representing that he had registered the
securities in the name of Busey Bank when he had not). Like
Cioffi, Tannin had a strong motive, therefore, to lie to
investors in the hope of propping up the Enhanced Fund and
not drawing Busey Bank’s or BSAM’s attention to the status
of Cioffi’s investment in the Fund.
Greed coupled with fear of exposure motivated
Cioffi and Tannin to lie to the Funds’ investors in their
futile attempt to keep the hedge funds alive and, hopefully,
keep their fraudulent pledge deal a secret. Without
question, had the defendants told investors about Cioffi’s
$2 million redemption or the collective state of redemptions
in the Funds in April and May 2007, these disclosures would
have jeopardized the Funds’ stability, thereby increasing
the likelihood of further redemptions and the discovery of
the fraudulent pledge. These were eventualities the
defendants were loathe to let happen.
C. The Pledge Is Inextricably Intertwined Direct
Evidence Of The Crimes Charged
The government submits that the pledge evidence is
not a remote uncharged act committed by the defendants, but
part of a continuing offense that contributed to their
motives of greed and personal enhancement to commit the
crimes on trial. The pledged securities are the same
Case 1:08-cr-00415-FB Document 188 Filed 09/25/09 Page 11 of 15
12
securities that the defendants are charged with lying about
in the indictment. For that reason, the Court should
consider evidence of the pledge as “inextricably
intertwined” direct evidence of the crimes charged, making a
Rule 404(b) analysis unnecessary.
Among other things, evidence of the pledge is
inextricably intertwined proof that directly:
• Proves that the defendants had motives, beyond greed
and personal enrichment, for committing securities
fraud and insider trading;
• Belies Cioffi’s assertion that he moved $2 million into
the Structured Risk Partners Fund (“SRP”) to put his
“skin in the game” in the SRP Fund, something he had
intended to do since December 2006;
• Demonstrates that the defendants never intended, under
any circumstances, to reveal Cioffi’s $2 million
redemption to BSAM or investors in the Funds; and
• Establishes that the defendants conspired to conceal
the fact of Cioffi’s redemption after April 2007.
The Second Circuit has made clear that
“evidence of uncharged criminal activity
is not considered other crimes evidence
under Fed. R. Evid. 404(b) if it arose
out of the same transaction or series of
transactions as the charged offense, if
it is inextricably intertwined with the
evidence regarding the charged offense,
or if it is necessary to complete the
story of the crime on trial.”
See United States v. Carboni, 204 F.3d 39, 44 (2d Cir. 2000)
(quoting United States v. Gonzalez, 110 F.3d 936, 942 (2d
Cir. 1997)(emphasis supplied); see also United States v.
Baez, 349 F.3d 90, 94 (2d Cir. 2003); United States
v. Avendano, 2004 WL 2734435, at *2 (S.D.N.Y. Nov. 30, 2004)
(finding defendant’s agreement to act as a cocaine courier
for a cooperating witness to be “inextricably intertwined
with the evidence regarding the charged heroin conspiracy
and necessary to complete the story of that alleged
offense,” “highly probative intrinsic evidence of
Defendant’s involvement in the conspiracy charged,” and not
Case 1:08-cr-00415-FB Document 188 Filed 09/25/09 Page 12 of 15
13
other crime evidence within the meaning of Rule 404(b));
accord United States v. Leavitt, 878 F.2d 1329, 1338-39
(11th Cir. 1989) ("Evidence of criminal activity other than
the offense charged is not extrinsic evidence under Rule
404(b) if it is inextricably intertwined with the evidence
of the charged offense or is necessary to complete the story
of the charged offense”).
The government will offer evidence of the pledge
not to show the defendants’ propensity to commit fraud, but
rather as relevant background evidence to complete the story
of the crimes charges and the relationship, including the
relationship of trust, that developed between the
defendants. See United States v. Langford, 990 F.2d 65, 70
(2d Cir. 1993)(“It is within the court’s discretion to admit
evidence of acts committed prior to the time charged in the
indictment to prove the existence of the alleged conspiracy
as well as to show its background and history”). This
evidence fills out for the jury the manner in which the
defendants conducted their affairs at BSAM. Evidence of the
uncharged acts completes the story of the crimes charged and
helps explain to the jury how the illegal relationship
between the participants in the crime developed. See United
States v. William, 205 F.3d 23, 33-34 (2d Cir. 2000).
D. The Pledge Is Admissible Under Rule 404(b)
In the alternative, the government submits that
evidence of the pledge is not only admissible for the
reasons set forth above, but is also admissible pursuant to
Fed. R. Evid. 404(b) to show motive, intent, knowledge and
absence of mistake. See e.g., United States v. Smith, 727
F.2d 214, 219-20 (2d Cir. 1984) (affirming admission of
similar acts of securities fraud to show defendant’s
knowledge of, and intent to engage in, “free-riding”
securities scheme”); United States v. Lauersen, No. S2 98
Cr. 1134 (WHP), 2000 WL 1677931 at *3 (S.D.N.Y. November 8,
2000) (evidence of false diagnoses attributed by defendant
to patients not undergoing fertility treatments admitted to
show intent and lack of mistake when making identical false
representations attributable to patients undergoing
fertility treatments).
The Second Circuit has “adopted the inclusionary
or positive approach to the Rule.” United States v. Levy,
731 F.2d 997, 1002 (2d Cir. 1984); see also United States v.
DeVillio, 983 F.2d 1185, 1194 (2d Cir. 1993). Consistent
with this approach, "evidence of other crimes, wrongs, or
Case 1:08-cr-00415-FB Document 188 Filed 09/25/09 Page 13 of 15
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acts is admissible for any purpose other than to show a
defendant's criminal propensity." United States v. Brennan,
798 F.2d 581, 589 (2d Cir. 1986) (emphasis added); see also
United States v. Pipola, 83 F.3d 556, 565 (2d Cir. 1996)
(Second Circuit’s “inclusionary interpretation of the rule
allows evidence of other wrongs to be admitted so long as it
is relevant and is not offered to prove criminal
propensity”).
As the government set forth in its first letter on
this topic, see Govt’s August 18, 2009 Letter, evidence of
Cioffi’s involvement in the pledge is relevant to his
knowledge of BSAM’s dim view of portfolio managers altering
their investments in their funds, and his intent to avoid
BSAM’s scrutiny. The government otherwise relies on its
prior arguments as they relate to the pledge’s relevance to
Cioffi’s knowledge and disregard of the compliance
procedures at BSAM.
E. The Quantity Of Proof Of The Pledge
The government has no intention to create a trial
within a trial or to offer any proof that will distract the
jury’s attention away from the crimes charged in the
indictment. To prove the existence of the pledge and its
relationship to the crimes charged, the government expects
to add a limited amount of proof to the trial record. The
Global Head is already a noticed trial witness for the
government. The government plans to ask him a limited
amount of questions about how the pledge came to light and
about the day he explicitly denied BSAM’s consent for
Cioffi’s pledge. The government also intends to call the
Middle Officer Manager to testify to that the pledge is
authentic, that his position at BSAM was subordinate to the
Global Head, that he signed the pledge without having been
advised that BSAM objected to the pledge, and that, to his
knowledge, the pledge was never filed on the books of the
Enhanced Fund.
Case 1:08-cr-00415-FB Document 188 Filed 09/25/09 Page 14 of 15
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IV. Conclusion
For the foregoing reasons, the government
respectfully requests that evidence of the pledge agreement
be admitted as direct proof of the crimes charged in the
indictment or, in the alternative, be admitted as Rule
404(b) evidence.
Respectfully submitted,
BENTON J. CAMPBELL
UNITED STATES ATTORNEY
By:
James G. McGovern
Ilene Jaroslaw
Patrick Sean Sinclair
Brian Sano
Assistant U.S. Attorneys
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