Farkas Appeal 011812

IN THE

United States Court of Appeals

RECORD NO. 11-4714

UNITED STATES OF AMERICA,Plaintiff-Appellee,

LEE BENTLEY FARKAS,Defendant-Appellant.

v.

OPENING BRIEF OF DEFENDANT-APPELLANTLEE BENTLEY FARKAS

David M. CoorssenStuart A. Scherer539 W. Market StreetOld Portland BuildingFourth FloorLouisville, Kentucky 40402(502) 568-8901 (Direct)(502) 589-4012 (Facsimile)[email protected]@smithhelman.com

Counsel for Appellant - Lee Bentley Farkas

The Appellate Link 6020 Bremo Road Richmond, VA 23226 (804) 698-9471• • •

FOR THE FOURTH CIRCUIT

ON APPEAL FROM THE UNITED STATESDISTRICT COURT FOR THE EASTERN DISTRICT

OF VIRGINIA AT ALEXANDRIA

Appeal: 11-4714 Document: 42 Date Filed: 01/18/2012 Page: 1 of 57

UNITED STATES COURT OF APPEALSFOR THE FOURTH CIRCUIT

____________________

No. 11-4714(1:10-cr-00200-LMB-1)____________________

UNITED STATES OF AMERICAPlaintiff-Appellee

v.

LEE BENTLEY FARKASDefendant - Appellant

_______________________________________________

DISCLOSURE OF CORPORATE AFFILIATIONSAND OTHER INTERESTS

______________________________________________

The Defendant - Appellant, LEE BENTLEY FARKAS, is an individual, non-

corporate, criminal defendant, and, as such, is exempt from the requirements of FRAP

26.1 pursuant to Local Rule 26.1.(a)(1)(B).

/s David M. Coorssen 06, January 2012 (Signature of Counsel) (Date)

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TABLE OF CONTENTS

Page

CORPORATE DISCLOSURE STATEMENT .......................................... i

TABLE OF CONTENTS ............................................................................ ii

TABLE OF AUTHORITIES ...................................................................... iv

STATEMENT OF SUBJECT MATTER AND APPELLATE JURISDICTION.......................................................................................... 1

STATEMENT OF THE ISSUES................................................................ 1

STATEMENT OF THE CASE..................................................................... 2

STATEMENT OF FACTS .......................................................................... 3

SUMMARY OF THE ARGUMENT .......................................................... 11

ARGUMENT (with Standard of Review).................................................... 12

I. THE TRIAL COURT’S RUSH TO JUDGMENT, ESPECIALLY INLIGHT OF THE UNPRECEDENTED AND MASSIVEDOCUMENTARY DISCOVERY PRODUCTION, VIOLATED MR.FARKAS’S RIGHTS AS GUARANTEED UNDER THE SIXTHAMENDMENT TO THE UNITED STATES’ CONSTITUTION........................................................................................................... 12

A. The Trial Court’s Refusal to Transfer the Case to the Middle District ofFlorida Deprived Mr. Farkas of an Effective Opportunity to CoordinatewithCounsel ...................................................................................... 14

B. The Monumental Discovery Production Justified the Defense’s Requestsfor Continuances, and the Trial Court Erred in Denying the Same ... 18

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C. The Trial Court’s Rush to Judgment Deprived Mr. Farkas of Counsel ofHis Choice.......................................................................................... 22

II. THE TRIAL COURT’S INSTRUCTION THAT THE JURY’S “SOLEINTEREST IS TO SEEK THE TRUTH FROM THE EVIDENCERECEIVED,” WITHOUT ALLOWING FURTHER DEFINITION ORE X P L A N A T I O N O F “ R E A S O N A B L E D O U B T ”UNCONSTITUTIONALLY DILUTED THE GOVERNMENT’SBURDEN OF PROOF....................................................................... 26

III. THE TRIAL COURT UNDULY RESTRICTED AND INHIBITED DEFENSE CROSS-EXAMINATION............................................... 30

IV. THE TRIAL COURT’S FINDING THAT TBW WOULD HAVEFAILED “BUT FOR” THE FRAUD IS CLEARLY ERRONEOUS............................................................................................................ 35

CONCLUSION............................................................................................. 38

STATEMENT IN SUPPORT OF ORAL ARGUMENT ........................... 38

CERTIFICATE OF COMPLIANCE ........................................................... 38

CERTIFICATE OF SERVICE .................................................................... 39

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TABLE OF AUTHORITIES

Cases Page

Alford v. United States, 282 U.S. 687 (1931) ...................................... 34

Beaudine v. United States, 368 F.2d 417 (9th Cir. 1966) .................... 35

Boyde v. California, 494 U.S. 370 (1990) ............................................ 26

Brady v. Maryland, 373 U.S. 83 (1963) ............................................... 21

Cage v. Louisiana, 498 U.S. 39 (1990) ................................................. 27

Caplin & Drysdale v. United States, 491 U.S. 617(1989) .................... 23

Davis v. Alaska, 415 U.S. 308 (1973) .................................................. 32, 33

Delaware v. VanArsdall, 475 U.S. 673(1986) ...................................... 33

Estelle v. McGuire, 502 U.S. 62 (1991) ............................................... 26, 27

Harris v. United States, 371 F.2d 365 (9th Cir. 1967) .......................... 34

L.J. v. Wilbon, 633 F.3d 297 (4 Cir. 2011) ........................................ 13th

Massaro v. United States, 538 U.S. 500 (2003) ................................... 20

Morris v. Slappy, 461 U.S. 1 (1983) ..................................................... 14, 18

Murphy v. Holland, 475 U.S. 1138 (1986) ........................................... 29

Olden v. Kentucky, 488 U.S. 227 (1988) ............................................. 33

O'Neill v. Windshire-Copeland Associates, 372 F.3d 281 (4th Cir. 2004) ....................................................................................... 30

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Platt v. Minn. Mining & Mfg. Co., 376 U.S. 240 (1964) ..................... 15

Powell v. Alabama, 287 U.S. 45 (1932) ............................................... 22

Quinn v. Haynes, 234 F.3d 837 (4th Cir. 2000) ................................... 33

Scotts Co. v. United Indus. Corp., 315 F.3d 264 (4th Cir.2002) .......... 29

Tights v. Acme McCrary Corp., 541 F.2d 1047 (4th Cir. 1976) .......... 34

Ungar v. Sarafite, 376 U.S. 575 (1964) ................................................ 18

United States v. Badwan, 624 F.2d 1228 (4 Cir. 1980) ...................... 18, 19th

United States v. Bakker, 925 F.2d 728 (4th Cir. 1991) ........................ 13, 18

United States v. Bostian, 59 F.3d 474 (4th Cir. 1995) ......................... 26

United States v. Boyd, 53 F.3d 631 (4th Cir. 1995) ............................. 35

United States v. Bragan, 499 F.2d 1376 (4th Cir. 1974) ...................... 25

United States v. Cabrales, 524 U.S. 1 (1998) ....................................... 13

United States v. Cronic, 466 U.S. 648 (1984) ...................................... 19

United States v. Farmer, 274 F.3d 800 (4 Cir. 2001) ......................... 23, 24th

United States v. Fisher, 477 F.2d 300 (4th Cir. 1973) ......................... 25

United States v. Forde, No. 09B4704, 407 Fed.Appx. 740, 2011 WL 63831 (4 Cir. 2011) [included in Addendum] .................... 28th

United States v. Gallop, 838 F.2d 105 (4th Cir. 1988) ......................... 22-23

United States v. Gibbs, 739 F.2d 838 (3rd Cir.1984) ........................... 30

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United States v. Gonzalez-Balderas, 11 F.3d 1218, (5 Cir. 1994) ..... 27-28, 29th

United States v. Gonzalez-Lopez, 548 U.S. 140 (2006) ...................... 22

United States v. Heaps, 39 F.3d 479 (4th Cir. 1994) ............................ 13, 15

United States v. Hedgepeth, 418 F.3d 411 (4 Cir. 2005) ................... 13th

United States v. Herder, 594 F.3d 352, 363-64 (4 Cir. 2010)th

cert. denied, 130 S.Ct. 3440 (2010) ...................................................... 36

United States v. Horak, 833 F.2d 1235 (7th Cir. 1987) ....................... 36

United States v. Hughes, 401 F.3d 540 (4th Cir. 2005) ....................... 30, 32, 35

United States v. Inman, 483 F.2d 738 (4th Cir. 1973) ......................... 25

United States v. Johnson, 510 F.3d 521 (4 Cir. 2007) ........................ 14th

United States v. Jordan, 466 F.2d 99 (4th Cir. 1972) ........................... 34-35

United States v. LaRouche, 896 F.2d 815 (4th Cir.1990) .................... 19

United States v. Leja, 568 F.2d 493 (6th Cir. 1977) ............................ 34

United States v. Lighty, 616 F.3d 321 (4th Cir. 2010) ........................ 29

United States v. Mincoff, 574 F.3d 1186 (9th Cir. 2009) .................... 20

United States v. Monsanto, 491 U.S. 600 (1989) ................................. 23

United States v. Oriakhi, 57 F.3d 1290 (4th Cir.1995) ........................ 28

United States v. Russell, 971 F.2d 1098 (4th Cir. 1992) ...................... 26

United States v. Skilling, 554 F.3d 529 (5th Cir. 2009) ....................... 21

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United States v. Stephenson, 895 F.2d 867 (2d Cir. 1990) .................. 15

United States v. Walton, 207 F.3d 694 (4th Cir. 2000) ........................ 28, 29

United States v. Warshak, 631 F.3d 266 (6th Cir 2010) ...................... 21

Wheeler v. United States, 351 F.2d 946 (1st Cir.1965) ....................... 34

Federal Constitutional Provisions Page

U.S. CONST. amend. VI ........................................................................ 12-13, passim

U.S. CONST. art. III, § 2, cl. 3 ............................................................... 14

Federal Statutes Page

18 U.S.C. § 3006(A) ............................................................................. 8

18 U.S.C. § 3231 ................................................................................... 1

18 U.S.C. § 981(a)(1)(C) ...................................................................... 36

18 U.S.C. § 982 ..................................................................................... 36

18 U.S.C. § 1344 ................................................................................... 2

18 U.S.C. § 1343 ................................................................................... 2

18 U.S.C. § 1348 ................................................................................... 2

18 U.S.C. § 1349 ................................................................................... 2

21 U.S.C. § 853(e)(1)(A) ...................................................................... 6

28 U.S.C. § 127 (a) ................................................................................ 1

28 U.S.C. § 1291 ................................................................................... 1

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Rules

FED. R. CRIM. P. 18 ............................................................................... 14

FED. R. CRIM. P. 21 (b) .......................................................................... 14

FED. R. CRIM. P. 30 (d) .......................................................................... 26-27

FRAP 32.1 (b) ....................................................................................... 28

Local Rule 32.1 ..................................................................................... 28

Treatises

4 Jack B. Weinstein et al., Weinstein's Federal Evidence § 607.04[1](2d ed. 2000) ......................................................................................... 34

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STATEMENT OF SUBJECT MATTER AND APPELLATE JURISDICTION

This is an appeal from a final judgment entered on June 30, 2011 (R. 301,

Judgment in a Criminal Case; J.A. pg. 2214) in a criminal case involving offenses

against the laws of the United States which were alleged to have occurred within the

geographic and statutory jurisdiction of the District Court, 28 U.S.C. § 127 (a). The

District Court had original subject-matter jurisdiction pursuant to 18 U.S.C. § 3231.

The Court of Appeals has jurisdiction over this appeal pursuant to 28 U.S.C. § 1291.

Notice of Appeal was timely filed on behalf of Appellant on July 12, 2011 (R. 306,

Notice of Appeal; J.A. pg. 2220). Upon discovering that the trial court sua sponte

extended the time for appeal until the forfeiture issues had been fully developed, this

Honorable Court held this appeal in abeyance pending a final order of the trial court.

Said final order was entered on October 26, 2011 (R.355, Memorandum Opinion; J.A.

pg. 2261).

STATEMENT OF THE ISSUES

I. Whether the trial court properly balanced the Sixth Amendment’s competinginterests between a speedy trial and the effective assistance of counsel?

II. Whether instructing a jury “its sole interest is to seek the truth” withoutallowing further definition or explanation as to “reasonable doubt” unconstitutionally dilutes the burden of proof ?

III. Whether the trial court abused its discretion and clearly erred in its evidentiary

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and factual rulings?

STATEMENT OF THE CASE

On or about June 15, 2010 a federal Grand Jury in Alexandria, Virginia

indicted the Defendant-Appellant, Lee Bentley Farkas (hereinafter “Mr. Farkas”)

under a sixteen count indictment alleging: bank fraud; wire fraud; securities fraud;

and conspiracy to commit the same, in violation of 18 U.S.C. §§ 1344; 1343; 1348

and 1349 (R.1, Indictment; J.A. 14). In addition to Mr. Farkas, six of his alleged,

known co-conspirators were indicted separately in the United States District Court

for the Eastern District of Virginia: Desiree Elizabeth Brown [Criminal No.

1:11cr84]; Catherine Kissick [Criminal No. 1:11cr88]; Raymond Edward Bowman

[Criminal No. 1:11cr118]; Teresa A. Kelly [Criminal No. 1:11cr119]; Sean William

Ragland [Criminal No. 1:11cr162]; and, Paul Richard Allen [Criminal No.

1:11cr165]. Mr. Farkas maintained his not guilty plea and proceeded to trial, whereas

each of these co-conspirators ultimately plead guilty, agreed to cooperate with the

government, and testified against Mr. Farkas at his trial.

Following a nine day trial, which commenced on April 4, 2011, the jury

convicted Mr. Farkas on all of the remaining fourteen counts. Thereafter, on June1

Two of the wire fraud counts, Counts 12 and 13, were dismissed on the1

government’s motion during the trial (R. 182, 183).

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30, 2011 the District Court sentenced Mr. Farkas to a total combined term of thirty

years (360 months) (R. 301, Judgment in a Criminal Case; J.A. 2214). This appeal

followed (R.306, Notice of Appeal; J.A. 2220).

STATEMENT OF FACTS

Mr. Farkas is the majority shareholder of Taylor, Bean & Whitaker Mortgage

Corp. (“TBW”), which he purchased in 1991 and served as chief executive officer

until about July 2003 (R.1 Indictment, ¶ 11; J.A. at pg. 19). During his tenure and

ownership, TBW grew from closing less than a million dollars worth of loans - - or

20-40 loans per month - - to closing 25,000 loans per month at its peak to become

“one of the largest privately held mortgage lending companies in the United States

. . . originat[ing] . . . billions of dollars in new residential loans on an annual basis.”

(Ibid., ¶ 1; J.A. at pg. 15).

TBW, working primarily through community banks, would fund, and/or

originate residential mortgages which were then generally sold in the secondary

mortgage market to third-party investors, with TBW maintaining the Mortgage

Servicing Rights (MSR’s). These MSR’s were TBW’s principal source of income

(Id., at ¶ 2 ). Third-party investors included both private commercial investors and

the Federal Home Loan Mortgage Corporation (“Freddie Mac”). TBW would also

pool loans into mortgage-backed securities which were guaranteed by the

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Government National Mortgage Association (“Ginnie Mae”)(Id., at ¶ 1).

TBW’s primary source of funding and principal banker was Colonial Bank,2

specifically its Mortgage Warehouse Lending Division (MWLD) based in Orlando,

Florida. TBW was the MWLD’s largest customer, accounting for seventy to seventy-

five percent of its business, and the MWLD was one of Colonial Bank’s most

profitable divisions, accounting for at least twenty percent of Colonial Bank’s pre-tax

income from 2005 through 2009 (Id., at ¶ 7; J.A. at pp. 17-18).

Despite the overt and objective success of both TBW and Colonial Bank’s

MWLD, the government alleged wrongdoing behind the scenes. According to the3

government, TBW and Colonial’s MWLD employees engaged in an evolving and

wide spread course of fraudulent transactions to cover TBW’s ongoing cash-flow

problems. As alleged, the scheme first involved “sweeping” of money from various

accounts into TBW’s master account on an almost daily basis to hide TBW’s

overdrawn balance (Id., at ¶¶ 16-17; J.A. at 20-21). Subsequently, the scheme

Colonial Bank was a wholly owned subsidiary of Colonial BankGroup,2

Inc., a publicly traded Delaware corporation. Both Colonial Bank and its parentand holding company were headquartered in Montgomery, Alabama (R.1,Indictment, ¶¶ 5 & 6; J.A. at pg 17).

Each of the indicted co-conspirators were employees of TBW or Colonial3

Bank’s MWLD, and with the exception of Paul Allen, all were residents of theMiddle District of Florida.

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purported to evolve into one where TBW would sell Colonial interests in individual

mortgages, and latter into pools of mortgage loan “trades,” where the underlying

collateral either did not exist, had previously been sold or had significantly impaired

value, and to “recycle” the same to make it appear that older transactions were being

closed out and replaced by new ones (Id., ¶¶ 14, 18-35; J.A. at pp. 21-27).

In addition to the schemes alleged to have been run through the MWLD, the

government also alleged TBW misappropriated money from its wholly-owned

subsidiary, Ocala Funding, LLC, via improper fund transfers, fraudulent transactions

and false documentation (Id., ¶¶ 15, 36-37; J.A. pg. 20 & pp. 27-28). The remaining

incident in the Indictment concerned Colonial Bank’s unsuccessful effort to take part

in the Troubled Asset Relief Program [TARP] (Id., ¶¶38-43; J.A. pp. 28-30).

On August 3, 2009, following an investigation begun by the Office of the

Special Inspector General for the Troubled Asset Relief Program [SIGTARP], and

joined by the FBI and other government agencies, search warrants were

simultaneously executed on TBW and the MWLD. On or about August 14, 2009

Colonial Bank was seized by its state regulator and the FDIC was appointed as

receiver (Id., ¶ 6; J.A. 17). TBW filed for bankruptcy protection in the United States

Bankruptcy Court for the Middle District of Florida in Jacksonville on or about

August 24, 2009 (Id., ¶1; J.A. 15); the next day, Colonial BankGroup likewise filed

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for bankruptcy (Id., ¶5; J.A. 17).

The indictment against Mr. Farkas was returned on June 15, 2010. An arrest

warrant was entered the same day (R.2) and Mr. Farkas was then arrested in Florida

(R.17). The following day, June 16, 2010, the trial court entered a Restraining Order

enjoining the sale or transfer of Mr. Farkas’s assets pursuant to 21 U.S.C. §

853(e)(1)(A), (R.8). Following his Rule 5 Initial Appearance on June 17 in the

Middle District of Florida, and a detention hearing on June 23, 2010, Mr. Farkas was

released on financial and non-financial conditions and ordered to appear for

Arraignment before the trial court on July 2, 2010. [Records related to the initial

proceedings held in Florida are included in the record herein (R.19, Rule 5(c)(3)

Documents).]

Mr. Farkas appeared at his arraignment with his Florida counsel, Gerald J.

Houlihan, Esq., and Jeffrey Harris, Esq., who was to be local counsel. However, as

Mr. Farkas’s assets had been frozen and coverage under his D&O insurance policy

was in dispute, counsel were unable to make a formal appearance on his behalf (R.64,

Transcript of Arraignment, [3-5]; J.A. pp. 48-50). After discussing the issues of

“carving out” seized assets to secure representation, the D&O policy, and that a

hearing was scheduled in TBW’s bankruptcy the following week which would be

relevant to said policy (Ibid., at [5 & 7]; J.A. pg. 50 & 52) , the trial court allowed

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Messrs. Houlihan and Harris to make an interim appearance (Id., at [8]; J.A. 53),

arraigned Mr. Farkas (Id., at [9]; J.A. 54, see also, R.21, Arraignment; J.A. 44) and

accepted his waiver of the Speedy Trial Act (Id., at [8] & [14-15]; J.A. pp. 59-60; and

see R.22, Waiver of Speedy Trial; J.A. 45).

Also at the arraignment, the trial court discussed with the parties the extent and

nature of the anticipated discovery in the case. At that time, the government was in

the process of uploading the electronic information into a searchable database, which

then contained approximately a million pages of documents (Id., [10-11]; J.A. pp. 55-

60) [or one million documents, with five million pages (Id., at [6]; J.A. 51)], and

although this process would not be completed by the end of the month, the

government anticipated that this “[would] be the bulk of it,” (Id., [11] lines 15- 19;

J.A. 56).

Despite the incomplete nature of the already voluminous discovery, the

uncertainty of Messrs. Houlihan and Harris’s representation, and the court’s sua

sponte finding that this would be “an extremely complex case,” (Id., [15]; J.A. 60),

the trial court scheduled the initial trial date for November 1, 2010 - - a mere 52 day

extension of the 70 days otherwise required under the Speedy Trial Act. At that time

the defense indicated that this was “too soon” (Id., [13]; J.A. 58 ) and requested trial

in mid-March of 2011 (Id., [9]; J.A. 54), to which the trial court responded that only

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a capital case would be given such time and that it would be “way more than you need

in this case,” (Id., [9-10]; J.A. pp. 54-55), and that: “It’s been my experience when I

give attorneys too much time, it just creates problems, so I’m going to give you a

much shorter trial date, and you’ll just need to perhaps cut some corners,” (Id., [12];

J.A. 57).

A month latter, after making no progress on the D&O policy and carve out

issues, the government petitioned the trial court for a status hearing (R.26, Motion for

Status Hearing; J.A. 72) [see also, R.23&24, Status Report(s) of Prospective Defense

Counsel; J.A. 66 & 69)]. This hearing was held on August 11, 2010 at which time the

trial court confirmed its Order the prior day appointing William B. Cummings, Esq.

as counsel for Mr. Farkas under the Criminal Justice Act, 18 U.S.C. § 3006(A) (R.29,

Order & R.30, CJA 20 form; J.A. 78 & 79)(R.62, Transcript of Status Hearing [2];

J.A. 81). Mr. Farkas was not present for the Status Hearing (Id., [2-3]; J.A. 81-82),

but he was present two and a half weeks latter for the next court hearing held on

August 30, 2010 (R.65, Transcript of Motions Hearing; J.A. 90). Thereat, Mr. Farkas

objected to the appointment of Mr. Cummings in lieu of his choice of counsel (Id.,

at [15]; J.A. at 104) and indicated that he would have the assets necessary to retain

his chosen counsel either pending the bankruptcy court ruling, or potential

government ruling releasing a portion of his enjoined assets (Id., [17-18]; J.A. pp.

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106-07). It was also during this hearing that the trial court and the parties resolved

the various protective order issues and began to address the daunting discovery

challenges (Id., [3-13]; J.A. 92-102).

Given the size of the anticipated discovery, the government processed its Rule

16 material onto an OMEGA database which was created and administered by a third-

party data services provider [CACI]. It would not be hyperbole to characterize the

amount of discovery as staggering. The one to five million pages of documents at

arraignment had ballooned to 19 million pages of documents by the time Mr.

Cummings was appointed (R.96, Memorandum in Support of Defendant’s [2 ]nd

Motion to Continue Trial; J.A. 224 ). As early as September of 2010, the trial court

was expressing its concern over the scope of the discovery:

Well, I have also been very concerned about the amount of informationthat [the defense has] been given. 19 million pages, you know, in somerespects, too much information is no information. . . . If this were a civilcase, we would be absolutely all over the plaintiff to refine that kind ofa discovery production, and I don’t think it’s inappropriate in a case likethis to make a similar - - put a similar burden on the government.

(R.72, Transcript of September 10, 2010 Motions Hearing, [16], lines 13-24; J.A.

180). In a remarkable display of prescience, the court foreshadowed the issue:

Well, at some point, the government has to cut it off. . . . I mean, you’veobviously been investigating this case for some period of time, and whatI don’t want to have happen is, you know, three weeks before trial,there’s a whole new dump of hard drive or a whole new batch of data

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that defense counsel has to start absorbing. So you’re going to need tomake sure you get everything together and get it in, and at some point,just whatever else comes in you don’t get to use.

(R.65, Transcript of August 30, 2010 Motions Hearing, [13]; J.A. 102).

Despite the trial court’s precognition and admonition, the deluge of discovery

continued, reaching 59 million pages of documents by mid November 2010 (R.96;

J.A. 224 ), with an additional 500,000 documents being uploaded between December

2010 and March 2011 (R.144, Memorandum in Support of Defendant’s [3 ] Motionrd

to Continue Trial; J.A. 260).

Not only the gargantuan size of the discovery, but its electronic nature also

stymied the defense efforts to assimilate and effectively utilize the discovery. While

the government considered the CACI/OMEGA database to be “state-of-the-art”

(R.72, Transcript of September 10, 2010 Motions Hearing, [26]; J.A. 190), and

“organized” by source” (Id., [24]; J.A. 188), the defense found it confusing, difficult

to work with, and “a mess” (Id., [10-13]; J.A. pp. 174-77).

The nature and extent of the monumental and expanding discovery materials

were cited as grounds for all of Mr. Farkas’s motions for a continuance (R.54, pg.

275); (R.96; J.A. at 224) ; (R.144; J.A. at 260). It was also cited as a factor, and the4

At that time, the issue of the D&O policy had just been resolved and Mr.4

Farkas had retained Messrs. Kuglar and Rogow to assist in his representation (Id.),and due to a previously scheduled demand on Mr. Kuglar’s calendar, the defense

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most important one, in Mr. Farkas’s Rule 21(b) Motion to Transfer the Proceedings

to the Middle District of Florida (R.41; J.A. 111; R.42, Memorandum In Support

thereof; J.A. 128-30); and see (R.72, Transcript of Motions Hearing on this issue [10-

16]; J.A. pp. 174-80).

As indicated above, the trial commenced as scheduled on April 4, 2011, and

the jury convicted Mr. Farkas on all counts. Mr. Farkas’s conviction was hailed by

Christy Romero, Acting Special Inspector General for TARP, as “the most significant

criminal prosecution to date rising out of the financial crisis.” 5

SUMMARY OF THE ARGUMENT

The trial court’s myopic insistence on rapidly moving the case to trial, while

diligently preserving and protecting the speedy trial guarantee of the Sixth

Amendment, abrogated the other constitutional protections guaranteed therein. The

monumental challenge of the discovery in this case made coordination with appointed

counsel next to impossible and required transferring the case to the Middle District

requested a continuance until after May 23, 2011 (Id., at; J.A. 225-26). Despitethis request, although the trial court granted the Motion to Continue, the trial wasrescheduled only until April 4, 2011 (R.105, Order; J.A. 252). As this dateconflicted with another of Mr. Farkas’s counsel’s schedules, the defense moved toamend this Order (R.101; J.A. 250) which was overruled (R.107; J.A. 253).

SIGTARP press release, April 20, 2011, available at:5

www.sigtarp.gov/press/2011/Farkas%20SIGTARP%20Press%20Release.pdf

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of Florida, and further justifying defense’s requests for continuances.

The trial court’s rush to trial also prohibited Mr. Farkas a meaningful

opportunity to retain counsel of his choosing.

Additionally, the trial court’s jury instructions improperly diluted the

government’s burden of proof and justified the defense’s request for further

clarification. The trial court also improperly limited Mr. Farkas’s rights to confront

adverse witnesses. However, defense counsel inexplicably did not raise a

contemporaneous Constitutional challenge.

Finally, the trial court’s determination that TBW was financially insolvent

throughout the entirety of the time frame of the acts alleged under the Indictment, and

that it would have failed “but for” the scheme to defraud, is clearly erroneous and

must be set aside.

ARGUMENT

I. THE TRIAL COURT’S RUSH TO JUDGMENT, ESPECIALLY IN LIGHTOF THE UNPRECEDENTED AND MASSIVE DOCUMENTARYDISCOVERY PRODUCTION, VIOLATED MR. FARKAS’S RIGHTS ASGUARANTEED UNDER THE SIXTH AMENDMENT TO THE UNITEDSTATES’ CONSTITUTION

The Sixth Amendment provides:

In all criminal prosecutions, the accused shall enjoy the right to a speedyand public trial, by an impartial jury of the State and district wherein the

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crime shall have been committed, which district shall have beenpreviously ascertained by law, and to be informed of the nature andcause of the accusation; to be confronted with the witnesses against him;to have compulsory process for obtaining witnesses in his favor, and tohave the Assistance of Counsel for his defence.

U.S. CONST. amend. VI. In the case sub judice the trial court’s myopic focus on the

speedy trial aspect of the Sixth Amendment violated the remaining protections

inherent therein.

Standard of Review

A District Court’s ruling on a motion to transfer a case under Rule 21 (b) is

reviewed for abuse of discretion. United States v. Heaps, 39 F.3d 479, 482 (4th

Cir.1994) (abrogated on other grounds, United States v. Cabrales, 524 U.S. 1, 118

S.Ct. 1772, 141 L.Ed.2d 1 (1998)). “A district court abuses its discretion only where

it ‘has acted arbitrarily or irrationally[,] ... has failed to consider judicially recognized

factors constraining its exercise of discretion, or when it has relied on erroneous

factual or legal premises.’” L.J. v. Wilbon, 633 F.3d 297, 304 (4 Cir. 2011) (citingth

and quoting, United States v. Hedgepeth, 418 F.3d 411, 419 (4 Cir. 2005)).th

Likewise, the denial of a motion to continue is reviewed for abuse of

discretion. United States v. Bakker, 925 F.2d 728, 735 (4th Cir.1991). “Abuse of

discretion has been defined in these circumstances as ‘unreasoning and arbitrary

insistence on expeditiousness in the face of a justifiable request for delay.’” Id., citing

-13-


and quoting, Morris v. Slappy, 461 U.S. 1, 11–12, 103 S.Ct. 1610, 1616–17, 75

L.Ed.2d 610 (1983).

A. The Trial Court’s Refusal to Transfer the Case to the Middle District of FloridaDeprived Mr. Farkas of an Effective Opportunity to Coordinate with HisCounsel.

Generally, the Constitution requires the trial of all crimes in the State where

they were committed: U.S. CONST. art. III, § 2, cl. 3; U.S. CONST. Amend. VI; and

see Rule 18 FED. R. CRIM. P. (“the government must prosecute an offense in a district

where the offense was committed . . .”). However, the venue of the trial court was not

contested, and the issue was raised under Rule 21 (b). 6

Rule 21 of the Federal Rules of Criminal Procedure allows for the transfer of

proceedings for prejudice (§ a) or convenience (§ b). Mr. Farkas moved under the

latter ground (R.41; J.A. 111). This rule provides, in pertinent part: “Upon the

defendant’s motion, the court may transfer the proceeding . . . to another district for

the convenience of the parties, any victim, and the witnesses, and in the interest of

justice.” FED. R. CRIM. P. 21 (b).

In its analysis of the issue - -and as is commonplace - -the trial court considered

Not only did Mr. Farkas stipulate that venue was appropriate in the6

Eastern District of Virginia (R.42, Memorandum In Support of Motion toTransfer; J.A. 117), any such challenge would have been futile. See e.g. UnitedStates v. Johnson, 510 F.3d 521 (4 Cir. 2007).th

-14-


the so called “Platt factors:”

(1) location of [the] defendant; (2) location of possible witnesses; (3)location of events likely to be in issue; (4) location of documents andrecords likely to be involved; (5) disruption of defendant’s businessunless the case is transferred; (6) expense to the parties; (7) location ofcounsel; (8) relative accessibility of place of trial; (9) docket conditionof each district or division involved; and (10) any other special elementswhich might affect the transfer.

Platt v. Minn. Mining & Mfg. Co., 376 U.S. 240, 243–44, 84 S.Ct. 769, 771-72, 11

L.Ed.2d 674 (1964). None of the factors are individually dispositive. “It remains for7

the court to try to strike a balance and determine which factors are of greatest

importance.” United States v. Stephenson, 895 F.2d 867, 875 (2d Cir.1990).

The trial court undertook a thorough analysis of each of the Platt factors, and

issued a written Memorandum Opinion detailing the same (R.76; J.A. 206). While

Mr. Farkas does not agree with the trial court’s resolution on many of the Platt

factors, see e.g. the court’s discussion of the “Location of Events” factors (Id.; J.A.

It should be noted that these “factors” were not developed by the Supreme7

Court, but were rather the considerations of the district court, and that except foran erroneous consideration of the government’s ability to receive a fair trial in thetarget district, neither the parties nor the United States Court of Appeals for theSeventh Circuit found anything problematic with the same. The Supreme Courttherefore ‘assumed without deciding their validity’ for purposes of a Rule 21 (b)motion. Id., at 244. They have since been routinely upheld as the appropriateconsiderations. See e.g. Heaps, supra. 39 F.3d at 483.

-15-


212-214,) the irrational and arbitrary focus on docket conditions and “the wonders8

of modern communication technology” (Id.; J.A. at 214) worked in tandem to deprive

Mr. Farkas of effective assistance of counsel.

Mr. Farkas, through counsel, pointed out that although the physical location of

the digitalized records would be a non-factor, the pre-trial preparation of the defense

in conferring with Mr. Farkas and his witnesses in Florida, given the volume of the

documents at issue, would make coordination “incredibly inconvenient, even

prohibitively inconvenient,” (R.42; J.A. 128-29; and see R.72, Transcript of Motions

Hearing on this issue [10-16]; J.A. pp. 174-80).

The trial court, after noting that “we [in the Eastern District of Virginia] try our

cases a lot faster, and the time between filing and disposition is faster than the Middle

District [of Florida],” (R.72, Transcript of September 10, 2010 Motions Hearing, [7],

lines 22-24; J.A. 171) and citing “the wonders of modern communication

technology,” found as follows:

Whereat trial court not only misstates and mischaracterizes Mr. Farkas’s8

argument as “attempt[ing] to portray the indictment as alleging merely a localcrime that did not extend beyond the Florida border” (R.76; J.A. 212) [compare R.42, Memorandum in Support; J.A. 124-28] but casually dismisses the import of thefact that Mr. Farkas, TBW, Ocala Funding, Colonial’s MWLD, and all but one ofthe eventually indicted co-conspirators were residents of the Middle District ofFlorida - - or “ground zero” for virtually every allegation of fraud contained in theindictment (Ibid.; J.A. 125).

-16-


During oral argument, Farkas’s attorney expressed serious concernsabout working from Virginia with a client who is located in Florida. Understandably, Farkas’s attorney prefers to meet with Farkas in personto review documents. However, as previously discussed the availabilityof the evidence in digital format allows for web conferencing, makingin-person contact less important than it was in the past. . . . [A]nd thetrial has been continued from November 1, 2010 to February 22, 2011to give Farkas and his counsel nearly four additional months to reviewdocuments and strategize.

(Id.; J.A. 219-20). However, even if telephone, e-mail, teleconferencing and other

modern communication technology were sufficient to allow the defense to coordinate

the review of 19 million pages of documents in four months - - during those same

four months, the discovery production grew exponentially, reaching an astounding

59.5 million pages by March 2011 (R.144; J.A. 260).

The trial court’s ruling on this issue simply highlights and segues into the next

salient point - - the rush to trial, especially in light of the monumental discovery,

deprived Mr. Farkas of a fair trial and effective representation thereat. As was

advocated early on: “Counsel is well aware of the jealous manner in which [the trial

court] guards its reputation as the Rocket Docket. However, a rush to trial in this case

. . . will only give rise to fairness concerns about counsel’s ability to provide effective

representation to his client.” (R.54, Memorandum in Support of Defendant’s [1 ]st

Motion to Continue Trial at pg. 275).

-17-


B. The Monumental Discovery Production Justified the Defense’s Requests forContinuances, and the Trial Court Erred in Denying the Same.

As stated previously, the denial of a motion for a continuance is reviewed for

abuse of discretion, which in context equates to an “unreasoning and arbitrary

insistence upon expeditiousness in the face of a justifiable request for delay.”

Bakker, supra., Morris v. Slappy, supra. As recognized in United States v. Badwan,

624 F.2d 1228, 1229 (4 Cir. 1980), Ungar v. Sarafite, 376 U.S. 575, 589, 84 S.Ct.th

841, 11 L.Ed.2d 921 (1964) establishes the standard and perspective for reviewing

a denial of a motion to continue:

The matter of continuance is traditionally within the sound discretionof the trial judge, and it is not every denial of a request for more timethat violates due process even if the party fails to offer evidence or iscompelled to defend without counsel. Contrariwise, a myopic insistenceupon expeditiousness in the face of a justified request for delay canrender the right to defend with counsel an empty formality. There areno mechanical tests for deciding when a denial a continuance is soarbitrary as to violate due process. The answer must be found in thecircumstances present in every case, particularly in the reasons presentedto the trial judge at the time the request is denied.

Id., at 1229-30. Further, when the denial of a continuance is alleged to infringe on

the Sixth Amendment’s right to effective assistance of counsel, a defendant must

generally show specific prejudice. “That is, in the absence of circumstances giving

rise to a presumption that the defendant’s case was prejudiced, the defendant must

point to specific errors made by defense counsel that undermine confidence in the

-18-


outcome of the trial.” United States v. LaRouche, 896 F.2d 815, 823 (4th Cir.1990)

(citing United States v. Cronic, 466 U.S. 648, 660-61, 666, 104 S.Ct. 2039, 2047-48,

2050, 80 L.Ed.2d 657 (1984)(“only when surrounding circumstances justify a

presumption of ineffectiveness can a Sixth Amendment claim be sufficient without

inquiry into counsel’s actual performance at trial.” Id., at 662, 104 S.Ct. at 2048)).

First, unlike in LaRouche and Badwan, counsel for Mr. Farkas did object at

arraignment to the initial trial date, advocating that it was too soon. Nor can it be

claimed that Mr. Farkas was dilatory in making his request(s) for a continuance.

Second, the monumental crush of the discovery in this case and the practical

realities necessitated thereby are circumstances which give rise to the presumption

of prejudice, as “the likelihood that any lawyer, even a fully competent one, could

provide effective assistance [given the short time frame] is so small that a

presumption of prejudice is appropriate without inquiry into the actual conduct of the

trial.” United States v. Cronic, supra., at 659-60, 104 S.Ct. at 2047. For illustrative

purposes, there were two hundred and thirteen (213) days between the time the

defense first had access to the government’s OMEGA database, September 3, 2010,

and the date trial commenced, April 4, 2011. To review 59.5 million pages of

documents in that period of time would necessitate reviewing two-hundred seventy

nine thousand, three hundred forty three (279,343) pages every day!

-19-


Compare, United States v. Mincoff, 574 F.3d 1186, 1199 (9 Cir. 2009)th

upholding extending and excluding almost a year, from August 16, 2006 through

August 3, 2007, from Speedy Trial Act computation where the trial court found, inter

alia, that the discovery included 48,000 pages of written material, 130 compact disks

(containing 30,000 intercepted telephone calls and approximately 31,400 pages of

line sheets corresponding thereto), 4 digital video disks, 17 video tape recordings and

15 audio cassette tapes. Clearly, the discovery production herein dwarfed that at

issue in Mincoff.

Finally, although the record on this issue is not fully developed, see e.g.

Massaro v. United States, 538 U.S. 500, 504-06,123 S.Ct. 1690, 1694, 155 L.Ed.2d

714 (2003), actual prejudice and specific errors by defense counsel can be shown.

For example, the defense early on requested access to TBW’s accounting system and

records (R.72, Transcript of September 10, 2010 Motions Hearing [14]; J.A. 179),9

and the government agreed these would be provided (R.65, Transcript of August 30,

2010 Motions Hearing, [12]; J.A. 101). However, this vital information was either

not produced or was so buried in the other documentary production that counsel was

These records contained TBW’s fee and interest statements would show9

Colonial was charging interest on the entire outstanding balance and treating all ofthe various facilities there as one large warehouse line. Colonial and the MWLDwere financing mortgage loans, not buying and selling trades.

-20-


unable to locate it in order to buttress the defense theory of the case.

Compare and contrast United States v. Skilling, 554 F.3d 529, 576- 77 (5 Cir.th

2009) aff'd in part and vacated on other grounds, __U.S. __, 130 S.Ct. 2896, 177

L.Ed.2d 619 (2010)), and its progeny, e.g. United States v. Warshak, 631 F.3d 266,

295-299 (6 Cir. 2010). While these cases have routinely rejected Brady challengesth

[Brady v. Maryland, 373 U.S. 83, 83 S.Ct. 1194, 10 L.Ed.2d 215 (1963] related to the

size and format of voluminous open-file criminal discovery, the facts, and more

importantly, the discovery time lines, in these cases are clearly distinguishable. For

example, although Skilling involved “several hundred million pages of documents,”

554 F.3d at 576, there was almost two years between the date of the Superseding

Indictment and the beginning of trial Id. at 542; whereas in Warshak involving

approximately 17.5 million pages of discovery, 631 F.3d at 295 (less than one-third

of the discovery herein), the Court found that “the entirety of the discovery material

. . . was in the defendant’s hands . . . more than six months in advance of the trial,”

Id. at 299. Herein, however, the defense first had access to the discovery only seven

months before trial, and as noted, the discovery production continued to grow right

up until trial. Also, unlike in Skilling and its progeny Mr. Farkas, upon his

indictment, was enjoined and prohibited from contacting most of TBW’s employees

who had access to the corporate information (R.72; J.A. 178-79).

-21-


Despite the trial court’s original concerns regarding the extent of the

documentary discovery production that “too much information is no information,”

and admonition that the government would eventually have to “cut it off,” the trial

court not only provided “a much shorter trial date,” with the expectation that the

parties would “just need to perhaps cut some corners,” it never deviated from its

insistence that the case be tried rapidly. However, “cutting corners” is inapposite of

the ends of justice, and the trial court’s myopic focus on the speedy trial aspect of the

Sixth Amendment violated the remaining protections inherent therein, including Mr.

Farkas’s right to have counsel of his choice in his representation.

C. The Trial Court’s Rush to Judgment Deprived Mr. Farkas of Counsel of HisChoice.

It is axiomatic that implicit in the Sixth Amendment “is the right of a defendant

who does not require appointed counsel to choose who will represent him,” United

States v. Gonzalez-Lopez, 548 U.S. 140, 144, 126 S.Ct. 2557, 2561, 165 L.Ed.2d 409

(2006), and that “a defendant should be afforded a fair opportunity to secure counsel

of his own choice,” Id., quoting Powell v. Alabama, 287 U.S. 45, 53, 53 S.Ct. 55, 77

L.Ed. 158 (1932). See also United States v. Gallop, 838 F.2d 105, 107-08 (4 Cir.th

1988):

An essential element of the Sixth Amendment’s protection of right tocounsel is that a defendant must be afforded a reasonable opportunity to

-22-


secure counsel of his own choosing. . . . However, the right to counselof defendant's choosing is not absolute. . . . Such right must not obstructorderly judicial procedure and deprive courts of the exercise of theirinherent power to control the administration of justice.

(Internal citations omitted). A trial court maintains “wide latitude in balancing the

right to counsel of choice against the needs of fairness . . . and against the demands

of its calendar.” Gonzalez-Lopez, supra., 548 U.S. at 152, 126 S.Ct. at 2565-66

(internal citations omitted).

While it’s true that Mr. Farkas was eventually able to obtain coverage under

the D&O policy and had additional, retained, counsel assist at trial, the question is

whether he was provided a reasonable opportunity to do so, especially in light of the

pre-trial seizure of his assets, or whether the trial court properly balanced his right10

to counsel of his choosing against the needs of fairness and the demands of its

calendar.

Mr. Farkas was indicted and arrested on June 15, 2010 and his assets were

Under the authority of Caplin & Drysdale v. United States, 491 U.S. 617,10

109 S.Ct. 2646, 105 L.Ed.2d 528 (1989), and United States v. Monsanto, 491 U.S.600, 109 S.Ct. 2657, 105 L.Ed.2d 512 (1989), Mr. Farkas does not challenge theDistrict Court’s pre-trial restraining order per se. However, after he himself raisedthe issue [see (R.65, Transcript of Motions Hearing [17-18]; J.A. 106-07)] thecourt should have provided him the hearing required under United States v.Farmer, 274 F.3d 800 (4 Cir. 2001)(holding that a criminal defendant has a dueth

process right to a hearing to challenge probable cause as to untainted assets seizedpursuant to civil forfeiture when those assets are needed to hire counsel in hiscriminal case).

-23-


frozen the following day. Following initial proceedings in Florida, Mr. Farkas was

arraigned on July 2, 2010. At that time Mr. Farkas’s preferred counsel indicated that,

due to the pretrial restraining order and that the coverage under the D&O policy was

being negotiated, they were not able to enter a formal appearance at that time [see

(R.64, Transcript of Arraignment [3-6]; J.A. 48-51)]. The trial court instructed

prospective defense counsel to report as to the status of this by the middle of July and

they did so, advising that the Bankruptcy hearing concerning the D&O policy was

passed to July 16, 2010 and thereafter taken under submission (R.23&24; J.A.

66&69). As of August 4, 2010, the government was still negotiating with prospective

defense counsel the possibility of a “carve out” from the restraining order to allow

Mr. Farkas to retain counsel of his choice (R.26, Motion for Status Hearing; J.A.

72). However, rather than allow the issue of the D&O policy to be resolved in the11

Bankruptcy court, and despite finding at arraignment that Messrs. Houlihan and

Harris had prior background and that continuity of representation was preferable to

appointing counsel, (R.64 at [6-7]; J.A. 51-52) the trial court appointed Mr.

The government implied that the negotiations were not complete as Mr.11

Farkas had yet to “provide a complete and thorough accounting of assets availableto him and his inability to pay for representation without such a carve out.” (Id.;J.A. at 75). While it is doubtful that this burden shifting would comport to the dueprocess requirements had a hearing under Farmer, supra., FN 10, been held, thisissue was inexplicably not raised before the trial court.

-24-


Cummings on August 10, 2010. The D&O issue was ultimately resolved, however

Mr. Farkas and the insurer’s agreement was not executed until December 6, 2010.

While the trial court had no way to know, in advance, that it would only take

143 calendar days from the date the D&O policy was taken under advisement by the

Bankruptcy Court until the coverage was finalized, in hindsight this delay pales in

comparison to the 316 days the government had from the execution of the search

warrants to the date of the indictment.

Of course a trial court “has the right to control its own docket to require that

cases proceed in an orderly and timely fashion,” United States v. Inman, 483 F.2d

738, 740 (4 Cir. 1973) (noting, however, that the facts therein, where the defendantth

could not secure private counsel until the case was set for trial and witnesses and

jurors had already been summoned represented “the outermost reach of [the court’s]

discretion” in denying the requested continuance. Id.) See also and compare: United

States v. Fisher, 477 F.2d 300 (4 Cir. 1973); and, United States v. Bragan, 499 F.2dth

1376 (4 Cir. 1974). Fundamental fairness and Mr. Farkas’s Sixth Amendment rightth

to counsel of his choice far outweighed the trial court’s insistence on moving the case

along at the pace it did.

Not only did the trial court err in its handling of these pre-trial matters, it erred

during the trial as well. However, given the length of the trial, the size of the record

-25-


and the paucity of raised objections/preserved errors, Mr. Farkas limits his arguments

on appeal to the most glaring examples.

II. THE TRIAL COURT’S INSTRUCTION THAT THE JURY’S “SOLEINTEREST IS TO SEEK THE TRUTH FROM THE EVIDENCERECEIVED,” WITHOUT ALLOWING FURTHER DEFINITION OREXPLANATION OF “REASONABLE DOUBT” UNCONSTITUTIONALLYDILUTED THE GOVERNMENT’S BURDEN OF PROOF

Standard of Review

Typically, a trial court’s decision to give (or not to give) a jury instruction and

the content thereof are reviewed for abuse of discretion. United States v. Bostian, 59

F.3d 474, 480 (4 Cir. 1995)(citing and quoting United States v. Russell, 971 F.2dth

1098, 1107 (4th Cir.1992)). However, where an ambiguity affecting constitutional

rights is concerned, the instructions, as a whole, are reviewed to determine “‘whether

there is a reasonable likelihood that the jury has applied the challenged instruction in

a way’ that violates the Constitution.” Estelle v. McGuire, 502 U.S. 62, 72,112 S.Ct.

475, 482, 116 L.Ed.2d 385 (1991); and Boyde v. California, 494 U.S. 370, 380, 110

S.Ct. 1190, 1198, 108 L.Ed.2d 316 (1990).

The trial court instructed the jury: “Remember at all times that you are not

partisans. You are judges – judges of the facts of this case. Your sole interest is to

seek the truth from the evidence received during trial.” (R.262 (attachment 5), Jury

Instructions, Instruction No. 63; J.A. 2042)(emphasis added). Pursuant to FED. R.

-26-


CRIM. P. 30 (d) the defense objected thereto preserving this error (R.323, Transcript

of Jury Charge Conference [24-25]; J.A. 1874-75).

This precise issue was litigated in United States v. Gonzalez-Balderas, 11 F.3d

1218, 1223 (5 Cir. 1994). Therein the trial court charged the jury: “Remember, atth

all times, you are judges-judges of the facts. Your sole interest is to seek the truth

from the evidence in this case.” In analyzing and ruling on the issue, the Fifth Circuit

found and held:

As an abstract concept, “seeking the truth” suggests determining whoseversion of events is more likely true, the government’s or thedefendant’s, and thereby intimates a preponderance of evidencestandard. Such an instruction would be error if used in the explanationof the concept of proof beyond a reasonable doubt. [Citing Cage v.Louisiana, 498 U.S. 39, 111 S.Ct. 328, 112 L.Ed.2d 339 (1990),overruled on another ground, Estelle v. McGuire, supra.] The districtcourt, however, did not use it in this way. Rather, the trial court beganits instructions with a clear definition of the government’s burden ofproof in which it repeatedly stated that the defendant could not beconvicted unless the jury found that the government had proven himguilty beyond a reasonable doubt. It correctly defined proof beyonda reasonable doubt as “proof of such a convincing character thatyou would be willing to rely and act upon it without hesitation in themost important of your own affairs.” There is no reasonablelikelihood that the jury inferred that the single reference at the end of thecharge to “seeking the truth,” rendered as it was in the context of anadmonition to “not give up your honest beliefs,” modified the reasonabledoubt burden of proof. . . .

Nevertheless, although the sentence is taken from the Fifth CircuitPattern Jury Instructions, . . . trial courts, in an abundance of caution,may wish to delete it from their instructions.

-27-


Id. (emphasis added, internal footnotes omitted).

Despite the Fifth Circuit Court of Appeals’s reliance upon the trial court’s

mitigating definition of reasonable doubt in Gonzalez-Balderas, the decision was

cited with approval by a panel of this Honorable Court in the unpublished opinion

United States v. Forde, No. 09–4704, 407 Fed.Appx. 740, 2011 WL 63831 (4 Cir.th

2011) cert. denied, 132 S.Ct. 232 (2011). However, in the Fourth Circuit the law12

is “well settled,” that “a district court should not attempt to define the term

‘reasonable doubt’ in a jury instruction absent a specific request for such a definition

from the jury.” See e.g. United States v. Oriakhi, 57 F.3d 1290, 1300-01 (4th

Cir.1995); United States v. Walton, 207 F.3d 694 (4 Cir. 2000)(en banc). th

In the case at bar, not only did Mr. Farkas object to the trial court’s “sole

interest is to seek the truth” instruction, he requested a limited specific instruction as

to reasonable doubt, which was rejected by the court (R.323, Transcript of Jury

Charge Conference [9-10]; J.A. 1859-60). The defense also attempted to clarify the

standard with reference to the concept of hesitation during its closing argument

(R.260, Transcript of Closing Arguments [pp.43-44, 66 & 87]; J.A. 1925-26, 1948

Pursuant to FRAP 32.1(b) and Local Rule 32.1, a copy of this opinion is12

being simultaneously served and filed herewith.

-28-


& 1969). The trial court, however, rejected this and offered its own, tautological13

‘curative instruction:’ “In fact, the standard of proof beyond a reasonable doubt

means exactly what those words mean. It’s a doubt based upon reason, and the Court

cannot define because it doesn’t need to define what “reasonable doubt” means. It

means a doubt that is based upon reason.” (Id.,[93]; J.A. at 1975). See e.g. Murphy

v. Holland, 776 F.2d 470, 476 (4 Cir. 1985)(“An instruction that a reasonable doubtth

is “a doubt for which a reason can be given” merely conveys what is already

axiomatic from the plain meaning of those very words . . . [and] does nothing to

advance the jury’s understanding) vacated on other grounds, 475 U.S. 1138 (1986).

Mr. Farkas is aware of the well settled principal that a panel of this court

cannot explicitly or implicitly overrule circuit precedent established by a prior panel,

United States v. Lighty, 616 F.3d 321, 380 (4 Cir. 2010) (citing Scotts Co. v. Unitedth

Indus. Corp., 315 F.3d 264, 272 n. 2 (4th Cir.2002)). However, when combined with

the challenged instruction and the well reasoned analysis of the Fifth Circuit in

Gonzalez-Balderas, submitting this charge to the jury without further instructing on

and defining reasonable doubt distinguishes this case from existing Fourth Circuit

precedent, and mandates a reconsideration of the issue.

The defense’s proposed definition was therefore substantially the same as13

the trial court’s in Gonzalez-Balderas and that suggested by J. Wideners in hisdissent in Walton, 207 F.3d at 700.

-29-


III. THE TRIAL COURT UNDULY RESTRICTED AND INHIBITED DEFENSE CROSS-EXAMINATION

Standard of Review

Typically, Court of Appeals reviews evidentiary decisions of a trial court for

abuse of discretion. O’Neill v. Windshire-Copeland Associates, 372 F.3d 281 (4 Cir.th

2004). However, where an alleged constitutional violation is not brought to attention

of the district court, it is reviewed for plain error. See e.g. United States v. Hughes,

401 F.3d 540, 547 (4th Cir.2005) and United States v. Gibbs, 739 F.2d 838, 846–50

(3rd Cir.1984) (reviewing for plain error a Confrontation Clause argument raised for

the first time on appeal even where the defendant raised an admissibility argument

below because separate rules govern each issue, and preserving the latter does not

preserve the former).

During it’s case in chief the government called Neil Luria, managing director

of Navigant Consulting, Inc. (R.228, Transcript of Jury Trial Vol. 7 (p.m.) [1872];

J.A. 1667) and chief restructuring officer in TBW’s bankruptcy, and de facto CEO of

TBW (Id., [1874 -75]; J.A. 1669-70). In general, Mr. Luria testified during his direct

examination as to the overall assets and liabilities of TBW as it then existed, in

bankruptcy. However, in practical effect, Mr. Luria and Navigant Consulting, Inc.

represent Mr. Farkas’s successors in interest in and to TBW. Mr. Luria and Navigant

-30-


have billed and received fees for their services in TBW’s bankruptcy in the millions

of dollars, and have asserted a priority claim to the majority of Mr. Farkas’s assets the

government seeks via forfeiture. See e.g.: (R.311, TBW’s Verified Petition in

Support of its Third Party Forfeiture Claims); (R. 346, TBW’s Motion for Discovery).

However, when defense counsel attempted to cross-examine Mr. Luria as to the

extent of his financial interest, the trial court sustained the government’s objection

as to relevance (R.228, Transcript of Jury Trial Vol. 7 (p.m.) [1897-98]; J.A. 1692-

93). The trial court also foreclosed defense efforts to obtain testimony from Mr. Luria

which would “fill in the hole,” i.e. to show the government’s figures as to the amount

of fraud and/or the loss associated therewith were highly exaggerated. The court

interrupted cross-examination to opine that “it’s completely irrelevant to this case as

to whether there’s a $50 million or a $5 billion hole. . . . you can have a fraud without

a big loss.” (R.228, Transcript of Jury Trial Vol. 7 (p.m.) [1899-1900]; J.A. 1694-

95). 14

See also (R.242, Transcript of Jury Trial Vol. 5 (a.m.), cross of Cathie14

Kissick [1141]; J.A. 1184), same. While the trial judge’s logic may be true as tolegal theory, curtailing this line of questioning eviscerated Mr. Farkas’s efforts toestablish reasonable doubt and present his theory of the case; that there wassufficient collateral and security for Colonial Bank to support its financing ofTBW’s loans (see footnote 9, supra.) Further, although the trial court recognizedthe potential relevance as to forfeiture, it nonetheless did not wish to “waste thejury’s time.” (R.228, Transcript of Jury Trial Vol. 7 (p.m.) [1900]; J.A. 1695). However, the amount of loss involved effected not only reasonable doubt and

-31-


Inexplicably, Mr. Farkas’s defense counsel did not raise the Constitutional

Confrontation Clause issue, nor offer a proffer as to the extent of Mr. Luria and

Navigant’s substantial pecuniary interests, thereby giving rise to a plain-error review.

See Hughes, supra.

The first two prongs of the Hughes analysis - - an error, which is obvious - -

cannot seriously be questioned. The Confrontation Clause of the Sixth Amendment

guarantees a criminal defendant the right to confront the witnesses against him. “The

main and essential purpose of confrontation is to secure for the opponent the

opportunity of cross-examination.” Davis v. Alaska, 415 U.S. 308, 315-16, 94 S.Ct.

1105, 1110, 39 L.Ed.2d 347 (1973) “Cross-examination is the principal means by

which the believability of a witness and the truth of his testimony are tested. Subject

always to the broad discretion of a trial judge to preclude repetitive and unduly

harassing interrogation, the cross-examiner is not only permitted to delve into the

witness’s story to test the witness’s perceptions and memory, but the cross-examiner

has traditionally been allowed to impeach, i.e., discredit the witness.” Id. at 316.

The right of cross-examination, however, is not absolute. “[T]rial judges retain

wide latitude insofar as the Confrontation Clause is concerned to impose reasonable

limits on such cross-examination based on concerns about, among other things,

forfeiture, but restitution and sentencing as well.

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harassment, prejudice, confusion of the issues, the witness’ safety, or interrogation

that is repetitive or only marginally relevant.” Delaware v. VanArsdall, 475 U.S. 673,

679, 106 S.Ct. 1431, 1435, 89 L.Ed.2d 674 (1986). In VanArsdall the Supreme Court

held,

a criminal defendant states a violation of the Confrontation Clause byshowing that he was prohibited from engaging in otherwise appropriatecross-examination designed to show a prototypical form of bias on thepart of the witness, and thereby “to expose to the jury the facts fromwhich jurors ... could appropriately draw inferences relating to thereliability of the witness .”

Id., at 680, 106 S.Ct. at 1436 (quoting Davis, supra., 415 U.S. at 318, 94 S.Ct. at

1111). See also, Olden v. Kentucky, 488 U.S. 227, 231, 109 S.Ct. 480, 483, 102

L.Ed.2d 513 (1988)(citing VanArdsdall and Davis for the proposition that the

exclusion of impeachment evidence related to motive to fabricate charges violates the

Confrontation Clause.)

There is a distinction between attacks on general credibility and establishing

bias, where the latter may be limited by various evidentiary rules, there is no such

limit on the former. Quinn v. Haynes, 234 F.3d 837, 845 (4 Cir. 2000). “Since biasth

of a witness is always significant in assessing credibility, the trier of fact must be

sufficiently informed of the underlying relationships, circumstances, and influences

operating on the witness to determine whether a modification of testimony reasonably

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could be expected as a probable human reaction.” Id., quoting 4 Jack B. Weinstein

et al., Weinstein's Federal Evidence § 607.04[1] (2d ed. 2000).

Of course, a witness’ financial or pecuniary interest is a prototypical form of

bias, see e.g.: Wheeler v. United States, 351 F.2d 946, 947 (1st Cir.1965) (finding

it is “clear that inquiry into the possible financial stake of a witness in a particular

outcome of a case in which the witness is testifying is a proper subject for

cross-examination”); United States v. Leja, 568 F.2d 493, 499 (6 Cir. 1977)(“surelyth

the evidence of how much [government informer] was receiving from the government

for past services and might therefore expect in the future was highly relevant to the

question of his potential bias and interest”); Harris v. United States, 371 F.2d 365 (9th

Cir. 1967)(same); and Tights v. Acme McCrary Corp., 541 F.2d 1047, 1061-62 (4th

Cir. 1976)(“While it is true that a witness may ordinarily be cross-examined as to his

financial interest in a transaction, it is also recognized that the trial judge has broad

powers to regulate the nature and extent of such cross-examination”)(citing Alford

v. United States, 282 U.S. 687, 694, 51 S.Ct. 218, 75 L.Ed. 624 (1931)). However,

it has also been observed that:

But all issues concerning cross-examination do not melt away uponinvocation of the trial judge’s discretion:

It is only after the right of cross-examination has beensubstantially and thoroughly exercised that allowance offurther cross-examination becomes discretionary with the

-34-


trial court. . . . In concrete terms, then, the trial judge's discretion insulates only hisdecision that an area of cross-examination has been sufficientlyexplored and that further inquiry would be pointless.

United States v. Jordan, 466 F.2d 99, 104-05 (4 Cir. 1972)(Sobeloff, J.,th

dissenting)(emphasis in original, internal citations omitted).

The third and fourth Hughes prongs, requiring a showing of prejudice and a

miscarriage of justice are virtually impossible to establish on the record, especially

given trial counsel’s failure to further develop this issue. However,“as it is almost15

always the case when cross examination directed to its main objective- destruction

of credibility- is unduly restricted, the record, of necessity, does not, cannot, reflect

what would have been developed.” Beaudine v. United States, 368 F.2d 417, 423 (9th

Cir. 1966). As there, here, Mr. Farkas should have been allowed to explore the

witness’ ample motives to favor the government “fully and with vigor.”

IV. THE TRIAL COURT’S FINDING THAT TBW WOULD HAVE FAILED“BUT FOR” THE FRAUD IS CLEARLY ERRONEOUS

Similarly, when an issue arose as to another witness, Paul Allen’s15

personal notebooks, the defense requested an opportunity to examine the samebefore his cross examination. However, the trial court, pursuant to United Statesv. Boyd, 53 F.3d 631, 634 (4 Cir. 1995), required the defense to establish anth

appropriate foundation through cross-examination before reviewing the issuefurther (R.225, Transcript of Jury Trial Vol. 6 (a.m.) [1353-55]; J.A. 1285-1287). Except for a passing reference during cross examination (R.243, Transcript of JuryTrial Vol. 6 (p.m.) [1510]; J.A. at 1442) the defense, again inexplicably, failed topursue this issue.

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Standard of Review

“The burden is on the government to establish, by a preponderance of the

evidence, that the property at issue is subject to forfeiture,” and that there is a

“substantial connection between the property to be forfeited and the offense.” In

reviewing a trial court’s decision as to forfeiture, its findings of fact are reviewed for

clear error while its conclusions of law are reviewed de novo. United States v.

Herder, 594 F.3d 352, 363-64 (4 Cir. 2010) cert. denied, 130 S.Ct. 3440 (2010). th

In finding that the government met its burden under 18 U.S.C. §§ 981(a)(1)(C)

& 982, the trial court relied upon the “but for” nexus test (R.355, Memorandum

Opinion; J.A. 2265- 67). This test was first established in United States v. Horak,

833 F.2d 1235, 1243 (7 Cir. 1987)(“[I]n order to win a forfeiture order, theth

government must show . . . that [a defendant’s criminal] activities were a cause in fact

of the acquisition or maintenance of [the] interests or some portion of them”).

However, in so finding, the trial court accepted whole-cloth the government’s

theory that TBW “would have been insolvent but for the fraud,” (R.355; J.A. at 2265)

“would not have been in existence without the benefit of the fraud” (Id., at 2266);

“TBW would not have remained in business in the absence of the bank and wire fraud

scheme. The evidence produced at trial amply demonstrates that TBW was only able

to continue its business activities due to the ongoing fraud. See Gov’t’s Reply

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[R.291; J.A. 2087] at 7-8 [J.A. 2093-94] (summarizing trial evidence).” (Id., at [14];

J.A. at 2274).

However, this evidence cited by the trial court and the government was directly

controverted not only by other trial testimony, but by the averments in the16

Indictment, and the actual financial documentary evidence at trial - - as admitted by17

the government. In short, although a number of lay witnesses opined their18

subjective and informal beliefs as to the financial health of TBW at various times, the

company’s actual financial records told a very different story. The trial court’s

findings that TBW would have failed “but for” the schemes is clearly erroneous.

See e.g.: R.214,Transcript of Jury Trial Vol. 4 (p.m.), cross-examination16

of Cathy Kissick, TBW had been profitable every year she had been dealing withthem [984]; J.A. at 1027; and, R.243, Transcript of Jury Trial Vol. 6 (p.m.), cross-examination of Paul Allen, TBW had been profitable every year since 1995[1534]; J.A. at 1466.

See R.1, Indictment at ¶ 7, TBW was the MWLD’s largest customer, and17

the MWLD was Colonial’s most profitable divisions accounting for at least twentypercent of Colonial Bank’s pre-tax income from 2005 through 2009.

In their reply, the government acknowledged that TBW’s audited18

financial statements, reflected that TBW had net profits of “$26.2 million and$42.2 million for fiscal years ending April 30, 2007 and 2008 respectively.” (R.291, U.S. Reply to Defendant’s Opposition, at 8; J.A. 2094, citingGovernment’s Trial Exhibit 1-412). The government contends that this supportsits position, because the sums misappropriated from Ocala and advanced on theAOT line were not reflected in accountings. However, and conversely, theylikewise do not, and cannot evidence that TBW would have failed but for the fraudand/or that the fraud was a “cause in fact” of TBW’s profitability.

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CONCLUSION

For the foregoing reasons, Mr. Farkas’s conviction should be reversed, and this

case should be remanded to the District Court for retrial.

Respectfully submitted,

/s David M. Coorssen David M. Coorssen539 West Market Street4 Floor, Old Portland Buildingth

Louisville, Kentucky 40202(502) 568-8901

STATEMENT IN SUPPORT OF ORAL ARGUMENT

Due to the extent, length, and complexity of the underlying litigation as well

as the issues presented on appeal, Appellant submits that oral argument would

significantly aid the decisional process, would be useful, and is warranted in this case.

The Court should hear oral argument in this case.

CERTIFICATE OF COMPLIANCE

It is hereby certified pursuant to Fed. R. App. P. 32 (A)(7)(B) and (C) and

Local Fourth Circuit Rule 32 (b), that the foregoing Brief complies with the type-

volume limitation, in that it is in a proportionally spaced font, being Times New

Roman 14, and exclusive of the exempted portions in FRAP 32(a)(7)(B)(iii), contains

10,616 words of text.

-38-


CERTIFICATE OF SERVICE

Pursuant to Local Rule 3 it is hereby certified that, in addition to the electronicfiling hereof to be served via the CM/ECF system, eight (8) paper copies of theforegoing and following and six (6) copies of the Appendix were filed with the Courtand a copy of the Appendix was served upon Paul Nathanson, Esq., and CharlesConnolly Esq., and Kirby A. Heller, counsel for Plaintiff-Appellee, United States ofAmerica, 2100 Jamieson Avenue, Alexandria, VA 22314, by first-class mail, on thisthe10th day of January, 2012.

/s David M. Coorssen DAVID M. COORSSEN

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ADDENDUM

United States v. Forde, No. 09–4704, 407 Fed.Appx. 740, 2011 WL 63831 (4 Cir.th

2011) cert. denied, 132 S.Ct. 232 (2011), provided pursuant to FRAP 32.1(b) andLocal Rule 32.1.

-40-


This case was not selected for publication in theFederal Reporter.

Not for Publication in West's Federal Reporter SeeFed. Rule of Appellate Procedure 32.1 generallygoverning citation of judicial decisions issued on orafter Jan. 1, 2007. See also Fourth Circuit Rule32.1 (Find CTA4 Rule 32.1)

United States Court of Appeals,Fourth Circuit.

UNITED STATES of America, Plaintiff–Appellee,v.

Richard Adolphus FORDE, a/k/a Euburn RichardA. Forde, Defendant–Appellant.

No. 09–4704.Argued: Oct. 27, 2010.Decided: Jan. 10, 2011.

Background: Defendant was convicted in theUnited States District Court for the Eastern Districtof Virginia, Anthony J. Trenga, J., of bankruptcyfraud, conspiracy to commit bankruptcy fraud, andbank fraud. Defendant appealed.

Holdings: The Court of Appeals held that:(1) evidence supported bank fraud conviction;(2) district court's definition of “materiality” fairlystated the controlling law;(3) district court's statement to jury that its solefunction “is to seek the truth from the evidence re-ceived during the trial” did not negate or undermineotherwise proper reasonable-doubt instructions;(4) any error in admitting testimony of a bank-ruptcy trustee mentioning a consent judgment ob-ligating defendant to pay $800,000 was harmless;and(5) defendant was not entitled to an evidentiaryhearing to investigate his post-verdict claims of jur-or misconduct.

Affirmed.

West Headnotes

[1] Banks and Banking 52 509.25

52 Banks and Banking52XI Federal Deposit Insurance Corporation

52k509 Offenses and Penalties52k509.25 k. Prosecutions. Most Cited

CasesEvidence supported bank fraud conviction, des-

pite claim that it was a mortgage broker who con-cocted and executed the scheme to defraud, and thatdefendant, personally, did not make any false state-ments to the bank, because it was the broker whoprovided the false information and documents; de-fendant made false representations in documentsthat he knew would be provided to the bank, and inany event, evidence was established that defendantwas at least as involved as the broker in hatchingand executing the scheme to defraud. 18 U.S.C.A. §1344(1, 2).

[2] Banks and Banking 52 509.25

52 Banks and Banking52XI Federal Deposit Insurance Corporation

52k509 Offenses and Penalties52k509.25 k. Prosecutions. Most Cited

CasesDistrict court's definition of “materiality,” for

purposes of a bank fraud charge, as “a fact thatwould be of importance to a reasonable person inmaking a decision about a particular matter ortransaction” fairly stated the controlling law, des-pite claim that it should have included languagefrom a Supreme Court decision defining a materialstatement as one that “has a natural tendency to in-fluence, or is capable of influencing, the decision ofthe decisionmaking body to which it was ad-dressed”; there was no significant differencebetween the instruction sought and the instructiongiven. 18 U.S.C.A. § 1344.

[3] Criminal Law 110 798(.5)

Page 1407 Fed.Appx. 740, 2011 WL 63831 (C.A.4 (Va.))(Not Selected for publication in the Federal Reporter)(Cite as: 407 Fed.Appx. 740, 2011 WL 63831 (C.A.4 (Va.)))

© 2012 Thomson Reuters. No Claim to Orig. US Gov. Works.


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110 Criminal Law110XX Trial

110XX(G) Instructions: Necessity, Requis-ites, and Sufficiency

110k798 Manner of Arriving at Verdict110k798(.5) k. In general; unanimity.

Most Cited CasesDistrict court's statement, at the end of the in-

structions to the jury, that the jury's sole function“is to seek the truth from the evidence received dur-ing the trial,” made in the course of admonishingindividual jurors not to surrender their honest con-victions, did not negate or undermine otherwiseproper reasonable-doubt instructions, despite claimthat the statement permitting jurors to convictsimply because they believed defendant to beguilty, even if the jurors also thought that the gov-ernment had not actually proved defendant's guiltbeyond a reasonable doubt.

[4] Criminal Law 110 1169.12

110 Criminal Law110XXIV Review

110XXIV(Q) Harmless and Reversible Error110k1169 Admission of Evidence

110k1169.12 k. Acts, admissions, de-clarations, and confessions of accused. Most CitedCases

Any error in admitting testimony of a bank-ruptcy trustee mentioning a consent judgment ob-ligating defendant to pay $800,000, which defend-ant claimed was too prejudicial and violated therule conditionally prohibiting evidence of com-promise or offers to compromise, was harmless in abankruptcy fraud prosecution; government's evid-ence of bankruptcy fraud was exceptionally strong,the testimony about the consent judgment was min-imal, and counsel for defendant during cross-examination established that the bankruptcy pro-ceedings were civil and governed by a lesser bur-den of proof. Fed.Rules Evid.Rules 403, 408, 28U.S.C.A.

[5] Criminal Law 110 868

110 Criminal Law110XX Trial

110XX(J) Issues Relating to Jury Trial110k868 k. Objections and disposition

thereof. Most Cited CasesDefendant was not entitled to an evidentiary

hearing to investigate his post-verdict claims of jur-or misconduct in connection with an online postingby a friend of the husband of the jury foreperson re-garding the difference between “assume” and“presume”; defendant's proposed string of possibil-ities about the origin the posting, that the foreper-son possibly talked to her husband, who possiblytalked to his friend, who possibly went online in re-sponse to what the husband possibly told him, wasnothing but speculation and thus fell far short of es-tablishing reasonable grounds for investigation.

*741 Appeal from the United States District Courtfor the Eastern District of Virginia, at Alexandria.Anthony J. Trenga, District Judge.(1:08–cr–00401–AJT–1).ARGUED: Elita C. Am-ato, Arlington, Virginia, for Appellant. ThomasHiggins McQuillan, Office of the United States At-torney, Alexandria, Virginia, for Appellee. ONBRIEF: Neil H. MacBride, United States Attorney,Alexandria, Virginia, for Appellee.

Before TRAXLER, Chief Judge, DAVIS, CircuitJudge, and DAMON J. KEITH, Senior CircuitJudge of the United States Court of Appeals for theSixth Circuit, sitting by designation.

Affirmed by unpublished PER CURIAM opinion.Unpublished opinions are not binding precedent inthis circuit.PER CURIAM:

**1 Richard Adolphus Forde was convicted ofbankruptcy fraud, see 18 U.S.C.A. § 157 (WestSupp.2010); conspiracy to commit bankruptcyfraud, see 18 U.S.C.A. § 371 (West 2000); andbank fraud, see 18 U.S.C.A. § 1344 (West 2000).Forde appeals, raising various challenges to his





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convictions. Finding no reversible error, we affirm.

I.Viewed in the light most favorable to the gov-

ernment, the evidence presented at trial establishedthe following. In the fall of 2001, Forde was facingsubstantial financial problems and was on the vergeof losing his multi-million-dollar home throughforeclosure. Forde and his wife filed a Chapter 11bankruptcy petition, and Forde also began workingwith mortgage broker David Freelander to try to re-finance his mortgage. When it became clear that re-financing would not be possible, Forde began seek-ing a buyer for his house.

Forde contacted Allodean Allobaidy, a real es-tate broker who had previously expressed interest inbuying the house. When Allobaidy told Forde thathe could not afford the house (which Forde saidwas worth more than $2 million), Forde responded,“Don't worry about it. I do have someone whocould help you out with that.” J.A. 525. Forde, Al-lobaidy, and *742 Freelander thereafter began dis-cussions about Allobaidy buying the house. Duringthe course of the negotiations, Allobaidy made itclear to Forde and Freelander that he would notqualify for a mortgage loan, that he would not makea down payment, that he would not make any mort-gage payments, and that he should receive a com-mission for the sale of the house. The parties ulti-mately came up with a deal, and Allobaidy andForde signed a contract for the sale of the property.

The contract, which was drafted by LeslieLickstein, Forde's bankruptcy attorney, listed thesales price as $5,495,000, and required from Allob-aidy a down payment of $450,000; a conventionalloan in the amount of $3,846,500, to be secured bya first mortgage; and a promissory note payable toForde in the amount of $1,099,000, to be securedby a second mortgage. An addendum to the contractestablished what can only be described as a “slushfund,” providing that approximately $700,000 offunds that Forde would receive at closing would beplaced in a separate account as a “move-in and fix-up allowance” for Allobaidy. J.A. 1326. Allobaidy

testified, however, that the real purpose of the slushfund was to provide funds with which the first-mortgage payments would be made. Allobaidy alsotestified that, despite the terms of the contract,everyone involved in the transaction knew andagreed that he would not be making any down pay-ment, mortgage payments, or payments on thepromissory note.

Lickstein submitted the sales contract to thebankruptcy court and obtained approval for the saleof Forde's house. Lickstein testified that the down-payment and the seller-held promissory note werevery important terms of the contract from the bank-ruptcy perspective because the down-payment andthe payments to be made under the note would beavailable to Forde's creditors.

**2 Freelander worked to obtain the first mort-gage through Lehman Brothers Bank. Allobaidytestified that he and Freelander, with Forde's know-ledge, provided Lehman with false documents andfalse information to make Allobaidy appear quali-fied for the loan. Among the documents thatFreelander submitted to Lehman was the sales con-tract. Before submitting the contract to Lehman,however, Freelander removed the addendum thatestablished the slush fund, telling Forde and Allob-aidy that Lehman probably would not approve theloan if it knew about the slush fund.

Lehman approved the loan to Allobaidy, andthe sale closed on June 28, 2002, in Lickstein's of-fice. The terms of the contract had changed by thetime of closing, calling for a sales price of$5,995,000; a down payment of $550,000; a firstmortgage in the amount of $3,896,750; and apromissory note from Allobaidy in the amount of$1,498,750. The slush fund provided for in the ad-dendum was reduced from the original $700,000 tojust over $477,000.

The HUD–1 closing statement, which wassigned by Forde, Forde's wife, and Allobaidy,showed a down payment of $550,000, even thoughno down payment was in fact made. The HUD–1




statement also showed that a portion of the mort-gage proceeds ($539,000) was used to satisfy a lienfiled against the property by Isaac Archibald inconnection with a loan Archibald made to Forde.The government's evidence, however, establishedthat there had never been a loan from Archibald toForde and that the Archibald lien had actually beenfiled against the property by Lickstein at Forde'sdirection. After closing, Lickstein wired the$539,000 into an account controlled by Freelander,who in turn paid out some of the funds in accord-ance with Forde's directions and used some of thefunds for his own benefit. *743 The money for theslush fund was initially maintained in Lickstein'sescrow account. At Forde's direction, Licksteinlater transferred the funds to a brokerage account inForde's name.

Forde and his wife remained in the house afterthe sale. Allobaidy never took possession of thehouse, and Forde never paid him rent. Payments onthe Lehman first mortgage were made from theslush fund for a period of time, but the slush fundeventually ran out and the mortgage went into de-fault.

In November 2002, the bankruptcy court con-verted Forde's Chapter 11 proceeding to a Chapter7 proceeding. The Chapter 7 trustee began lookinginto the sale of Forde's house and ultimately filed acivil action against Forde to recover for the benefitof Forde's creditors the monies Forde received fromthe sale of the house. Counsel for the trustee soughtto depose Forde, Freelander, and Allobaidy (amongothers), and the three men met to discuss how thedepositions should be handled. Freelander askedAllobaidy to lie and say that he had made the downpayment. Allobaidy in fact did testify at his depos-ition that he had made the down payment.

Forde later brought Barton Gold, who had soli-cited investors for Forde's online business Tutor-net.com, into the scheme, convincing Gold to signback-dated, false documents showing that the$539,000 Archibald loan had actually been made byGold and only guaranteed by Archibald. At the de-

position conducted on behalf of the bankruptcytrustee, Forde offered up the Gold/Archibald storyand documents to explain the $539,000 distributionmade at closing. Gold later gave similar false testi-mony in his own deposition.

**3 The bankruptcy trustee's investigation intothe sale of Forde's house ultimately led to the filingof criminal charges against Forde, Freelander, Lick-stein, and Allobaidy. Freelander pleaded guilty tocharges of bank fraud and bankruptcy fraud; Lick-stein and Allobaidy pleaded guilty to conspiracy tocommit bank fraud. Forde proceeded to trial, andFreelander, Lickstein, and Allobaidy all testifiedagainst him. The jury convicted Forde of bankfraud, bankruptcy fraud, and conspiracy to commitbankruptcy fraud. The district court sentencedForde to 42 months' imprisonment. This appeal fol-lowed.

II.[1] Forde first contends that the evidence was

insufficient to support the conviction for bankfraud. “A defendant challenging the sufficiency ofthe evidence faces a heavy burden, because thejury's verdict must be upheld on appeal if there issubstantial evidence in the record to support it.”United States v. Young, 609 F.3d 348, 355 (4thCir.2010) (citation and internal quotation marksomitted). “Our review is thus limited to determin-ing whether, viewing the evidence and the reason-able inferences to be drawn therefrom in the lightmost favorable to the government, the evidence ad-duced at trial could support any rational determina-tion of guilty beyond a reasonable doubt.” Id.(internal quotation marks and alteration omitted).

Section 1344 imposes criminal penalties onanyone who “knowingly executes, or attempts toexecute, a scheme or artifice” in order to “defraud afinancial institution,” 18 U.S.C.A. § 1344(1), or to“obtain any of the moneys, funds, credits, assets,securities, or other property owned by, or under thecustody or control of, a financial institution, bymeans of false or fraudulent pretenses, representa-tions, or promises,” id. § 1344(2). As to § 1344(1),




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Forde contends that it was Freelander who con-cocted and executed the scheme to defraud Leh-man. According to Forde, “[i]t was Freelander whodealt with the bank, knew *744 what they requiredand made decisions of how to conform with thebank's requirements.” Brief of Appellant at 15.With regard to § 1344(2), Forde contends that he,personally, did not make any false statements toLehman, because it was Freelander, not Forde, whoprovided the false information and documents toLehman. While Forde acknowledges thatFreelander told him about the problems that theslush fund addendum could cause if the bank knewabout it, Forde insists that it was Freelander, “notMr. Forde [,] who either made the decisions thatsomething should be handled a certain way or thatdocuments should not be provided to the bank orinformation not revealed.” Id. We find these argu-ments unpersuasive.

Preliminarily, we note that while Forde maynot have personally submitted any documents toLehman, he certainly made false representations indocuments that he knew would be provided to Leh-man—Forde signed the sales contract, which calledfor a down payment by Allobaidy and payments byAllobaidy under a promissory note that the partiesto the contract knew would never be made; andForde signed the HUD–1 statement, which, amongother things, showed the down payment as havingbeen made. Even assuming that this conduct some-how does not amount to the making of false repres-entations within the meaning of § 1344(2), the gov-ernment's evidence was more than enough to sup-port Forde's conviction under § 1344(1).

**4 “The government need not offer evidenceof misrepresentations or a disclosure duty to provea violation of § 1344.” United States v. Colton, 231F.3d 890, 907 (4th Cir.2000); see United States v.Celesia, 945 F.2d 756, 758 (4th Cir.1991) (“[O]nemay commit a bank fraud under Section 1344(1) bydefrauding a financial institution, without makingthe false or fraudulent promises required by Section1344(2).”). “What is essential is proof of a ‘scheme

or artifice to defraud,’ which can be shown by de-ceptive acts or contrivances intended to hide in-formation, mislead, avoid suspicion, or avert fur-ther inquiry into a material matter.” Colton, 231F.3d at 901.

The government's evidence was certainly suffi-cient to establish the existence of a scheme to de-fraud Lehman—the parties induced Lehman tomake the loan by lying about a down payment andby concealing the existence of the slush fund, factsthat a Lehman employee testified were material toLehman's decision to make the loan. See id. at 901(“[A]ctive or elaborate steps to conceal informationcan constitute” a scheme to defraud. (internal quo-tation marks omitted)). The government's evidencewas likewise sufficient to establish that Forde wasat least as involved as Freelander in hatching andexecuting that scheme to defraud. Although Fordeinsists that Freelander came up with the scheme todefraud Lehman, Allobaidy's testimony alonewould have been enough for the jury to concludethat Forde was responsible for the scheme.Moreover, the government's evidence establishedthat Forde and Freelander controlled the mortgageproceeds that were used to “satisfy” the fictitiousArchibald lien. At Forde's direction, the Archibaldproceeds were wired to a bank account controlledby Freelander, a portion of which were later wiredto a bank account belonging to Forde's then broth-er-in-law, to keep the money out of Forde's bank-ruptcy estate and thus out of the reach of his credit-ors. The slush fund proceeds were similarly trans-ferred to a brokerage account belonging to Forde.Because the evidence showed that Forde andFreelander both controlled and received the benefitof these misappropriated mortgage funds, the juryreasonably could have concluded that Forde andFreelander both conceived and *745 executed thescheme to defraud Lehman. We therefore concludethat the evidence was more than sufficient to sup-port Forde's conviction for bank fraud. FN1

FN1. Given our disposition of this claim, itis unnecessary for us to consider the gov-

07 Fed.Appx. 740, 2011 WL 63831 (C.A.4 (Va.))(Not Selected for publication in the Federal Reporter)(Cite as: 407 Fed.Appx. 740, 2011 WL 63831 (C.A.4 (Va.)))





















ernment's alternate argument that Forde'sbank fraud conviction can be sustained be-cause Forde caused Freelander to commitbank fraud. See 18 U.S.C.A. § 2(b) (West2000) (“Whoever willfully causes an act tobe done which if directly performed byhim or another would be an offense againstthe United States, is punishable as a prin-cipal.”).

III.[2] Materiality is an element of bank fraud. See

Neder v. United States, 527 U.S. 1, 25, 119 S.Ct.1827, 144 L.Ed.2d 35 (1999); Colton, 231 F.3d at903 n. 5. The district court instructed the jury thatthe government was required to prove the material-ity of the representations made to Lehman or the in-formation concealed from Lehman, defining“material fact” as “a fact that would be of import-ance to a reasonable person in making a decisionabout a particular matter or transaction.” J.A.1225–26. Forde argues on appeal, however, that thedistrict court's definition of materiality was insuffi-cient because it did not include language from theSupreme Court's decision in Neder generally defin-ing a material statement as one that “has a naturaltendency to influence, or is capable of influencing,the decision of the decisionmaking body to which itwas addressed.” Neder, 527 U.S. at 16, 119 S.Ct.1827 (internal quotation marks and alteration omit-ted). Forde further argues that the instruction asgiven “in essence took away the element of materi-ality,” and that he was therefore deprived of hisSixth Amendment right to a jury determination ofeach element of the bank fraud charge. Brief of Ap-pellant at 25. Because Forde did not object to thejury instruction below, we review his claims forplain error only.

**5 We see no significant difference betweenthe instruction sought by Forde and the instructiongiven, because a fact that would be important whenmaking a decision would likewise be capable of in-fluencing a decision. See Preston v. United States,312 F.3d 959, 961 & n. 3 (8th Cir.2002) (per curi-

am) (concluding that instructions defining “materialfact” as “a fact that would be important to a reason-able person in deciding whether to engage or not toengage in a particular transaction” were “consistentwith those reaffirmed by the Supreme Court inNeder ” (internal quotation marks omitted)). Be-cause the instructions as given “fairly state[d] thecontrolling law,” United States v. McQueen, 445F.3d 757, 759 (4th Cir.2006) (internal quotationmarks and alterations omitted), there was no error,plain or otherwise, in the court's instructions on ma-teriality. See United States v. Heppner, 519 F.3d744, 749 (8th Cir.2008) (finding no error in jury in-struction defining “material fact” as “a fact whichwould be of importance to a reasonable personmaking a decision about a particular matter ortransaction” (internal quotation marks omitted)).

IV.[3] Forde next argues that the district court

erred when it stated, at the end of the instructions tothe jury, that the jury's sole function “is to seek thetruth from the evidence received during the trial.”J.A. 1233. According to Forde, the seek-the-truthstatement negated the otherwise proper reasonable-doubt instructions by permitting jurors to convictsimply because they believed him to be guilty, evenif the jurors also thought that the government hadnot actually proved Forde's guilt beyond a reason-able doubt.

*746 Because the seek-the-truth language wasincluded in the jury charges that Forde himselfsought, see J.A. 72, Forde arguably has waived theright to even seek review of the issue. See UnitedStates v. Quinn, 359 F.3d 666, 674–75 (4thCir.2004) (“[T]he record shows ... that the districtcourt's instruction on this issue was precisely theinstruction that they requested.... [A]ny error com-mitted by the district court in giving this instructionwas invited error and is not subject to review.”). Inany event, the district court repeatedly informed thejury that Forde was presumed innocent, and thecourt mentioned the requirement that the govern-ment must prove Forde's guilt beyond a reasonable




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doubt more than twenty times during its instruc-tions. Under these circumstances, we cannot con-clude that the single seek-the-truth reference, whichthe court made in the course of admonishing indi-vidual jurors not to surrender their honest convic-tions, negated or undermined the otherwise properreasonable-doubt instructions or otherwise amoun-ted to error. See United States v. Gonza-lez–Balderas, 11 F.3d 1218, 1223 (5th Cir.1994)(“There is no reasonable likelihood that the jury in-ferred that the single reference at the end of thecharge to ‘seeking the truth,’ rendered as it was inthe context of an admonition to ‘not give up yourhonest beliefs,’ modified the reasonable doubt bur-den of proof.”).

V.**6 [4] As previously mentioned, the Chapter 7

bankruptcy trustee investigated the sale of Forde'shouse and brought a civil action against Forde torecover funds associated with the sale of the house.That action ended with Forde signing a consentjudgment obligating him to pay $800,000. The at-torney who represented the bankruptcy trustee testi-fied at Forde's criminal trial and briefly mentionedthe $800,000 consent judgment in his testimony.

On appeal, Forde claims the testimony aboutthe consent decree violated Rule 408 of the FederalRules of Evidence. See Fed.R.Evid. 408(a)(prohibiting evidence of compromise or offers tocompromise “when offered to prove liability for,invalidity of, or amount of a claim that was dis-puted as to validity or amount, or to impeachthrough a prior inconsistent statement or contradic-tion”). Forde also claims that even if testimonyabout the consent judgment was proper under Rule408, the testimony was too prejudicial and thereforeshould have been excluded under Rule 403. SeeFed.R.Evid. 403 (“Although relevant, evidence maybe excluded if its probative value is substantiallyoutweighed by the danger of unfair prejudice, con-fusion of the issues, or misleading the jury, or byconsiderations of undue delay, waste of time, orneedless presentation of cumulative evidence.”).

We disagree. Assuming, without deciding, thatthe admission of the testimony amounted to errorunder Rule 403 or Rule 408, any such error wouldbe harmless. The government's evidence of bank-ruptcy fraud was exceptionally strong, and the testi-mony about the consent judgment was minimal.Moreover, counsel for Forde during cross-examination established that the bankruptcy pro-ceedings were civil and governed by a lesser bur-den of proof. Under these circumstances, we thinkit clear that the jury's verdict was not “substantiallyswayed” by any error in admitting the evidence ofthe consent judgment. United States v. Heater, 63F.3d 311, 325 (4th Cir.1995) (“[I]n order to find adistrict court's error harmless, we need only be ableto say with fair assurance, after pondering all thathappened without stripping the erroneous actionfrom the whole, that the judgment was not substan-tially swayed by the error.” (internal quotationmarks omitted)).

*747 VI.[5] Finally, Forde contends that the district

court erred by rejecting his post-verdict claims ofjuror misconduct. In a post-trial motion, Forde in-formed the district court that while the trial wasproceeding, a friend of the husband of the juryforeperson posted on Twitter an explanation of thedifference between “assume” and “presume.” FN2

Ford contended that, since the posting occurredduring trial, it was possible that the jury forepersonhad talked to her husband about the case, her hus-band then talked to his friend about the case, thefriend then posted the statement on Twitter, and theforeperson saw the Twitter posting. Forde thus re-quested that the district court hold a hearing to in-vestigate the potential misconduct. The districtcourt denied the request.

FN2. The posting stated, “assume: supposeto be the case, without proof; presume:suppose that something is the case on thebasis of probability.” J.A. 1423.

**7 On appeal, Forde contends that the districtcourt erred by denying the requested hearing. We



















disagree. A district court is obligated to investigatecolorable claims of juror misconduct. See, e.g.,Smith v. Phillips, 455 U.S. 209, 215, 102 S.Ct. 940,71 L.Ed.2d 78 (1982) (“This Court has long heldthat the remedy for allegations of juror partiality isa hearing in which the defendant has the opportun-ity to prove actual bias.”); id. at 217, 102 S.Ct. 940(“Due process means a jury capable and willing todecide the case solely on the evidence before it, anda trial judge ever watchful to prevent prejudicial oc-currences and to determine the effect of such occur-rences when they happen. Such determinations mayproperly be made at a [post-trial] hearing ....”).However, “[t]he duty to investigate arises onlywhen the party alleging misconduct makes an ad-equate showing of extrinsic influence to overcomethe presumption of jury impartiality. In otherwords, there must be something more than merespeculation.” United States v. Barshov, 733 F.2d842, 851 (11th Cir.1984) (citation omitted); accordUnited States v. Vitale, 459 F.3d 190, 197 (2dCir.2006) (“[A] trial court is required to hold apost-trial jury hearing when reasonable grounds forinvestigation exist. Reasonable grounds are presentwhen there is clear, strong, substantial and incon-trovertible evidence, that a specific, nonspeculativeimpropriety has occurred which could have preju-diced the trial of a defendant.” (citation and internalquotation marks omitted)). Forde's string of possib-ilities about the origin of the Twitter posting—thatthe foreperson possibly talked to her husband, whopossibly talked to his friend, who possibly took toTwitter in response to what the husband possiblytold him—is nothing but speculation and thus fallsfar short of establishing reasonable grounds for in-vestigation. The district court therefore did not errby denying Forde's request for an evidentiary hear-ing to investigate his claim.

Forde also contends that the district court erredby denying his post-verdict request for the issuanceof subpoenas directed to various internet serviceproviders. Forde claims that his business websiteswere viewed during the trial, and that the subpoenaswere necessary “to assess whether any of the

twelve jurors were the ones who had accessed thesites and searched his name.” Brief of Appellant at40. This argument is utterly without merit, as it iseven more speculative and less grounded in factthan his other claim of juror misconduct. The dis-trict court committed no error by refusing to issuethe subpoenas necessary for Forde's fishing expedi-tion.

*748 VII.Because we find no reversible error, we hereby

affirm Forde's convictions and sentence.

AFFIRMED.

C.A.4 (Va.),2011.U.S. v. Forde407 Fed.Appx. 740, 2011 WL 63831 (C.A.4 (Va.))

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