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UNITED STATES v. GANGI

April 2, 1998

UNITED STATES OF AMERICA against ROSARIO GANGI, et al., Defendants.


The opinion of the court was delivered by: CHIN

OPINION

 CHIN, D.J.

 In this case, a highly confidential, internal government memorandum -- which lays out the Government's strategy and identifies witnesses and victims -- somehow made its way into a public court file. An FBI agent handed what he believed to be a copy of the indictment to an Assistant United States Attorney in open court in Phoenix, Arizona. The Assistant, in turn, handed up the document to the Magistrate Judge presiding over the proceedings. Neither the agent nor the Assistant nor the Magistrate Judge realized that the document actually consisted of a draft of the indictment as well as a prosecution memorandum that had been written by the United States Attorney's Office for the Southern District of New York for the United States Department of Justice. As a consequence, the prosecution memorandum, which contains privileged work product and other sensitive information, was given to one of the defendants and placed into the public record. Eventually it was widely distributed to members of the public.

 The principal issue before the Court is whether the Government has waived its claim of privilege to the prosecution memorandum. I hold that it has. The Government did not treat the document with the care required to protect its privilege. As a result, two defendants and their lawyers have seen it and dozens of copies are circulating in the public domain. Under these circumstances, the Government's motion for "return" of the prosecution memorandum is denied.

 My findings of fact and conclusions of law follow.

 THE FACTS

 A. Nature of the Case

 The indictment in this case charges 19 defendants with racketeering, securities fraud, wire fraud, extortion, and bank fraud. Specifically, the indictment charges that the defendants engaged in a scheme to defraud investors by manipulating the market price of the securities of HealthTech International Inc. ("HealthTech"). The Government alleges that HealthTech officers enlisted the aid of members and associates of organized crime families, who controlled certain stock brokerage firms, to artificially inflate the price of HealthTech stock through the use of deceptive practices and threats of violence.

 B. The Prosecution Memorandum

 In the fall of 1997, after a year-long investigation, the United States Attorney's Office for the Southern District of New York (the "Southern District") prepared a prosecution memorandum (the "Prosecution Memorandum") requesting that the Organized Crime and Racketeering Section of the Department of Justice ("DOJ") approve the filing of a proposed indictment in this case. DOJ approval is required before a U.S. Attorney's Office may bring charges under certain statutes, including the Racketeer Influenced and Corrupt Organizations Act ("RICO").

 The first page of the 69-page Prosecution Memorandum begins as follows:

 PROSECUTION MEMORANDUM

 (This Document Contains Grand Jury Material)

 
To: Paul E. Coffey, Chief Organized Crime and Racketeering Section United States Department of Justice
 
From: [the names of four Assistant U.S. Attorneys from the Southern District of New York are listed]
 
Date: November 7, 1997
 
Re: Proposed Prosecution in UNITED STATES v. ROSARIO GANGI, et al.

 Although the Prosecution Memorandum bears the parenthetical at the top of the first page stating that "This Document Contains Grand Jury Material," it is not marked "confidential" or "privileged" or "government work product" or anything else to that effect.

 The Prosecution Memorandum then summarizes the Government's case and describes the alleged racketeering enterprise, the defendants, the alleged racketeering activity, and the alleged scheme to manipulate the market for HealthTech stock. It identifies witnesses, including alleged victims and cooperating witnesses, and describes their anticipated testimony. It discloses the contents of surreptitiously recorded conversations involving the defendants. It describes one cooperating witness as having "disappeared" and "ceased communicating with the FBI . . . shortly after" certain consensual recordings were made.

 The Southern District transmitted the Prosecution Memorandum and a draft indictment to DOJ on November 20, 1997. The same day, the Southern District provided copies of the Prosecution Memorandum and draft indictment to Special Agent Stephen B. Hessinger, the FBI "case agent" and a member of the Joint Organized Crime Task Force (the "Task Force"), "for his review and comment." Hessinger combined the 75-page draft indictment with the 69-page Prosecution Memorandum to create a single document, 144 pages long, with the draft indictment on top and the Prosecution Memorandum underneath it (the "Document").

 Hessinger made several copies of the Document and distributed them to his supervisors and other members of the Task Force who were assigned to the investigation, including Detective Christine McNulty, the "case officer."

 C. Agent Young

 During the week of November 10, 1997, Special Agent Brian Young was told by his supervisors that he would be part of the team responsible for arresting defendant Gordon Hall in Phoenix, Arizona on November 25th. Young had only recently graduated from the FBI Academy, in July 1996. After six months conducting background checks, he was assigned to the Task Force in February 1997, when he began working on this investigation.

 On November 20th, in preparation for that assignment, Young asked for a copy of the indictment from a member of his squad in the Task Force. He was informed that there was a copy on McNulty's desk. McNulty was not present at the time.

 Young proceeded to McNulty's desk and picked up what he believed was a copy of the indictment but which actually was the Document. He noticed a handwritten note at top of the first page of the Document, which read "1:30 p.m. Th." *fn1" He "assumed" that the Document was a draft of the indictment. (Young Aff. P 5). Although he was correct in part, he did not realize that the Document also included the Prosecution Memorandum.

 Young made two copies of the Document. He returned the original to McNulty's desk and put one copy of the Document, secured with a rubber band, into his brief case along with other materials relating to Hall. He gave the other copy to another agent.

 On Sunday, November 23rd, Young flew to Arizona. He started to review the Document that night, but only read the first 10 or 15 pages. The next day, November 24th, he reported to the FBI's field office in Phoenix. That evening, he read "almost the entire Document, including the proposed indictment and most of what [he later learned] to be the Prosecution Memorandum." (Young Aff. P 7). Although he saw the Prosecution Memorandum, he did not find it strange that it was attached to the indictment. Prior to this case, Young had never seen an indictment, information, complaint, or prosecution memorandum.

 D. The Unsealing of the Indictment

 On Tuesday, November 25th, at approximately noon in New York, the final indictment in this case, consisting of 97 pages and 25 counts, was unsealed. The Southern District did not make any arrangements to have the final version of the indictment transmitted, either directly or indirectly through the FBI, to the U.S. Attorney's Office in Arizona for use at Young's presentment after he was arrested. Indeed, as the Government reported at oral argument:

 
[The indictment] was finalized before the grand jury presentation on Monday when the indictment was returned, and Agent Young was already on his way to Arizona at that time. So the answer is no, he didn't take a final copy with him and it wasn't sent out to him.
 
There are a number of people who could have sent a copy over. An Assistant U.S. Attorney could have done so in response to a call from [Assistant United States Attorney W. Allen] Stooks or an FBI agent could have done so that day in response to a call from Agent Young saying, Hey, we need a final copy out here.
 
I think that there was no request from Arizona, there was no alert that, Hey, we don't have one out here. So the people here assumed they had one. And given that other people could have sent it over, the FBI could have thought the government did it.
 
. . .
 
We really didn't know they didn't have one. It isn't like there was one person who was in charge of that particular item. There were a lot of things going on that day and we assumed it had been taken care of . . . .

 (3/17/98 Tr. at 51).

 E. Hall's Arrest and Presentment

 On Tuesday morning, November 25th, at approximately 8 a.m. Phoenix time, Hall was arrested in Arizona. Young participated in the arrest.

 At approximately 3:30 p.m. that day, Hall was presented pursuant to Fed. R. Crim. P. 40 before Magistrate Judge Virginia Mathis in the United States District Court for the District of Arizona. The Government was represented at the presentment by Assistant United States Attorney W. ...


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