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United States v. Mahaffy

April 9, 2007

UNITED STATES OF AMERICA
v.
KENNETH E. MAHAFFY, JR., TIMOTHY J. O'CONNELL, DAVID G. GHYSELS, JR., ROBERT F. MALIN, LINUS NWAIGWE, MICHAEL A. PICONE, AND KEEVIN H. LEONARD, DEFENDANTS.



The opinion of the court was delivered by: Glasser, United States Senior District Judge

MEMORANDUM AND ORDER

INTRODUCTION

Trial in this criminal action alleging conspiracy, securities fraud, and false statements has been ongoing since March 19, 2007. On April 6, 2007, the Government offered excerpts from testimony given by defendants Michael Picone and Linus Nwaigwe in their respective depositions conducted by the Securities and Exchange Commission ("SEC"), (respectively, the "Picone excerpts" and the "Nwaigwe excerpts"). Both defendants Picone and Nwaigwe are charged with conspiracy to commit securities fraud and making false statements. See Superceding Indictment at ¶¶ 38, 57, 59, 61. The Picone excerpts were offered to support Count 41 of the Superceding Indictment, which specifies: (1) defendant Picone falsely stated that he approved a $1,000 expense payment from A.B. Watley on or about November 2003, to provide a trader working at the firm, Keith Geller, with funds to bring a Merrill Lynch broker to an "adult entertainment establishment," (2) defendant Picone falsely stated that he believed that the trader was "attempting to develop a business relationship with the broker that would allow A.B. Watley to obtain access to secondary securities offerings through Merrill Lynch," and (3) defendant Picone falsely stated that he did not believe these funds would be used to compensate the Merrill Lynch broker for providing A.B. Watley access to a squawk box at Merrill Lynch. Superceding Indictment ¶ 61. The Nwaigwe excerpts were offered to support Count 39 of the Superceding Indictment, which specifies: (1) defendant Nwaigwe falsely stated that the first time he ever heard the term "squawk box" was when he saw the term in a subpoena he received from the SEC, and (2) defendant Nwaigwe falsely stated that he never heard the term "box" in relation to proprietary trading at A.B. Watley.

Defendant Picone moved to supplement the excerpts offered by the Government pursuant to Fed. R. Evid. 106. Defendant Picone asserted that the additional excerpts should "'in fairness' be considered by the jury contemporaneously as [they] will serve to explain and place in context several key points at issue in this trial." Letter from J. Bruce Maffeo, dated March 19, 2007.

Defendant Nwaigwe moved to exclude the Government from introducing proposed excerpts from his testimony before the SEC on November 3, 2004. See GX 619. Nwaigwe asserted that his statements are (1) hearsay, and not admissible as admissions by a party opponent because they were not against his interests when he made the statements, (2) not relevant because they do not deal with any false statements he made to the SEC, and (3) are more prejudicial than probative under Rule Fed. R. Evid. 403.

The Court denied both motions from the bench. This Memorandum and Order explains the Court's rulings with regard to both motions.

DISCUSSION

Fed. R. Evid. 106 ("Rule 106"), also called the rule of completeness, states: [w]hen a writing or recorded statement or part thereof is introduced by a party, an adverse party may require the introduction at that time of any other part or any other writing or recorded statement which ought in fairness to be considered contemporaneously with it.

The purpose of Rule 106 is to place into evidence any omitted statements that may be "necessary to explain the admitted portion, to place the admitted portion in context, to avoid misleading the jury, [and] to ensure fair and impartial understanding of the admitted portion." United States v. Castro, 813 F.2d 571, 576 (2d Cir. 1987); see Beech Aircraft Corp. v. Rainey, 488 U.S. 153, 170 (1988) (purpose of Rule 106 is to avoid giving a jury a "distorted and prejudicial impression" of the statement).

When the government seeks to introduce inculpatory admissions by a defendant, it must also admit any exculpatory remarks that are "part and parcel" of the same statement. United States v. Hadddad, 10 F.3d 1252, 1258 (7th Cir. 1993). In Rainey, the Supreme Court explained that where "misunderstanding or distortion can be averted only through presentation of another portion [of the document], the material required for completeness is ipso facto relevant and therefore admissible under Rules 401 and 402." 488 U.S. at 172 (ruling that district court's refusal to admit the proffered evidence to explain defendant's belief in an alternative theory of the case amounted to abuse of discretion). A district court's ruling is reviewed under an abuse of discretion standard. See United States v. Jackson, 180 F.3d 55, 73 (2d Cir. 1999), vacated on other grounds, 196 F.3d 383 (2d Cir. 1999).

Though the goal of Rule 106 is to offer the jury a "complete" understanding of a defendant's statement, Rule 106 does not permit the unfettered admission of all omitted portions. There are several limitations that prevent the rule from becoming all encompassing under the rubric of "completeness." For instance, Rule 106 does not require "the admission of portions of a statement that are neither explanatory nor relevant to the admitted passages." Id. A court may also exclude any portion that consists largely of a defendant's "own self-serving statements, which, as offered by him, are inadmissible hearsay." Id.; see also Pheonix Assocs. III v. Stone, 60 F.3d 95, 103 (2d Cir. 1995) (explaining that Rule 106 "does not compel admission of otherwise inadmissible hearsay evidence" (quoting United States Football League v. Nat'l Football League, 842 F.2d 1335, 1375-76 (2d Cir. 1988))).

A court must also take into account competing interests, such as the rights of other parties who may be affected by the exculpatory statements. For instance, if the omitted exculpatory statement violates a co-defendant's Sixth Amendment rights pursuant to Bruton v. United States, 391 U.S. 123 (1968), the court may not permit the inclusion of the statement even if it is required to rebut the inculpatory statement as to the defendant and place it in its proper context. See Castro, 813 F.2d at 575 (allowing admission of inculpatory portion of defendant Castro's statement in joint trial, that "Castro knew where the cocaine was," but precluding the exculpatory part, that "Acosto . . . put the cocaine in the bag" due to Bruton implications for the co-defendant, Acosto).

First Addition Offered by Defendant Picone

The Government read into the Record several lines of testimony pertaining to the fact that defendant Picone was the chief operating officer ("COO") while he was at A.B. Watley from Dec. 2, 2002 until August 31, 2003, and that he worked in a consulting capacity with A.B. Watley thereafter. See GX 620 A at 65:1-4, GX 620 B at 70:12-19. The additional testimony Picone moved to admit is a recitation of his duties and functions at A.B. Watley. See Additions to GX 620 A and B at 65:7-14, 68:2-24. ...


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