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United States v. Murgio

United States District Court, S.D. New York

January 12, 2017

United States of America,
v.
Anthony R. Murgio, et al., Defendants.

          OPINION & ORDER

          ALISON J. NATHAN, District Judge

         Defendants Yuri Lebedev ("Lebedev") and Trevon Gross ("Gross") are charged in a nine-count superseding indictment ("the Indictment" or "S3 Indictment"). United States v. Murgio, No. 15-CR-769 (AJN) (S.D.N.Y. Apr. 21, 2016) ("S3 Indictment"), Dkt. No. 87.[1] The charges in the Indictment stem from Anthony Murgio's alleged operation, with Lebedev's assistance, of Coin.mx, a website that the Government characterizes as an unlawful Bitcoin exchange, as well as from an alleged plan to bribe Gross, the chairman of the board of a federal credit union, in order to obscure the illegal nature of that exchange. Id. ¶¶ 1-10. The Court assumes familiarity with its September 19, 2016 Order resolving a number of pre-trial motions, and recounts only those facts necessary to explain each disposition. See Dkt. No. 198 (hereafter "Sept. 19, 2016 Order").

         Before the Court are various pre-trial motions brought by the Government and the Defendants, which the Court addresses in three groupings.

         First, the Government moves to admit certain testimony and records of the National Credit Union Association ("NCUA") relating to the examination, conservatorship, and liquidation of Helping Other People Excel Federal Credit Union ("HOPE FCU"). Dkt. No. 191 at 1. Gross both opposes the Government's motion, Dkt. No. 201 at 1, and, independently, moves to preclude introduction of much of the same evidence, Dkt. No. 190 at 1-3. Gross also moves for a Rule 17 Subpoena related to these records. See id at 3.

         Second, Gross moves to sever his trial from that of his co-defendant, Yuri Lebedev, Dkt, No. 230, and to transfer the case against him to the District of New Jersey, Dkt. No. 197. He also moves to preclude the Government from eliciting testimony or introducing evidence referring to payments made to him as "bribes." Dkt. No. 190 at 4. Lebedev also renews his motion to sever. Dkt. No. 244.

         Third, Anthony Murgio moved, prior to pleading guilty, to compel the Government to produce various categories of evidence. Dkt. No. 200. In light of Murgio's plea, the bulk of this motion is now moot. However, to the extent that Gross joins any part of the motion, see Dkt. No. 216 at 12, the Court addresses it.

         For the reasons that follow, the Court DENIES the Government's motion to admit certain NCUA records, DENIES Gross's motions to sever and transfer and his motion to preclude evidence referring to the alleged payments as bribes, DENIES Lebedev's renewed motion to sever, and DENIES Gross's motion to compel.

         The Court further notes that these evidentiary rulings are preliminary and subject to reevaluation if circumstances at trial warrant reconsideration.[2]

         Table of Contents

         I. The Government's motion to admit, and Gross's motion to preclude, testimony and records of the NCUA.......................................................................................................................................4

A. Factual Background.............................................................................................................4
1. The Government's theory of the case.............................................................................5
2. The contested NCUA documents....................................................................................7
B. Discussion.......................................................................................................................10
1. The NCUA records contain hearsay inadmissible for its truth against Gross..............11
a. The documents are not admissible under Federal Rule of Evidence 803(8)............12
b. The NCUA documents also may not be admitted under Federal Rule of Evidence 803(6)...........................................................................................................................25
2. The evaluative findings in the NCUA records are also inadmissible pursuant to Federal Rule of Evidence 403........................................................................................................33
C. Conclusion............, .............................................................................................................36

         II. Gross's motions to transfer and sever; Gross's second motion to preclude; and Lebedev's renewed motion to sever...............................................................................................................36

A. Gross's motion to sever.....................................................................................................37
B. Gross's motion to preclude the Government from referring to payments made to him as bribes.......................................................................................................................................43
C. Gross's motion to transfer the case against him to the District of New Jersey..................43
D. Lebedev's renewed motion to sever.................................. ..................................................48

         III. Gross's motion to compel production of NCUA materials from the Government.................50

         IV. Temporary sealing..................................................................................................................51

         I. The Government's motion to admit, and Gross's motion to preclude, testimony and records of the NCUA

         The Court first addresses the Government's and Gross's parallel motions seeking admission and preclusion, respectively, of a set of NCUA records.[3] First, the Government moves to admit testimony of NCUA officials as well as specific records relating to the examination, conservatorship, and liquidation of the HOPE FCU. See Gov't Motions in Limine at 1. Second, and relatedly, Gross moves to preclude the Government from introducing "any evidence relating to the NCUA placing the [HOPE FCU] into conservatorship or liquidation, and to its 2015 investigation and findings leading up to those decisions." Gross Motions in Limine at 1.[4] For the reasons that follow, the Government's motion as to the testimony is denied without prejudice; the Government's motion to admit the cited documents is denied; and Gross's motion is granted to the limited degree that he seeks to preclude admission of factual findings contained in the NCUA records for their truth.[5]

         A. Factual Background

         1. The Government's theory of the case

         Defendant Trevort Gross is charged, in the Indictment, with a single count of receiving corrupt payments as an officer of a financial institution, in violation of 18 U.S.C. § 215(a)(2). S3 Indictment ¶¶ 22-23, [6] The Government alleges that evidence at trial will show the following:

         Up until October 2015, Gross was Chairman of the HOPE FCU, a credit union in Lakewood, New Jersey, Gov't Reply at 24. In 2014, Anthony Murgio, Lebedev, and others, in furtherance of a purported scheme to run an allegedly unlawful money transmitting business, offered Gross bribes to help them take over the Board of the HOPE FCU. Gross agreed. See Gov't Motions in Limine at 18-19.

         After allegedly accepting $150, 000 in bribes, the Government claims that Gross proceeded to take a number of steps to facilitate the takeover of HOPE FCU by Murgio and other members of the Collectables Club, the alleged front company of Coin.mx. Id. Gross arranged for the Board of Directors to nominate various individuals chosen by Murgio, and promised to orchestrate the resignations of remaining Board members. See id, at 19. He also gave Murgio control of the credit union's affairs, and in particular permitted Murgio to use the HOPE FCU to process a high volume of automated clearing house ("ACH") transactions, despite the fact that the HOPE FCU lacked sufficient capital reserves to facilitate such transactions. Id.

         In late Summer 2014, after receiving a tip from a former NCUA employee, the NCUA began, in the Government's words, "examining [HOPE FCU] like a hawkeye." Oct. 24, 2016 Tr. at 31. Such examination consisted primarily of a series of inspections of the HOPE FCU, inspections that revealed at least two significant facts: first, that members of the Collectables Club had joined the HOPE FCU's Board, despite the fact that they were ineligible for such membership under the HOPE FCU's bylaws due to their residency; and second, that the HOPE FCU was conducting a high volume of ACH transactions, despite lacking adequate capital reserves and without complying with certain regulatory controls. Gov't Motions in Limine at 19, The NCUA further discovered that Gross had withheld the fact that members of the Collectables Club had been elected to the Board from the NCUA. Id. at 19. These discoveries led the NCUA to alert the HOPE FCU Board, in October 2014, as to its non-compliance. Nevertheless, even aware that the Collectables Club members did not meet the residency requirements, the Board, led by Gross, voted to create an "advisory board" on which Lebedev and others could remain. Id. at 20. The Government alleges that Gross also discussed with Murgio, Lebedev, and other members of the Collectables Club how they might obtain a phony office in New Jersey so as to meet the necessary residency requirement to qualify for the Board. Id. Gross took these actions, according to the Government, in consideration for his receipt of bribes.

         In March 2015, the NCUA sought and acquired a letter of understanding from the HOPE FCU, laying out the credit union's continued failure to comply with certain of the NCUA's recommendations, and outlining jointly-agreed-to reforms to solve persistent ACH problems. Id. at 21. In September 2015, the NCUA determined, however, that the HOPE FCU was not complying with its obligations as laid out in the letter, and issued a preliminary warning letter accordingly. Id. In light of continued failures to comply, the NCUA placed the HOPE FCU into conservatorship in October 2015, and on November 20, 2015, the NCUA liquidated the HOPE FCU, finding the credit union to be insolvent. Id. at 21-22.

         In short, the Government alleges that, in return for the receipt of bribes from members of the Collectables Club, Gross breached his fiduciary duties, and that those breaches resulted in the financial deterioration of the HOPE FCU. Id. at 25-26. Seeking to prove this version of events, the Government moves to admit testimony and records pertaining to the NCUA's examination of the credit union.

         2. The contested NCUA documents

         The Government has not specified what NCUA testimony it seeks to introduce. It has, however, moved to admit six records into evidence which, collectively, chronicle much of the NCUA's investigation of the HOPE FCU. See Dkt No. 191, Exs. F-K.[7]

         First, the Government seeks to admit the "Document of Resolution, " a "risk-focused examination report" of the HOPE FCU prepared by the NCUA for the period ending March 31, 2014, and provided to the HOPE FCU on October 27, 2014. Dkt. No. 191, Ex. F, at 42478; Gov't Motions in Limine at 20. The Document of Resolution notes that the NCUA is concerned "with [the HOPE FCU's] Field of Membership, " and observes that members of the Collectables Club do not meet the residency requirements necessary to qualify for the Board. Id. at 42483-84. The document further includes an extensive financial history of the HOPE FCU dating back to 2011, see Id. at 42491-50, as well as assessments by the NCUA of the HOPE FCU's level of risk across multiple subject areas, including "compliance risk, " "strategic risk, " "reputation risk, " "credit risk, " and "transaction risk, " id. at 42484-86, and sets of "supporting facts" for each of these assessments, id. at 42488. The Document of Resolution ends with "corrective action[s]"- prescriptions which the document indicates, in its preamble, "are normally negotiated" with the credit union. See Id. at 42480, 42487.

         Second, the Government seeks to admit a "Letter of Understanding and Agreement Issued by and between the [NCUA and the HOPE FCU]." Dkt. No. 191, Ex. G, at 42111 (hereafter "Letter of Understanding"). The Letter of Understanding is dated March 25, 2015, and "sets forth significant regulatory violations and unsafe and unsound practices identified by NCUA as a result of its follow-up examination of HOPEFCU (sic)" on December 31, 2014. Id. In particular, the letter concludes that "ACH policy and procedures are inadequate for complex transactions, " finds that the HOPE FCU has committed a number of "regulatory violations, " and prescribes a set of corrective actions that the HOPE FCU must take. Id. at 42112-15. The letter is signed by, among other members of the Board, Trevon Gross. Id. at 42115.

         Third, the Government seeks to admit a September 23, 2015, "Preliminary Warning Letter to the Officials of [HOPE FCU]." Dkt. No. 191, Ex. H, at 42109 (hereafter "Preliminary Warning Letter"). The Preliminary Warning Letter concludes that the HOPE FCU "is operating in an unsafe and unsound manner, necessitating substantial and immediate corrective action." Id. It notes that "[t]he credit union has restarted ACH processing for business accounts without NCUA approval, " and avers that "due diligence maintained on [HOPE FCU's] Third Party Payment Processor's customers is inadequate." Id. The letter also notes that the NCUA is aware of the criminal investigation into Coin.mx: "In addition, NCUA is reviewing the criminal charges and evidence related to the Collectables Club to determine what, if any, additional risks may be posed by the role of HOPE in the investigation." Id.

         Fourth, the Government seeks to admit an "Order of Conservatorship" issued on October 15, 2015. Dkt. No. 191, Ex. I, at 52271. The order provides notice to the HOPE FCU of the NCUA's decision to take possession and control of the credit union. Id. The document "incorporate[s] ... by reference" the summary of facts contained in the fifth exhibit, the "Confidential Statement of Grounds for Conservatorship, " Dkt, No. 191, Ex. J, and further states that as "grounds for conservatorship, " "the NCUA Board has determined that conservatorship is necessary to conserve HOPE'S assets, to protect the interests of its members, and to protect the [NCUA] Share Insurance Fund, " Id. at 52273.

         Fifth, the Government seeks to admit the "Confidential Statement of Grounds for Conservatorship." Dkt. No. 191, Ex. J, at 52264 (hereafter "Confidential Statement of Grounds"). In the Confidential Statement of Grounds, the NCUA provides an extensive narrative summary of its reasons for placing the HOPE FCU into conservatorship. The narrative covers a period of time spanning over a year and lists as grounds for conservatorship many of the facts that the Government seeks to prove at this trial, including that Gross "solicited and accepted payments to himself and his church in exchange for relinquishing control of the credit union to the Collectibles Club, " id. at 52265, that the "Collectables Club [was] a sham front-company .... [organized] to evade detection of [an] unlicensed Bitcoin exchange business, Coin.mx, " id., that Gross "took no action to prevent the [Collectables Club] Board members from operating the credit union in an unsafe and unsound manner by engaging in excessive, uncontrolled ACH transactions, " and that Gross took numerous actions to avoid NCUA scrutiny, id. at 52265-67. The document further chronicles the "deterioration of HOPE [FCU's] financial condition" throughout 2015, and observes that "[c]ertain of [Gross's] activities are the subject of a criminal investigation." Id. at 52267. Throughout the Confidential Statement of Grounds, the NCUA describes evidence from an administrative record, and explains how inferences from this evidence support the NCUA's ultimate factual conclusions. See, e.g., Id. (noting, inter alia, that "[e]vidence in the administrative record supporting this action demonstrates that Gross conspired with[, among others, ] Michael and Anthony Murgio" to deceive the NCUA, and providing the NCUA's "interpretation]" of various pieces of evidence).

         Finally, the Government seeks to admit a subsequent "Order of Liquidation, " issued on November 20, 2015. Dkt. No. 191, Ex. K, at 52225-27. In the order, the NCUA "finds [HOPE FCU] insolvent, " as the term is defined in NCUA regulations, and involuntarily liquidates the HOPE FCU. Id.

         B. Discussion

         As an initial matter, though the Government seeks to admit both testimony of NCUA examiners and the specific NCUA records it describes, Gross avers in his opposition that he lacks the necessary information to oppose, at this time, admission of the testimony. Gross Opp. at 1 (stating that he "does not have sufficient information at this time ... to object to the admission of testimony of NCUA examiners who made personal observations during their examinations of [HOPE] FCU in 2014, and reserves the right to make further motions when their statements are disclosed"). In light of Gross's position, the parties do not greatly debate the admissibility of the hypothetical testimony. As such, the Court denies the motion to admit the testimony at this time without prejudice to its subsequent renewal.

         The Government, further, does not argue that any of the records should be admitted for any purpose other than the truth of the matters asserted. The only question presently before the Court, then, is whether the delineated records of the NCUA's examination, conservatorship, and liquidation of the HOPE FCU are admissible for their truth.[8]

         Gross argues that the NCUA records are not admissible for two reasons: first, that they contain inadmissible hearsay, and second that, in any event, admission would be unduly prejudicial under Federal Rule of Evidence 403. Gross Opp. at 1-11. The Government responds that the records, though hearsay, are admissible under both the public records hearsay exception, see Fed. R. Evid. 803(8), and the business records exception, see Fed. R. Evid. 803(6). It further argues that, if admissible, the records need not be excluded under Rule 403.

         The Court agrees with Gross. For the reasons that follow, the Court finds that the NCUA records may not come under either Federal Rule of Evidence 803(8) or Rule 803(6). In the alternative, the Court also holds that, even if admissible under either ...


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