Attorneys defending a former Merrill Lynch trader against wire fraud and other financial-crime allegations filed a motion Tuesday demanding that the government turn over evidence related to a Justice Department whistleblower’s recent allegation that DOJ fraud prosecutors routinely circumvent statutes of limitation by abusing the trust of federal judges.
The motion, filed by attorneys at the Chicago-based law firm Kobre & Kim and obtained by National Review, demands all “evidence of prosecutorial misconduct” exposed by former DOJ attorney Ankush Khardori, who resigned on January 31 after sending a memo to the DOJ Inspector General’s Office that cites the trader’s case as one in which these abuses occurred.
In the whistleblower memo, which was obtained by National Review, Khardori alleged that, in cases that would otherwise be curtailed by statutes of limitation, the DOJ’s fraud prosecutors are encouraged by their superiors to buy more time by filing unnecessary Mutual Legal Assistance Treaty (MLAT) requests. The requests are dispatched to foreign governments in order to compel the release of evidence that is relevant to the prosecution of a criminal case and can take months or years to elicit a response. They are typically regarded by judges as a sufficient reason to extend statutes of limitation.
The motion comes after prosecutors refused to turn over the MLAT request and the emails described in Khardori’s memo after the memo was first reported by the Wall Street Journal earlier this month. A DOJ spokeswoman declined to comment when asked why the government has refused to turn over the requested documents.
In the memo, Khardori specifically cites the prosecution of the previously mentioned Merrill Lynch trader — who were indicted for a price-manipulation tactic known as “spoofing” — as one of two cases in which he personally witnessed evidence of MLAT abuse.
The newly filed motion includes additional evidence that the underlying MLAT request was pretextual, which comes atop the emails and statements by top officials described in the memo. A previous round of discovery revealed that prosecutors in the “spoofing” case had already received “tens of thousands” of documents from U.K. banks before the MLAT request was filed. According to the motion, “there is no indication that the UK itself produced any documents in response to the 2016 MLAT request.”
After news of Khardori’s DOJ IG memo was broken by the Wall Street Journal, the Merrill Lynch trader’s attorneys demanded that the government produce the relevant MLAT request. The government refused, claiming the request was irrelevant since they were no longer relying on the MLAT. (Once Khardori sounded the alarm about the pretextual nature of the MLAT request, government prosecutors abandoned it as a justification for exceeding the statute of limitations and instead introduced a new charge: wire fraud, which carries a more expansive ten-year statute of limitations.)
“When push comes to shove, rather than provide a rationale, [the DOJ] came back with a one-line email that says we don’t believe you’re entitled to any discovery,” attorney David McGill, who represents the trader, told National Review.
McGill said that the new wire–fraud charge was based on a novel theory, although it has been upheld by the courts thus far. “It’s a purely metaphysical theory, because orders are just expressions of quantity, price, and direction. The government is saying that the order becomes a false statement based on what the trader is feeling in the privacy of his heart,” McGill said. “So, if the trader secretly wants to cancel the order before it’s executed, that somehow transforms a numerical expression of quantity and price into a false statement.”
While prosecutors pivoted to the wire-fraud charge once reliance on the MLAT became untenable, McGill claims their initial reliance on the MLAT caused harm to the defendants — despite the fact that prosecutors are no longer relying on it.
According to the attorneys, the harm done to the defendants by the initial MLAT request was two-fold: it caused a decisive witness to cooperate because he feared prosecution, when the underlying conduct should have been protected by the statute of limitation, and it extended the case to such an extent that the underlying trading data, which the attorneys claim would be exculpatory, became irretrievable. Legal experts say the lost trading data illustrates the importance of statutes of limitation in shielding defendants from frivolous prosecution, particularly in the case of financial crimes.
In addition to the MLAT request itself and the resulting “tolling order” issued by a judge extending the statute of limitations, McGill and his team are requesting the internal emails and other documents described in Khardori’s memo to the IG’s office.
Should a judge intervene, as McGill and his colleagues expect, the DOJ will be forced to turn over what Khardori and McGill believe to be evidence of wide-ranging abuse implicating the federal government’s top anti-fraud officials. The alleged abuse mirrors the misconduct exposed by DOJ IG Michael Horowitz’s report on the FISA abuses committed by the FBI’s Crossfire Hurricane team. In both cases, prosecutors exploited their information advantage relative to judges to impede on a defendants’ civil liberties.
While McGill’s primary concern is to address the harms allegedly done to his clients, he argues the court should be interested in investigating the underlying conduct to preserve the public’s trust in the government more broadly.
“If the fraud police are engaging in a fraud on the court in order to investigate other people for fraud, that’s a real problem,” he said.