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`Case 1:13-cv-06326-WHP Document 723 Filed 05/19/17 Page 1 of 82
`H53VPREA
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`1
`
`UNITED STATES DISTRICT COURT
`SOUTHERN DISTRICT OF NEW YORK
`------------------------------x
`
`UNITED STATES OF AMERICA,
`
` v. 13 CV 6326 (WHP)
`
`PREVEZON HOLDINGS, ET AL,
`
` Defendants. ARGUMENT
`
`------------------------------x
`
` New York, N.Y.
` May 3, 2017
` 5:17 p.m.
`
`
`Before:
`
`
`HON. WILLIAM H. PAULEY III,
`
`
` District Judge
`
`
`
`APPEARANCES
`
`
`
`JOON H. KIM,
` Acting United States Attorney for the
` Southern District of New York
`PAUL M. MONTELEONI
`CRISTINE I. PHILLIPS
`TARA M. LaMORTE
` Assistant United States Attorneys
`
`QUINN EMANUEL URQUHART & SULLIVAN
` Attorneys for Defendants
`BY: ADAM M. ABENSOHN
` FAITH E. GAY
` KEVIN S. REED
` RENITA SHARMA
` CORY STRUBLE
` -AND-
`NATALIA VESELNITSKAYA
`
`
`
` SOUTHERN DISTRICT REPORTERS, P.C.
` (212) 805-0300
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`Case 1:13-cv-06326-WHP Document 723 Filed 05/19/17 Page 1 of 82
`H53VPREA
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`1
`
`UNITED STATES DISTRICT COURT
`SOUTHERN DISTRICT OF NEW YORK
`------------------------------x
`
`UNITED STATES OF AMERICA,
`
` v. 13 CV 6326 (WHP)
`
`PREVEZON HOLDINGS, ET AL,
`
` Defendants. ARGUMENT
`
`------------------------------x
`
` New York, N.Y.
` May 3, 2017
` 5:17 p.m.
`
`
`Before:
`
`
`HON. WILLIAM H. PAULEY III,
`
`
` District Judge
`
`
`
`APPEARANCES
`
`
`
`JOON H. KIM,
` Acting United States Attorney for the
` Southern District of New York
`PAUL M. MONTELEONI
`CRISTINE I. PHILLIPS
`TARA M. LaMORTE
` Assistant United States Attorneys
`
`QUINN EMANUEL URQUHART & SULLIVAN
` Attorneys for Defendants
`BY: ADAM M. ABENSOHN
` FAITH E. GAY
` KEVIN S. REED
` RENITA SHARMA
` CORY STRUBLE
` -AND-
`NATALIA VESELNITSKAYA
`
`
`
` SOUTHERN DISTRICT REPORTERS, P.C.
` (212) 805-0300
`
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`Case 1:13-cv-06326-WHP Document 723 Filed 05/19/17 Page 2 of 82
`H53VPREA
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`(Case called)
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`THE COURT: We have a large agenda this afternoon and
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`I appreciate counsel's accommodation to start at this hour,
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`given the fact that I have a jury trial that's ongoing at the
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`moment.
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`By my count, there are 14 motions in limine. I want
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`to move through all of them and resolve as many of them as I
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`can this afternoon so that the parties will be informed
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`regarding the trial in this case.
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`Second, and just by way of housekeeping, the jury
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`clerk informs me that there are a large number, at this moment,
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`of criminal cases scheduled for jury selection on May 15.
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`Civil cases by custom take a back seat to jury selection in
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`criminal cases.
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`My experience tells me and the advice of the jury
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`administrator -- who I trust very dearly -- tells me that we
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`all might be better off if we selected our jury on Tuesday, May
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`16, and started the trial on Tuesday, May 16. The jury
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`administrator assures me that I will have a fresh panel. I
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`would not move to Tuesday if I was going to get rejects from
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`Monday. But it will be a fresh and animated panel. So unless
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`things change materially, plan on jury selection on Tuesday,
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`May 16. We'll save ourselves a lot of aggravation, because
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`otherwise we'll be sitting around into the afternoon waiting to
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`get started.
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`Case 1:13-cv-06326-WHP Document 723 Filed 05/19/17 Page 3 of 82
`H53VPREA
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`All right. So, as I say, we have a lot of motions in
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`limine. You can be assured that I have reviewed all of the
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`parties' submissions on these motions. I'll say no menial
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`task. Therefore, I want to move through them. You can advance
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`arguments that you think need to be amplified, but let's not
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`reinvent the wheel; you don't have to tell me what's in your
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`motion papers.
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`I'm going to turn first to Prevezon's motions in
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`limine. Let's start with motion in limine No. 1, evidence
`
`gathered through the criminal investigation and the MLAT
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`process.
`
`MR. ABENSOHN: Thank you, your Honor.
`
`Adam Abensohn for Prevezon.
`
`I will say, your Honor, this is the time of day that
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`I'm usually napping at my desk, so I'll do my best to stay up
`
`for the Court.
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`Thirty-five years ago, your Honor, the Supreme Court
`
`held that the government cannot use its grand jury powers for
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`purposes of obtaining evidence for use in a civil case. That
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`was the holding in United States v. Sells, which is cited
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`prominently in our papers.
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`The government spends a lot of time in its briefing
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`arguing about whether Sells remains good law, what the
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`effective rule change may or may not have been; but, at the end
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`of the day, the government acknowledges that the core holding
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`Case 1:13-cv-06326-WHP Document 723 Filed 05/19/17 Page 4 of 82
`H53VPREA
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`4
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`of Sells continues to apply.
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`THE COURT: There's not any per se rule or categorical
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`rule, is there, that says the government may not use evidence
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`obtained from a grand jury investigation for a related civil
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`case?
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`MR. ABENSOHN: There is a categorical rule, your
`
`Honor, and I'm quoting the government, that the government may
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`not use grand jury process for the sole or dominant purpose of
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`using the information in a civil forfeiture case.
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`THE COURT: Do you believe that the government's
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`criminal investigation is a sham?
`
`MR. ABENSOHN: Your Honor, we don't have enough
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`insight to know outright if it's a sham, but we certainly know
`
`that they have used grand jury process for the specific purpose
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`of selecting evidence in this case. There is numerous indicia
`
`of it in the record, including a very straightforward
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`acknowledgment by the case agent, which I can read to your
`
`Honor. This is Special Agent Hyman, deposed on October 6,
`
`2015. He was asked the following question:
`
`"Did you issue grand jury subpoenas in this case?
`
`"A. Yes, we did."
`
`Now, that's about as direct as it gets. The
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`government was doing exactly what it says it's not entitled to
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`do, which is to use grand jury process to collect evidence for
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`use in a civil forfeiture action.
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`Case 1:13-cv-06326-WHP Document 723 Filed 05/19/17 Page 5 of 82
`H53VPREA
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`5
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`Now, there are other clear indicia of this all
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`throughout the government's briefing. I'm not going to go into
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`all of them for reasons your Honor has already alluded to,
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`given our agenda, but there's a few I think worth pointing out.
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`The government has this recurring theme, for instance,
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`that Agent Hyman didn't have enough time to prepare because of
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`gamesmanship by prior defense counsel that, in the government's
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`words, forced Judge Griesa to set an abbreviated schedule.
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`They raise that in their opposition numerous times; pages 2,
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`11, 12, 14.
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`Now, respectfully, that doesn't help the government's
`
`position because what the government is doing, in essence, is
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`not denying that they used grand jury process for purposes of
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`this case, they are offering an explanation as to why they did
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`it. They are saying, in so many words, Judge Griesa put it to
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`us in terms of the schedule, and this was our best option in
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`the difficult circumstances and limited time that we had.
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`Under Sells, however, your Honor, the government did
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`not have that prerogative; they had the option that we had or
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`any other civil litigant had, which was to use the standard
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`tools of civil discovery or to seek appropriate relief from the
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`Court. They didn't do that. They took it into their own hands
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`and they used grand jury subpoenas to collect evidence for this
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`case.
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`There was something else that struck me in the
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`H53VPREA
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`government's brief.
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`THE COURT: But isn't the standard that it be the sole
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`and dominating purpose?
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`MR. ABENSOHN: I think the word that the government
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`uses is "primary." And we'll live with "primary" because these
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`grand jury subpoenas were issued in this case. That was Agent
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`Hyman's statement. And I found it interesting in the
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`opposition papers when the government referred to the stay
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`period. They said, Well, the fact that we were issuing
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`subpoenas during the stay period shows that we were acting
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`independent of this action.
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`This is one of those instances where, in a sense, we
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`were all in the room; we were here when we were arguing about
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`whether the government could use the materials it generated
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`during the stay period in this case. And while the government
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`says in its brief now that it was aware of the possibility it
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`wouldn't be able to and it was essentially offering them to us
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`as an afterthought in discovery and it wasn't its primary
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`purpose, your Honor saw the tracing chart that the government's
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`expert in this case had developed around this new grand jury
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`discovery. And your Honor heard Mr. Monteleoni saying a
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`massive number of hours and resources were devoted in
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`generating that report and doing that analysis.
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`So what occurred in the stay period, your Honor,
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`respectfully, is not indicative of the government working
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`H53VPREA
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`7
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`towards some other end; it is fully consistent with what Agent
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`Hyman stated on day one, which is grand jury subpoenas have
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`been getting issued in this case.
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`The other observation I'll make about the government's
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`brief is what it doesn't say. It does not describe any
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`ordinary civil discovery by the government vis-a-vis third
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`parties, with the exception of a single Rule 45 subpoena. This
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`is a case with evidence being collected from dozens of third
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`parties, including numerous domestic banks, not more than one
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`subpoena under Rule 45, your Honor, all the rest collected by
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`criminal investigative tools. That is directly contrary to
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`what the Supreme Court addressed in Sells.
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`I'll quote the case.
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`"If government litigators in civil matters enjoyed
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`unlimited access to grand jury material, there would be little
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`reason for them to resort to their usual more limited avenues
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`of investigation. To allow these agencies to circumvent their
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`usual methods of discovery would not only subvert the
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`limitations and procedural requirements built into those
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`methods, but would grant the government a virtual ex parte form
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`of discovery."
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`That is what we had been operating under in this case,
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`your Honor. The government has had virtual ex parte discovery,
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`a single Rule 45 subpoena.
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`THE COURT: Is the standard for reviewing the
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`H53VPREA
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`propriety of MLATs in civil proceeding the same as the standard
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`for reviewing the use of grand jury subpoenas?
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`MR. ABENSOHN: Your Honor, I would argue under the
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`language I've just read from Sells that it certainly has a lot
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`in common, because the ultimate holding in Sells, one of the
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`three prongs of the decision, is that the government cannot
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`avoid the civil rules of discovery and resort to criminal tools
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`of discovery and, thus, place themselves on an unequal playing
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`field.
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`With respect to the MLATs, that's exactly what's
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`happened. Here, the government relies a lot on the presumption
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`of regularity to their criminal investigative matters.
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`I've already talked about Agent Hyman's testimony.
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`Let me talk about how blatant the use of the MLATs were for
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`purposes of this civil case.
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`In the government's opposition, they say repeatedly --
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`I have it at pages 1 and 15 -- that they were using the MLATs
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`in support of their criminal investigation. I want to read now
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`from the only MLAT that we've had access to, and that was the
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`MLAT that the government submitted to Russia. This is the
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`second sentence of the MLAT request:
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`"The United States Attorney's Office for the Southern
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`District of New York is litigating an in rem
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`nonconviction-based forfeiture action seeking the assets of
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`Prevezon Holdings."
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`H53VPREA
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`So, again, in the brief we were doing this in support
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`of a criminal investigation. On the face of the MLAT, we're
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`doing this in support of a civil forfeiture action. Your
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`Honor, this goes to the heart of what Sells was concerned
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`about. The government has essentially spent this entire
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`three-year period gathering its information, collecting its
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`documents through criminal processes, and virtually none of its
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`time doing it through civil processes. That eliminates
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`transparency from the defense standpoint; it eliminates all
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`variety of protection we would have through the use of Rule 45
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`and standard civil discovery procedures.
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`I'll turn to another very blatant admission. The
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`government has a footnote in its brief where it says
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`government-to-government legal assistance requests are a more
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`efficient means of obtaining evidence than The Hague
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`Convention. Here, again, the government is not disagreeing
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`that they relied on criminal process, they are explaining why
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`they did it: Because it's more convenient. That's what Sells
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`tells the government it can't do. It can't take the easy route
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`when it's supposed to live by the same strictures of civil
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`discovery rules that we live by.
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`THE COURT: Let me hear from Mr. Monteleoni.
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`MR. ABENSOHN: Of course, your Honor.
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`THE COURT: Thank you.
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`MR. MONTELEONI: Thank you, your Honor.
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`H53VPREA
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`I'm happy to answer specific questions that the Court
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`has, but --
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`THE COURT: What evidence have you gathered outside of
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`the grand jury process?
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`MR. MONTELEONI: What evidence have we gathered
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`outside of the grand jury process? Most of our evidence came
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`from voluntary provision from various third parties, including
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`the witness whose identity has now been unsealed, Nikolai
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`Gorokhov, who voluntarily provided us with information, just as
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`various parties have voluntarily provided the defendants with
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`information. We've gotten that when the defendants have deemed
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`appropriate. Voluntary provision obviously is not a Rule 45
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`subpoena; it's not something that can be objected to; it's just
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`an additional means of gathering evidence that is entirely
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`permissible in a civil case. So that's really where most of
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`the additional evidence that we've gotten has come from.
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`Additionally, there have been government-to-government
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`requests. Some have been under treaties, some have been formal
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`requests to countries such as Moldova, with whom there is no
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`treaty. However, the governments are entirely within their
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`rights to provide information on the basis of reciprocity,
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`their own sovereign decisions.
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`I think that it's actually very telling that defense
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`counsel is seeking to preclude wide swaths of information
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`that's been gathered from government-to-government requests
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`without any authority that actually addresses that.
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`Sells Engineering did not in any way address the MLAT
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`process; it actually didn't even create the rule that
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`defendants cited for, which is that the grand jury should not
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`be used for the sole or dominant purpose of other than
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`evaluating a proposed indictment.
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`What Sells Engineering concerned was the definition of
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`an attorney for the government and whether that included civil
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`attorneys within the Justice Department. That holding, the new
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`holding in Sells, was entirely superseded in civil forfeiture
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`cases by Section 3322(a) and FIRREA.
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`Sells doesn't have some broad principle that if
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`someone like Nikolai Gorokhov comes to us or if someone like
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`Leonid Petrov comes to the defendants, that they can't
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`voluntarily provide information.
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`It also doesn't stand for a principle that a sovereign
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`state, if faced with a request from the U.S. Government, cannot
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`decide whether or not to gather and provide that information.
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`Because that's what happens in each of the treaty requests and
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`in the nontreaty requests. There are terms of the treaties,
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`but the execution of them is left up to the sovereigns.
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`Whether a request is within the treaty or outside a treaty in
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`force or entirely outside of a treaty relationship, that's a
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`matter in between the sovereigns and it has to be resolved
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`sovereign-to-sovereign. To do otherwise would actually be to
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`read in suppression terms into the treaties that sovereigns
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`have created.
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`THE COURT: Do the specific MLAT treaties between the
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`United States and the countries that received MLAT requests in
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`this action specify whether the information is requested and
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`produced for criminal or civil purposes?
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`MR. MONTELEONI: It depends a little bit based on the
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`instrument and also the interpretation of what constitutes
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`criminal. It depends on the receiving nation.
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`In rem forfeiture actions are under sort of long
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`tradition quasi-criminal proceedings. So some countries can
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`interpret criminal requests to apply to them, some countries
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`don't interpret criminal requests to apply to them, but have
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`separate forfeiture-specific treaties and some don't have
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`forfeiture-specific treaties and may provide it or not based on
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`whether they want to, either with or without a treaty.
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`What the treaties that are at issue here all have is
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`nonsuppression terms. So what the defendants are actually
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`asking for is just modifications to all of the treaties. And
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`as the Second Circuit held in Romi, that deprives the
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`contracting parties, the states, of the terms that they
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`bargained for. And to do that here on the basis really of no
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`law in particular, is entirely inappropriate.
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`So we think that it's actually very clear-cut that
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`certainly there are restrictions on when you can use the grand
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`jury process, there are restrictions on when you can use other
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`forms of civil discovery; but there's not a general restriction
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`on getting something through proper means and then using it in
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`the case. And whether or not documents provided by foreign
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`sovereign were gotten through proper means is between the two
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`sovereigns. That's fundamental to the government-to-government
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`relationships. So there's no authority to disturb that; in
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`fact, the Second Circuit's ruling is to the contrary.
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`THE COURT: When did you begin issuing MLAT requests
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`to foreign countries in this case, before or after the Second
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`Circuit put the stay in place with respect to the
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`disqualification motion?
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`MR. MONTELEONI: The very first MLAT requests went out
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`shortly after the complaint and the restraining order made
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`public that we were taking action. That's where all of the
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`materials that are actually at issue here in this case are
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`from, are from MLAT requests that happened in the months
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`following the filing of the complaint and the restraining order
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`and the defendants becoming aware thereby of the investigation.
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`Additionally, once the stay was in place and certain
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`government personnel like me had a little bit more time, we did
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`additional requests to foreign sovereigns. We did additional
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`grand jury subpoenas. But the Court has already precluded all
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`of that just on grounds of coming outside of the discovery
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`period, so that's not at issue in this motion at all. It's
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`really just to the MLATs that began to be filed once the
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`complaint was filed.
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`THE COURT: Anything further?
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`MR. MONTELEONI: No, your Honor, not on this motion.
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`THE COURT: All right.
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`Anything further?
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`MR. ABENSOHN: Briefly, your Honor?
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`THE COURT: You can take it right from there where
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`you're standing. Just keep your voice up in a stentorian way.
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`MR. ABENSOHN: I will do my best. And I will look up
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`"stentorian" after today's conference, your Honor.
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`First of all, the Court asked whether there are
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`provisions in the treaties requiring that they be for criminal
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`investigative purposes.
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`I'm reading from the U.S. treaty with Estonia. It's
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`Article 1, No. 1: "The parties shall provide mutual assistance
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`in accordance with the provisions of this treaty in connection
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`with the investigation, prosecution, and prevention of offenses
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`in proceedings related to criminal matters."
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`The treaties provide for the reciprocal provision of
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`material in support of criminal investigations, your Honor, not
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`civil forfeiture actions, as the government put on the face of
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`the MLAT requests that it was providing to these countries.
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`Mr. Monteleoni talked about how it's up to the
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`sovereign what information to share. As between the
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`sovereigns, that may well be true. It may be up to the
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`sovereigns what information to share. But one sovereign, the
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`United States, has a separate obligation to a defendant in a
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`case. That's what Sells speaks to. The United States as a
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`sovereign has an obligation to play on a level field when it
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`comes to matters of civil discovery. That was the Court's
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`holding; that's the passage I read. Whatever any country was
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`permitted to do vis-à-vis the United States, the United States
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`was not permitted to end-run the rules of civil disclosure and
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`discovery by means of using criminal investigative tools.
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`Mr. Monteleoni told us the MLATs started going out
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`shortly after the complaint was filed. I will add that to the
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`list of clear indicia that these criminal tools were being used
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`for purposes of supporting this action.
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`Finally, Mr. Monteleoni started off assuring the Court
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`that most of the government's evidence was provided voluntarily
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`by third parties. I think that's great. It suggests an easy
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`solution here. Let's preclude the material that was wrongfully
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`obtained vis-à-vis grand jury and MLAT process, and apparently,
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`as the government sees it, it will still have plenty of
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`evidence left. We don't quite agree with that, but if that's
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`their assessment, we'd certainly invite as the appropriate
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`remedy the preclusion of this improperly obtained material.
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`Thank you, your Honor.
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`THE COURT: All right.
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`Mr. Monteleoni, is there any reason that you could not
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`provide the Court with an affidavit laying out the various
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`purposes for which the grand jury process has served and is
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`currently being used?
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`MR. MONTELEONI: No, your Honor. I'd be happy to.
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`When would you like it?
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`THE COURT: When can you provide it?
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`MR. MONTELEONI: Juggling a number of things, would
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`Monday be too late?
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`THE COURT: No. It's fine.
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`MR. MONTELEONI: Thank you, your Honor.
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`THE COURT: Look, I think it's necessary for me to
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`rule on this now.
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`So Prevezon's motion to exclude evidence obtained
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`through the grand jury process is denied.
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`The law in the Second Circuit regarding the use of
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`grand jury materials in an action unrelated to a pending
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`indictment is simple: "It is improper for the government to
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`use the grand jury for the sole or dominant purpose of
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`preparing for trial." United States v. Leung, 40 F.3d 577, 581
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`(2d Cir. 1994).
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`Although this proposition applies mainly in situations
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`where post-indictment grand jury evidence is used at trial for
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`previously-filed charges, it applies with equal force when the
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`grand jury process is utilized to build evidence in a civil
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`trial, especially where, as here, the underlying allegations
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`are substantially similar or may overlap with the possible
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`criminal case.
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`One of the principal risks associated with use of the
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`grand jury process is that it "threatens to subvert the
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`limitations applied outside the grand jury context on the
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`government's powers of discovery and investigation" in civil or
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`administrative settings. United States v. Sells Engineering,
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`Inc., 463 U.S. 418, 433 (1983).
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`But the Supreme Court in Sells did not categorically
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`prohibit evidence procured through the grand jury for use in a
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`civil case and the standard established by the Second Circuit.
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`The sole and dominating purpose of preparing for trial is not
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`inconsistent with Sells' admonishment. Indeed, absent that
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`improper purpose, "Evidence obtained pursuant to the grand jury
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`investigation may be offered at the trial on the initial
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`charges," or here, at a related civil forfeiture and money
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`laundering action. Leung, 40 F.3d at 581.
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`Because the presumption of regularity attaches to
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`grand jury proceedings, the defendant has the burden of
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`demonstrating that the government's use was improperly
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`motivated. Prevezon contends that a confluence of factors has
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`blurred and violated the line between the government's
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`litigation and this action and its criminal investigation.
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`Certain factors that the same AUSA is prosecuting this
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`action and conducting the grand jury investigation, that the
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`government appeared to issue grand jury subpoenas in criminal
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`MLAT requests shortly after the Court set an expedited
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`discovery schedule, and the government's failure to exhaust
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`many of the civil discovery tools available to it formed the
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`basis for Prevezon's motion.
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`But these factors, standing together, do not overcome
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`the presumption of regularity in grand jury proceedings and do
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`not convincingly establish that the government's sole and
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`dominating purpose for using the grand jury process was to
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`prosecute this civil action.
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`The government began the grand jury proceeding in
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`early 2013, issued grand jury subpoenas and MLAT requests
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`beginning around the same period, and continued the criminal
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`investigation during the Second Circuit's stay in this action.
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`To be sure, the government could perhaps have better
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`managed the optics of its investigation. Assigning the same
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`prosecutor to run the investigation and litigating this action
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`obviously raises concerns. But the appearance and timing of
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`the issues relating to the government's use of the grand jury
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`process, without more, cannot surmount the presumption of
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`regularity. A court must "take at face value the government's
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`word that the dominant purpose of the grand jury proceedings is
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`proper." United States v. Meregildo 876 F. Supp. 2d 445, 449
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`(S.D.N.Y. 2012).
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`The fact that the Second Circuit's stay effectively
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`removed the urgency of an imminent trial date, juxtaposed with
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`the government's continued grand jury investigation, eliminates
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`the concern that the government was improperly motivated to use
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`the expedited methods available to the grand jury to buttress
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`its evidence in this action.
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`However, in an abundance of caution and as a matter of
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`good practice, this Court, as I've already discussed with
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`Mr. Monteleoni, directs the government to submit an affidavit
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`explaining that the grand jury investigation was and is not
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`being conducted for the sole or dominant purpose of trial
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`preparation in this action. That affidavit should lay out the
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`various purposes for which the grand jury process has served
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`and is currently being used. United States v. Blech, 208
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`F.R.D. 65, 68 (S.D.N.Y. 2002).
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`Prevezon's motion to exclude evidence obtained through
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`the mutual legal assistance treaties fares no better and is
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`also denied.
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`First, the sole and dominant purpose standard
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`governing the government's use of the MLAT process is not the
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`same as its use of the grand jury process. "Nor should it be
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`extended to do so. The dominant purpose inquiry is a legal
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`standard that derives from the Court's special concern for the
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`grand jury... to ensure that the grand jury is not misused as a
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`device for trial preparation." United States v. Blech, 208
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`F.R.D. at 68.
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`By contrast, the MLAT is designed to provide a
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`procedure for securing assistance in connection with
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`investigations or court proceedings. Blech, 208 F.R.D. at 68.
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`While Blech did not concern exactly the same issue
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`here, it is instructive to the extent that it distinguished the
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`risks that are traditionally associated with misuse of the
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`grand jury process from those associated with the MLAT process.
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`In Blech, while the treaty between Switzerland and the
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`United States -- much like the treaties at issue in this
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`action -- was styled as one dealing with "criminal matters,"
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`the DOJ issued MLAT requests on behalf of the SEC for the
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`purpose of aiding a civil investigation into the underlying
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`misconduct. This does not mean that the MLAT process can be
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`used exclusively in civil actions prosecuted by the government.
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`After all, MLATs are primarily a criminal discovery device.
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`But so long as there is some criminal investigatory basis
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`underpinning the MLAT request, the government may also use
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`evidence obtained from that process to aid its prosecution of
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`any related civil claims.
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`Let's turn to Prevezon's motion in limine No. 2,
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`relating to Sergei Magnitsky.
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`MR. MONTELEONI: Your Honor, before we move on to
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`that, can I ask a clarifying question about the affidavit?
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`THE COURT: Yes.
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`MR. MONTELEONI: May I be permitted to submit it to
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`the
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