Federal Judge Slams FBI, Prosecutors For Misconduct in Bribery Case

FBI Seal

Forbes on December 6, 2011 released the following:

“Daniel Fisher, Forbes Staff

A friend in Texas sent me this scorching ruling by a federal judge in California, throwing out the Foreign Corrupt Practices Act convictions of a couple of utility-equipment executives because of prosecutorial misconduct and downright false testimony by an FBI agent.

The 41-page ruling by U.S. District Judge Howard Matz in Los Angeles, issued Dec. 1, doesn’t spare criticism of anyone involved — including the judge himself. Stuck in the crossfire of prosecution and defense motions during the bitterly contested five-week trial, Motz says, he missed “the proverbial forest for the trees.”

“There were so many motions that it was difficult to step back and look into whether what was going on reflected not isolated acts but a pattern of invidious conduct.”

The facts against manufacturing executives Keith E. Lindsey and Steve K. Lee of Lindsey Manufacturing were ugly, but then doing business in Mexico often is. According to the Justice Department, the men were frustrated about losing a contract to state-owned Mexican utility Comisión Federal de Electricida, so they hired the middleman they suspected had helped a rival company win the business. That firm, dubbed Grupo in the indictment, was run by Enrique and Angela Aguilar.

Over time Lindsey paid Grupo $5.9 million in “commissions” at an eyebrow-raising 30% rate. Money from Grupo’s account was used to pay for a $297,000 Ferrari, a luxury yacht, and $29,000 in private-school bills to the benefit of some CFE executives. A Lindsey bookkeeper testified she changed the accounting entry for the commissions to 15% in what prosecutors said was evidence Lee knew Grupo was a front.

A jury convicted Lindsey, Lee and the company on all counts on May 10, with Assistant Attorney General Lanny A. Breuer crowing “Lindsey Manufacturing is the first company to be tried and convicted on FCPA violations, but it will not be the last.”

But then things turned ugly for the prosecution. In Matz’s retelling this is a case of the government turning a sketchy, circumstantial case into a convincing one by manipulating the evidence. Those private-school tuition payments above? The same prosecutor had earlier accused a Texas subsidiary of European manufacturing conglomerate ABB of paying them, a conflict the government shrugged off as inconsequential.

Defense lawyers smelled a rat in the way the government linked the ABB case to theirs. In the Texas case ABB paid $28.5 million in fines for routing bribes it dubbed a “Third World Tax” through another Aguilar-linked entity called Sorvill. The same prosecutor, Nicola Mrazek, was in charge of both cases.

The Feds indicted the Aguilars and arrested Angela when she was across the border in Texas. Then they indicted Lindsey and its top executives in October 2010, based partly on evidence obtained in a search of Lindsey offices. The search warrant included an affidavit by FBI agent Farrell Binder stating that Lindsey had paid Sorvill, the front company in the ABB case.

Oops. The defense later proved that statement was false, and after a long delay got its hands on the string of 14 draft affidavits showing the first 12 versions didn’t have that claim. Agent Susan Guernsey compounded the problem by testifying twice to a grand jury about the nonexistent payments to Sorvill, as well as saying Lee executives took suspicious actions in 2006 in response to an IRS audit they didn’t learn about until later. She also testified that “pretty much all” the money in the second Aguilar-linked company, Grupo, came from Lee when in an earlier affidavit she’d accurately pegged the amount at 70% (leaving room for somebody else to provide the cash allegedly used to bribe Mexican officials).

Defense lawyers pressed for the documents to back up their suspicions but only got them in April 15 of this year, 10 days into the trial.

Matz, in his decision throwing out the case, was especially harsh with Guernsey, saying her testimony “does not necessarily establish that she knowingly committed perjury. Perhaps she was sloppy, or lazy, or ill-prepared.”

“In the Court’s considered opinion, once the prosecutors secured the First Superseding Indictment and certainly by the time they were gearing up to present their case at trial, they concluded not only that Guernsey would be an exceedingly poor witness – – as she turned out to be – – but also that its investigation was terribly flawed.”

Matz didn’t go as far as to say the defendants were “entitled to a finding of factual innocence; they are not.” They are entitled to dismissal, he said, to relieve them from “further anguish and anxiety” — and teach the government a lesson.

The Supreme Court has ruled that prosecutors are not typical courtroom advocates but representatives “of a sovereign whose obligation to govern impartially is as compelling as its obligation to govern at all,” Matz said. “He may prosecute with earnestness and vigor – – indeed, he should do so. But, while he may strike hard blows, he is not at liberty to strike foul ones.”

“In this Court’s experience, almost all of the prosecutors in the Office of the United States Attorney for this district consistently display admirable professionalism, integrity and fairness. So it is with deep regret that this Court is compelled to find that the Government team allowed a key FBI agent to testify untruthfully before the grand jury, inserted material falsehoods into affidavits submitted to magistrate judges in support of applications for search warrants and seizure warrants, improperly reviewed e-mail communications between one Defendant and her lawyer, recklessly failed to comply with its discovery obligations, posed questions to certain witnesses in violation of the Court’s rulings, engaged in questionable behavior during closing argument and even made misrepresentations to the Court.””


To find additional federal criminal news, please read Federal Crimes Watch Daily.

Douglas McNabb and other members of the U.S. law firm practice and write and/or report extensively on matters involving Federal Criminal Defense, INTERPOL Red Notice Removal, International Extradition and OFAC SDN Sanctions Removal.

The author of this blog is Douglas McNabb. Please feel free to contact him directly at mcnabb@mcnabbassociates.com or at one of the offices listed above.

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