Executive privilege may block certain materials from discovery in a criminal campaign-finance case against two associates of Rudy Giuliani, said the lawyer for one of the two defendants at an arraignment in the U.S. District Court for the Southern District of New York on Wednesday.

Lev Parnas and Igor Fruman, two foreign-born associates of Giuliani who have been indicted in a scheme to violate U.S. campaign-finance laws, pleaded not guilty to charges of conspiracy and falsifying records in Manhattan federal court.

In an arraignment before U.S. District Judge J. Paul Oetken of the Southern District of New York, Edward Brian MacMahon Jr., a Washington, D.C.-based lawyer who represents Parnas, said that some materials included in what is expected to be "voluminous" discovery may be covered by executive and attorney-client privilege, given Parnas' relationship to Giuliani, the former New York City mayor who is serving as a personal attorney to President Donald Trump.

MacMahon confirmed in court that Parnas had been using Giuliani as his lawyer and had also worked for Giuliani, who has come under fire for his dealings in Ukraine.

"There have already been issues of executive privilege raised," MacMahon said. "These are issues we need to be very sensitive to," he said.

Giuliani, in media reports, has dismissed suggestions of wrongdoing in the matter and has not been charged.

Igor Fruman, left, an associate of Rudy Giuliani, arrives for his arraignment to the Southern District court in Manhattan on Wednesday, Oct. 23. Photo: Mark Lennihan/AP Igor Fruman, left, an associate of Rudy Giuliani, arrives for his arraignment to the Southern District court in Manhattan on Wednesday, Oct. 23. Photo: Mark Lennihan/AP

Assistant U.S. Attorney Rebekah Donaleski said that the Department of Justice was aware of the concerns and already had a "filter team" in place. As for executive privilege, she said, prosecutors would be open to further talks in private, but "now is not the forum to litigate that issue."

According to Donaleski, discovery materials would include returns from more than a dozen search warrants, including those for premises and social media accounts, as well as subpoena returns for more than 50 bank accounts.

Wednesday's arraignment marked the first time that Parnas and Fruman appeared in the U.S. District Court for the Southern District of New York since they were arrested earlier this month at Dulles Airport with one-way tickets to board an international flight.

Prosecutors have alleged in a four-count indictment that both men had conspired to funnel foreign money to candidates for state and federal office in order to buy political influence in the United States.

According to the indictment, they made a series of illegal donations to a pro-Trump super PAC and a former Republican congressman, and then worked to conceal the scheme from candidates, campaigns and federal regulators by laundering money through bank accounts in the names of limited liability companies and through the use of straw donors.

Both men are charged with two counts of conspiracy, making false statements to the Federal Election Commission and falsifying records. Both were released on a $1 million bond and agreed to home detention and GPS monitoring.

Two other co-defendants, David Correia and Andrey Kukushkin, pleaded guilty last week to one count of conspiracy and are currently out on bond. The next court date for all four defendants was set for Dec. 2.

The indictment did not mention Giuliani or allege that he had any involvement in their alleged crimes. Congressional impeachment investigators, however, are scrutinizing his dealings in Ukraine, and prosecutors in the Southern District are reportedly probing his connections with Parnas and Fruman.

John Dowd, a former attorney for Trump, has agreed to represent Parnas and Fruman in the impeachment inquiry. In an Oct. 3 letter to the House committees overseeing the inquiry, Dowd said that Parnas and Fruman had "assisted Mr. Giuliani in his representation of President Trump" and that both men had also been "represented by Mr. Giuliani in connection with their personal business affairs."

"Thus, certain information you seek … is protected by the attorney-client, attorney work product and other privileges," Dowd said.

MacMahon said after the hearing that Dowd's letter had invoked executive privilege on Parnas' behalf, but declined to comment further. MacMahon has made no formal assertion of executive privilege himself but emphasized that it may be implicated in the case against his client.

Joseph Bondy, another attorney for Parnas, told reporters after the arraignment that the case against his client was a "smear campaign, driven by self-serving and misleading leaks apparently from the highest levels of our government."

Parnas added that "many false things have been said about me and my family" and that he would ultimately be vindicated.

Fruman, who is represented by New York-based Todd Blanche of Cadwalader, Wickersham & Taft, did not address the media after Wednesday's arraignment.

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