Coercion Boundary Pushed in Bond Fraud Case
Orrick's Gregory Morvillo, in motion papers and before the court, argued that's the very kind of misconduct assistant U.S. attorneys committed against his client.
March 06, 2018 at 10:08 PM
6 minute read
Coercion is easy enough to point to when it's physical—but can you prove it when it's psychological?
Orrick, Herrington & Sutcliffe partner Gregory Morvillo felt he had a good case to make.
Appearing before Judge Ronnie Abrams of the U.S. District Court for the Southern District of New York, Morvillo argued passionately that his client Michelle Morton suffered from psychological coercion at the hands of assistant U.S attorneys in the Manhattan office.
Morton, along with five co-defendants, is allegedly part of a fraudulent financial conspiracy with Jason Galanis, who has pleaded guilty in the case—his second fraud plea in as many years.
In 2016, Galanis pleaded guilty to securities fraud-related charges after secretly gaining control of a publicly-traded reinsurance business that he then, along with conspirators, manipulated the stock price of to defraud investors of as much as $60 million—all despite being under a ban by the Securities and Exchange Commission.
In the current case, prosecutors say the group, which range from Galanis' father to Morton, conspired to defraud investors and a Native American tribal entity of tens of millions of dollars.
In a motion to dismiss the indictment against her, Morton's legal team argued that she was little more than a pawn in Galanis' game. It was through the socially responsible investment firm Morton created that the allegedly fraudulent bonds issued by an Oglala Sioux Native American tribal entity being pushed by Galanis were first bought.
According to the motion, Morton, who is neither a lawyer nor an experienced financier, believed the bonds were a sound, prudent investment. It was only later, after more bonds were purchased as part of the acquisition of another financial firm, that questions about the questionable nature of the bonds were first raised.
Galanis would later plead guilty to his role in getting the tribal group to issue $63 million in bonds, from which he and the alleged co-conspirators worked together to help siphon off millions into accounts controlled by alleged Galanis associates.
Morton claims that, after she realized the bonds may not have been handled in a good-faith way, she went to a friend at the Financial Industry Regulatory Authority to find out who she should talk to.
It was at this point, Morvillo told Abrams on Tuesday during a hearing on the motion, that federal authorities began egregiously taking advantage of his client.
Morton was passed from the SEC to the FBI, where she was brought into contact with so-far unnamed assistant U.S. attorneys. According to her motion, Morton, who offered to provide whatever help she could, was under the illusion that she and the prosecutors were on the same side. The reality couldn't have been further from the truth.
During her first meeting, she was told she could have a lawyer, Morvillo told the court. But when she asked why she would need one, considering that she'd done nothing wrong, “she was met with silence.”
“They absolutely duped her into cooperating,” an impassioned Morvillo stated.
Prosecutors would, according to Morvillo, proceed to take great liberties with Morton, who he said believed she was simply doing the right thing. She allowed them access to her phone, providing a trove of texts between her and Galanis. She willingly allowed calls with Galanis to be recorded. She even went so far as to wear a wire to meetings with defendants—meetings Morvillo stated were the very interactions the government referenced in the charges against her.
Not once, Morvillo said, did prosecutors alert her to the fact that she faced criminal exposure. At one point she was told she was a subject in the investigation, but authorities downplayed the implication, saying most people fell into that category and that she was far closer to witness status, according to her attorney.
At one point the line assistants went so far as to give her legal advice, after she asked what she should do about the bonds, according to Morvillo. The prosecutors told her not to try and unload them “because she could be perpetuating a fraud.” It was, she claims, the first time she realized the bonds themselves were potentially toxic, not just Galanis.
The government offered her no proffer, failed to alert her that she needed an attorney and continued to “mislead her, pretending she was on Team America,” Morvillo told the court. Judge Abrams then asked where in the law such tactics were forbidden.
Morvillo acknowledged that the case law surrounding allegations of coercion clearly focused on the physical kind but argued there was a cultural “paradigm” shift in understanding that both psychological and physical coercion can occur. As proof, he pointed to the awareness growing out of the #MeToo movement and the uproar over revelations that President Donald Trump's chief of staff discounted abuse allegations against an aide because the claims were of “emotional abuse.”
Assistant U.S. Attorney Rebecca Mermelstein, who is on the team handling the case for the government, provided a spirited defense for her colleagues. She doubted that what was allegedly said by the prosecutors, as presented by Morvillo, was in fact how things occurred but that the intent certainly was not to dupe the defendant.
“That's just not what happened,” she said.
Movillo noted in response that the government previously had the opportunity to provide affidavits as to what occurred but did not.
“They had their chance, and they blew it,” he said.
Ultimately, Abrams found there simply is no basis in the law to dismiss the indictment, as the actions by the government “did not arise to the level of misconduct” necessary for the admittedly harsh action. She would also go on to deny a request to suppress evidence against Morton gathered while she was helping prosecutors. A decision on severing Morton and other defendants' cases was reserved by Abrams.
The trial for the five remaining defendants is set to begin April 30.
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