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Mishandle a Fraud Search, and All That Fine Evidence Could Be for Nothing

posted Jun 27, 2017, 10:50 AM by Resty Manapat

A search conducted at a home or business can feel like a terrible violation of privacy. When a score of agents tramp through the premises taking just about everything that isn’t nailed down, the question is whether that comports with the Fourth Amendment’s protection “against unreasonable searches and seizures.”  

Judge Alison J. Nathan of the Federal District Court in Manhattan delivered a stern warning to prosecutors when she granted a motion by Benjamin Wey, a New York City financier, to suppress everything seized during searches of his office and home in 2012. The New York Times reported that the ruling, if upheld, could deal a significant blow to proving charges filed in 2015 accusing him of stock manipulation and laundering the proceeds from selling shares, because it is unclear what other documentary evidence the government has. 

Because the objects of the search are not easily identifiable like guns or drugs, the challenge in white-collar-crime investigations is to draft a warrant that is not so broad that it empowers agents to seize virtually any document or search every computer file because it might be related to nebulous misconduct. 

The Fourth Amendment requires that a warrant “particularly” describe the place to be searched and things seized. This requirement was a response to the aversion of the framers of the Constitution to so-called general warrants, used by the British before the American Revolution to conduct broad searches for goods imported without payment of the proper duties. 

When an investigation involves potential fraud, almost any document or record could be related to it. Prosecutors often need to show that transactions that appear to be legal were misleading or deceptive, which might not be apparent on the face of the documents. So the description in the warrant of what the government can seize in a white-collar case is usually quite broad, covering general categories of records and computer files created over a substantial period of time, but cannot be so vague that almost anything could be seized.  

The government obtained warrants to search Mr. Wey’s company, New York Global Group, and his New York City apartment for evidence that he used other companies and investors as part of a plan to manipulate the shares of companies used for mergers with China-based businesses. The warrants listed 12 categories of documents that related to transactions with 220 individuals and companies, including the seizure of computers and other electronic devices that might contain records related to them.  

The key to any warrant that covers so much material is to properly identify the specific crimes that were committed so that there is some limitation on what types of records can be seized. It was on this point that Judge Nathan found the warrant in Mr. Wey’s case had failed.  

The primary flaw was that while the affidavit submitted by an F.B.I. agent to a magistrate judge gave a reasonable description of the crimes under investigation, that document was not incorporated in the warrant, or even attached to it, to establish the parameters for the search.  

Because there were no apparent limits to what could be seized, the agents executing the warrants seemed to take just about everything they could get their hands on. In particular, Judge Nathan was troubled that agents took personal items with no apparent connection to the investigation, like X-rays of family members, children’s sports schedules, divorce papers, passports and family photographs.  

In finding that the search violated the Fourth Amendment, the judge pointed out that “failure to reference the suspected crimes would alone be enough to render the warrants insufficiently particularized.”  

The importance of including the crimes under investigation was highlighted in another recent case, involving the appeal of Ross W. Ulbricht, who once operated under the moniker “Dread Pirate Roberts.” He was sentenced to life in prison for helping set up and operate Silk Road, an anonymous online marketplace used to sell drugs and broker other illegal services. Crucial evidence came from his laptop, which was searched shortly after his arrest in a public library in San Francisco in 2013.  

The warrant allowed agents to open every file to view the first few pages of a document, and search terms could be used to scan the laptop’s entire memory. In upholding the search, the United States Court of Appeals for the Second Circuit in Manhattan pointed out that “files and documents can easily be given misleading or coded names, and words that might be expected to occur in pertinent documents can be encrypted; even very simple codes can defeat a preplanned word search.”  

While the description of what could be searched on Mr. Ulbricht’s laptop was broad, it was permissible under the particularity requirement of the Fourth Amendment because the affidavit outlining the crimes under investigation was incorporated into the warrant, providing the necessary limitations on what could be viewed. Although that meant a very intrusive search that could include many personal documents, the appeals court found that “such an invasion of a criminal defendant’s privacy is inevitable, however, in almost any warranted search.”  

Why did the government fail to meet this seemingly simple requirement of incorporating the description of the crimes under investigation in the warrant to search Mr. Wey’s office and apartment? There is no good explanation for that mistake, which led Judge Nathan to conclude that “the warrants are — in function if not in form — general warrants,” the death knell for any search.  

One way the government could have seized virtually everything from Mr. Wey’s business and home would have been to offer evidence in the warrant application that his operation was completely fraudulent. Courts recognize that if a company is thoroughly permeated by fraud, such as a boiler-room operation or a bogus prescription drug dispensary, then any records connected to it would constitute evidence.  

Although prosecutors made this argument to defend the seizure from Mr. Wey, they could not overcome two hurdles. First, this type of warrant is usually limited to a business rather than a home, at least unless there is substantial evidence that the home was really just an extension of the illegal operation. There was nothing in the warrant application involving Mr. Wey’s apartment that would indicate its primary use for that purpose, even though his wife assisted his advisory business from there.  

Second, Judge Nathan found that the government “did not set forth any evidence, explicit or implicit, that the scheme either constituted just the ‘tip of iceberg’ with respect to fraudulent activity” at Mr. Wey’s operation, or that the claimed fraudulent activity infused the entire business.  

Perhaps the ultimate fallback in any case involving a flawed search warrant is the claim that the agents acted in good faith. The exclusionary rule is designed to deter governmental misconduct, and the Supreme Court noted in United States v. Peltier that “where the official action was pursued in complete good faith, however, the deterrence rationale loses much of its force.”  

That exception does not apply when a warrant is so clearly flawed that no reasonable agent would rely on it. Judge Nathan found that the warrants did not have “any meaningful linkage to the suspected criminal conduct and limited only, at the outer boundaries, to some relationship to the owner/occupant of the premises being searched.” Therefore, a claim of good faith to salvage the fruits of an otherwise unlawful search could not be supported, so the exclusionary rule required suppression of all the evidence seized.  

I expect that the Justice Department will challenge the decision because the suppressed evidence is at the heart of the case against Mr. Wey. Although a defendant cannot appeal a denial of a suppression motion until after a conviction, the Criminal Appeals Act authorizes prosecutors to seek review of a decision granting such a motion so long as the United States attorney certifies that the appeal is not for the purpose of delay and the material would be “substantial proof of a fact material in the proceeding.”  

Judge Nathan’s decision sends a clear message to agents and prosecutors in white-collar-crime investigations to tread carefully when using a search warrant to gather evidence. Although a treasure trove of materials can be obtained this way, failing to pay attention to the details of properly writing and executing a warrant can have devastating consequences for a case.  


Source: The New York Times