LOS ANGELES, March 31, 2014 /PRNewswire/ -- The United States Attorney's Office in Los Angeles dismissed all criminal charges against Sherman Mazur and eight others in an alleged $30 million stock manipulation case. Bingham McCutchen LLP partners Nathan J. Hochman and Daniel A. Saunders and co-counsel Marc S. Harris of Scheper Kim & Harris LLP had argued to the court in a suppression motion and during a three-day evidentiary hearing that the government's deliberate or reckless misstatements and omissions in obtaining judicial authorization for wiretaps of Mazur's and others' telephones rendered all wiretap evidence inadmissible at trial. The government dismissed the case before the court had an opportunity to rule on the pending defense motion. Such a dismissal is extremely rare to occur post-indictment and after years of investigation and prosecution.
The dismissal of the 32-count indictment represents a major setback for federal prosecutors, who hailed the January 2013 indictment and the three-year FBI investigation that preceded it as having "dismantled a far-reaching stock market manipulation scheme run with ruthless efficiency." The defendants were accused of knowingly promoting valueless stock, which they allegedly later sold at a profit to over 20,000 investors in what is commonly referred to as a pump-and-dump scheme. The indictment alleged that various defendants gained control of the majority of the stock of publicly traded companies, often co-opting company management to assist in these efforts; concealed their control of the stock by purchasing and transferring shares to offshore accounts and to nominee entities; fraudulently inflated the prices and trading volumes of the companies' stocks through slick marketing campaigns, misleading press releases, payments to stock promoters, and "cross-trading" among co-conspirators that made it appear the stocks were being actively traded; coordinated the sale of the companies' shares at the peak of the fraudulently manipulated market; and hid profits in nominee and offshore accounts.
In their written and oral arguments to the court, Hochman and Saunders maintained that the over 25,000 hours of wiretapped telephone calls obtained by the FBI had to be suppressed because the government had intentionally or recklessly misled the district judge who issued the orders granting the wiretaps. Because the interception and recording of telephone calls is a significant privacy intrusion, the wiretap statute requires that the government provide the issuing judge with a "full and complete statement" as to the necessity for a wiretap, including whether or not other investigative procedures have been tried and failed, reasonably appear to be unlikely to succeed if tried, or reasonably appear to be too dangerous. Hochman and Saunders argued that the FBI agent who applied for the wiretaps had withheld key information from the issuing judge, including the fact that multiple suspects named in the wiretap application had previously cooperated with the government in similar cases and could therefore potentially serve as reliable informants in the current investigation. By concealing this information, which was undisputedly known to the FBI and to the United States Attorney's Office, the agent deprived the issuing judge of the ability to make an informed assessment of the need for the wiretaps. The United States Supreme Court has previously held that suppression of evidence is the appropriate remedy when a wiretap application intentionally or recklessly omits information that could influence the issuing judge's decision.
In the United States Attorney's Office's request for dismissal of the indictment, Assistant U.S. Atty. Robert E. Dugdale, Chief of the Criminal Division, cited unspecified "new information" that the government had recently learned and stated that "the government's failure to earlier learn of this new information and the resulting shortcomings in the wiretap affidavits, when considered cumulatively, have led the government to determine it will no longer seek to rely on evidence gathered through the wiretaps. Without this wiretap evidence, the government does not believe that sufficient evidence exists at this time to support a conviction against the charged defendants in this matter."
Hochman stated: "To obtain a valid wiretap, the government has to surmount the highest hurdles to get court permission for this very intrusive invasion into a citizen's privacy. We proved that the government failed to clear those hurdles on key issues, resulting in the government's wise choice to dismiss this case before the court ruled on our suppression motion. We are very happy that this ordeal is finally over for Mr. Mazur."
Mazur was released from the Metropolitan Detention Center immediately upon the dismissal after having been denied bail and held in pretrial detention since February 14, 2013.
The dismissed case is United States v. Sherman Mazur, et al., CR-13-00062-SVW. The case was dismissed on March 25, 2014.
SOURCE Bingham McCutchen LLP